Should We Outsource HR or Hire In-House? How to Decide

Short answer: Outsource HR if you have fewer than about 75 employees, your HR needs don't fill a full-time role, or you need senior expertise you can't afford to hire. Hire in-house when people work truly fills 40 hours a week and you need someone on site every day. Many growing companies do both in stages: outsource first, then hire in-house as they scale.

Here's how to decide.

What "outsourcing HR" actually means

Outsourcing HR isn't one thing. It usually means one or more of these:

• A PEO for payroll, benefits and compliance administration

• A fractional HR director for part-time HR leadership inside your business

• An HR hotline for on-demand answers to HR questions

• Project consultants for one-time work like a handbook rebuild or a compensation study

The right mix depends on whether your gap is administration, leadership or both.

5 signs you should outsource HR

1. You have fewer than 75 employees and HR doesn't fill a full-time job

2. The owner is handling most people issues personally

3. You need senior HR judgment, but a senior salary doesn't fit the budget

4. You want flexibility to scale support up or down

5. You've never had HR and don't know what "good" looks like yet

5 signs you should hire in-house

1. People work fills 40 hours a week, every week

2. You need someone on site daily, such as for a large hourly or shift workforce

3. You have high turnover or constant hiring

4. You operate in many locations that need hands-on coordination

5. You've already built HR systems and need someone to run them full-time

The hybrid most growing companies land on

For companies with 10 to 75 employees, the most common setup that works is a PEO for administration plus a fractional HR director for leadership. As the company grows past 75 to 100 employees, many add an in-house HR coordinator or generalist, with the fractional leader guiding strategy until a full-time HR leader makes sense.

For a cost breakdown of each option, see Fractional HR vs. Full-Time HR vs. PEO: What Each Really Costs.

Questions to ask before you decide

• How many hours a week does the owner spend on people issues right now?

• What happened the last time a manager had to handle a hard conversation?

• When was the handbook last customized and reviewed?

• What's the growth plan for the next 12 to 24 months?

• If you have a PEO, are you using everything it includes?

Frequently asked questions

Is it cheaper to outsource HR?

For most companies under about 75 employees, yes. You avoid a full-time salary, benefits and recruiting costs, and you pay for the expertise and hours you actually need.

What are the risks of outsourcing HR?

The biggest risk is outsourcing administration and assuming you've outsourced leadership. A PEO or hotline won't coach your managers or run your investigations. Make sure someone owns the people work.

Can I outsource HR and still have an in-house HR person?

Yes. Many companies pair an in-house coordinator with a PEO and a fractional HR director, so administration, daily support and strategy are all covered.

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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.