Fractional HR vs. Full-Time HR vs. PEO: What Each Really Costs
Short answer: A PEO is usually the cheapest way to get payroll, benefits and compliance administration, but it doesn't give you an HR leader. A full-time HR manager gives you a dedicated person, but is a large fixed cost. Fractional HR gives you senior HR leadership part-time, for a monthly retainer. Most growing companies with 10 to 75 employees get the best value from a PEO plus fractional HR.
Here's how the three options compare, what each actually costs, and when each makes sense.
The quick comparison
PEO: Handles payroll, benefits, workers' comp and compliance admin. Typically priced per employee per month or as a percentage of payroll. Does not manage your people.
Full-time HR manager: A dedicated employee inside your business. Salary plus benefits and payroll taxes. Capability depends on one person's experience.
Fractional HR director: A senior HR leader, part-time, on a monthly retainer. Strategy and hands-on people work, without a full-time salary.
What does a PEO cost?
PEO pricing is usually quoted either per employee per month or as a percentage of total payroll. Published industry guides put typical pricing around $40 to $160 per employee per month, or roughly 2% to 6% of gross payroll, with the per-employee rate falling as you grow. Benefits premiums are separate.
What you get for that: payroll and payroll taxes, access to larger-group benefits, workers' comp, compliance templates and alerts, HR software and an HR service team you can call for advice.
What you don't get: someone inside your business implementing any of it. I covered that gap in detail in Do I Still Need HR If I Have a PEO?
What does a full-time HR manager cost?
The U.S. Bureau of Labor Statistics reported a median annual wage of about $149,000 for human resources managers in May 2025. Smaller companies often hire an HR generalist for less, but then you're getting less experience. Either way, add benefits, payroll taxes, recruiting costs and the risk of a bad hire.
A full-time hire makes sense when you have enough people work to fill 40 hours a week, every week, and you need someone on site daily. For most companies under about 75 employees, that's not the case yet.
What does fractional HR cost?
Fractional HR is typically a monthly retainer sized to the work your business needs. You're paying for senior judgment and focused hours, not a full-time seat. There's no recruiting cost, no benefits, and you can scale up or down as the business changes.
The trade-off: a fractional HR director isn't in your office every day. For most growing companies, that's fine, because the work that matters most (coaching managers, handling investigations, building systems) doesn't require daily presence.
Which one is right for you?
Choose a PEO alone if you mainly need payroll and benefits handled, your owner has time for the people side, and things are running smoothly.
Choose fractional HR alone if you already have payroll and benefits handled another way and need HR leadership.
Choose a PEO plus fractional HR if you want competitive benefits and administration handled, plus someone owning the people work inside your business. This is the most common fit for growing companies.
Choose a full-time HR manager when the volume of people work truly fills a full-time role, usually somewhere past 75 to 100 employees.
The mistake I see most
Companies buy a PEO and assume they've "handled HR." Then the owner spends years absorbing everything the PEO doesn't do. Or they jump straight to a full-time hire before they need one, and pay a senior salary for work that fills half a week. Match the solution to the work.
Frequently asked questions
Is a PEO cheaper than hiring an HR person?
Usually, for administration. But a PEO and an HR person do different jobs. A PEO replaces administrative work; it doesn't replace someone managing your people.
Can I use fractional HR and a PEO at the same time?
Yes. The PEO handles administration and benefits, and the fractional HR leader handles everything that needs someone inside your business. They work well together.
At what size should a company hire a full-time HR manager?
There's no exact number, but many companies find the people work fills a full-time role somewhere between 75 and 150 employees, depending on growth, turnover and how many locations or states they operate in.
Not sure which gaps you have?
If you're on a PEO, take the free PEO Gap Check. It takes about two minutes and shows what's still landing on your desk.
UNTIL NEXT TIME,
Stacey
Stacey Dennis, SHRM-SCP, is the founder of Possibilities Unlocked, a fractional HR firm for growing companies. She spent nine years inside a publicly traded PEO before starting her firm.