Most small businesses do not have a dedicated HR person, and they do not start out needing one. Instead, line managers and owners handle hiring, pay, absence, and day-to-day employment matters themselves. As the business grows, or when a crisis hits—a first dismissal, a discrimination complaint, or a tribunal claim—the limits of managing HR without specialist knowledge become clear. That is when the choice between hiring an HR manager and buying outsourced support becomes urgent.
Why small businesses hesitate to formalize HR
The answer usually boils down to cost, time, and volume. A full-time HR manager is a significant salary, even at the junior level. Small businesses question whether the workload justifies the investment. In the early stages, it usually does not. Line managers cope by muddling through: they check handbooks, call Acas, ask other business owners, or fumble their way through a difficult conversation. It works until it does not.
The turning point comes when the stakes rise. An unfair dismissal claim, a disability discrimination complaint, or a succession of absences that the business handles inconsistently all become expensive and time-consuming. A tribunal claim can disrupt an entire small business; the owner and managers find themselves defending their decisions, often without the documentation to back them up. That is when the cost of getting HR right becomes apparent.
Typical triggers for hiring an HR manager
There is no magic number, but certain situations commonly prompt businesses to hire their first HR person.
Headcount and complexity. Once a business reaches 20–30 employees (roughly), the informal approach breaks down. There are too many conversations about pay, too many policy questions, too much to remember. Different managers handle similar situations differently. Consistency becomes harder.
First disciplinary case or dismissal. Businesses often hire an HR advisor or consultant at the moment they face their first formal disciplinary situation or need to dismiss someone. The owner realizes they do not know the procedure, the timelines, or the risks. Getting it wrong costs money and trust.
A tribunal claim or serious complaint. A discrimination complaint, an unfair dismissal claim, or a whistleblowing allegation forces the issue. The business needs evidence, procedures, policies, and expert guidance. An HR consultant is often brought in at this point, sometimes on an emergency basis.
Turnover and recruitment scaling. Some businesses reach a point where recruitment is constant. Managing job descriptions, adverts, applications, interviews, and onboarding across multiple vacancies becomes full-time work. An HR manager or coordinator makes sense.
Regulatory or compliance burden. Growth may trigger requirements for more formal policies—data protection, health and safety records, training logs, absence management, flexible working requests. The admin load grows faster than the payroll.
Models of outsourced HR support
Outsourced HR is not one thing. There are several models, and the right choice depends on what a small business needs and how much it can spend.
Ad hoc advice is the most flexible and cheapest. A business calls an HR consultant or pays for a single advisory session when a problem arises—a grievance, a redundancy, a difficult conversation, a policy question. There is no ongoing fee; the business pays only when it needs help. This suits early-stage small businesses and those with very occasional issues.
Retained services (also called a retainer) mean a monthly fee for a set amount of HR support. A local HR consultant or small firm might offer a half-day per week, availability for urgent calls, and help with policy review or training. The business knows the cost and has someone to call.
Fractional HR is part-time in-house hiring. Instead of hiring a full-time HR manager, a business employs someone for two or three days per week, or shares an HR professional with another small business. Fractional roles suit businesses that need HR presence and continuity but do not have enough work for a full-time person.
Outsourced payroll and specialist functions. Many small businesses keep HR informally in-house but outsource payroll, pension administration, and compliance. Specialists handle the detailed compliance and systems; the business retains HR culture and policy decisions.
What to look for in an HR provider
Not all HR advisors are equal. A small business should check several things before hiring anyone.
CIPD membership or equivalent qualification. The CIPD (Chartered Institute of Personnel and Development) sets professional standards for HR practitioners. A CIPD member—at Associate, Chartered Member, or Chartered Fellow level—has passed accredited training and subscribes to a code of conduct. This is not a legal requirement, but it signals competence and commitment to professional standards. Equivalent qualifications (such as Level 3 or Level 5 HR qualifications from other recognized providers) also count; the key is that the person has formal training in employment law, HR practice, and ethics.
Professional indemnity insurance. If the HR adviser makes a mistake—giving wrong legal advice, missing a deadline, failing to spot a compliance issue—professional indemnity insurance covers the cost. CIPD members have access to competitive professional indemnity insurance. If a consultant does not have it, ask why. It is not expensive and is standard in the profession.
Employment law support or backup. HR advisers should have access to current employment law resources and advice. Many CIPD members have access to employment law helplines (such as the helpline offered by Croner through CIPD membership) so they can consult on difficult questions without guessing. Some consultants work with employment lawyers for backup on complex issues. Ask an adviser how they handle questions outside their knowledge.
Experience and references. Ask for references or case studies from other small businesses in the same sector or size. What kinds of issues have they handled? Have they managed tribunals or complaints? Do they understand the business owner’s perspective and constraints?
Clarity on scope and limits. Some HR consultants offer broad support; others specialize (e.g., recruitment, payroll compliance, redundancy). Agree upfront what is in and out of scope. If the consultant cannot help with something, they should say so and point the business toward someone who can.
Acas support as a complement. Acas offers free and impartial advice to employers and provides training on discipline and grievance, management skills, and resolving workplace issues. Acas is not a substitute for an HR adviser, but it is a useful partner—many small businesses use both.
The real cost of getting HR wrong
A tribunal claim, even if the business wins, costs thousands in legal fees, manager time, and stress. Unfair dismissal awards often start at several thousand pounds. A discrimination award can run into tens of thousands. Procedural mistakes—dismissing someone without following fair process, failing to investigate a complaint, discriminating unintentionally—are easily avoided with expert advice upfront.
The alternative is insurance through experience. Many small business owners learn HR the hard way: they make mistakes, settle claims, and eventually hire someone to make sure it does not happen again. That is more expensive than hiring expertise in advance.
Key points
- Most small businesses start without dedicated HR staff; the need emerges gradually as headcount, complexity, and risk grow
- Common triggers for hiring HR support include headcount above 20, a first disciplinary case, a tribunal claim, or scaling recruitment
- Outsourced HR models range from ad hoc advice to retained services to fractional in-house roles; the right choice depends on business need and budget
- Look for CIPD-qualified consultants, professional indemnity insurance, employment law support, and clear scope
- Acas offers free training and advisory support that complements private HR advice
- The cost of a tribunal claim, discrimination award, or unfair dismissal settlement usually exceeds the cost of hiring good HR advice upfront
Related: Find HR support near you