Deciding when to create a Human Resources (HR) department is one of the biggest operational choices a growing business makes. Too early and you may waste money. Too late and you risk legal trouble, low morale, or employee turnover. This blog post explains clear signs, practical milestones, and simple steps you can take to decide the best moment to add HR — plus what HR can realistically do for your company.
Why this matters (quick answer)?
You need an HR department when people issues start taking time, risk, or money away from your core business. In plain language: if employees, rules, or legal compliance are becoming a regular headache, it’s time to consider HR.
What HR actually does (short list)?
- Hiring & onboarding — find, screen, and get new hires productive quickly.
- Employee policies & handbooks — clear rules everyone can follow.
- Payroll and benefits coordination — make sure people get paid and benefits are managed properly.
- Performance management — reviews, coaching, promotions, and terminations done fairly.
- Compliance and risk reduction — keep you on the right side of labor laws and reduce lawsuits.
- Training & development — grow staff skills to match business needs.
- Culture & engagement — keep people motivated and reduce turnover.
If your business has none of the above handled well, employees notice — and so do customers and regulators.
Early-stage vs. growth-stage vs. mature companies
Not every company needs a full HR department immediately. Different stages call for different HR approaches.
Early-stage (1–10 employees)
- Often handled by founder(s) or an office manager.
- Focus: hiring the right first people, basic payroll, informal policies.
Growth-stage (10–100 employees)
- Problems multiply: recruiting volume, management training, inconsistent policies.
- This is the stage where a dedicated HR person or outsourced HR is usually valuable.
Mature (100+ employees)
- HR becomes strategic. Multiple HR roles (recruiting, learning & development, payroll, HRBP) are typically needed.
Clear signs you need an HR department now
If you have any of the following, consider creating an HR function immediately:
- Hiring demand is high and taking internal teams away from core work.
- Managers are inconsistent about raises, discipline, or promotions.
- You’ve had a close call or actual legal issue related to employment (wage, discrimination, termination).
- Employee turnover is rising and exit interviews aren’t improving retention.
- Payroll mistakes or benefits errors are regular.
- Managers ask for help with conflict resolution and you don’t have a neutral party.
- You plan to expand into new states or countries — laws differ and compliance gets complex.
- You want to improve diversity, equity, and inclusion (DEI) efforts but lack capacity.
- Your company culture needs consistent attention (onboarding, training, code of conduct).
If two or more of these apply, you’re probably spending more on friction than an HR hire would cost.
Practical thresholds (employee count, revenue, complexity)
Every business is different, but these commonly used benchmarks help with planning:
- 1–10 employees: HR handled by founder/office manager. Focus on hiring, basic payroll, and clear agreements.
- 10–30 employees: Consider hiring a part-time HR generalist or using outsourced HR services. Complexity increases: onboarding, performance reviews, and manager training matter.
- 30–75 employees: Strong case for a dedicated HR manager. You’ll likely need written policies, training programs, and a system for handling employee relations.
- 75–150 employees: Add specialists (recruiting lead, benefits administrator, L&D). Compliance work becomes heavier.
- 150+ employees: Full HR team with HR business partners, talent acquisition, compensation & benefits, L&D, and HR operations.
Those numbers are guidelines — if you operate in a highly regulated industry (healthcare, finance, childcare), you may need HR earlier.
Cost vs. value: is HR an expense or investment?
Short answer: Both. HR has a cost, but it prevents bigger losses.
Costs to consider: salary of HR staff, HR systems (HRIS/ATS/payroll software), legal or compliance costs, training budgets.
Value delivered: faster hiring, fewer compliance fines/lawsuits, lower turnover, improved productivity, better employee engagement.
For example, replacing a mid-level employee can cost 3–6 months’ salary in recruiting, onboarding, and lost productivity. Preventing even a few turnovers through better HR pays for the function.
Options for establishing HR
You don’t have to immediately hire a full team. Common options include:
1. Founder/manager-led HR
- Low cost.
- Works early on.
- Risk: inconsistent policies, limited capacity.
2. Part-time HR generalist
- Hires: a contractor or shared HR resource.
- Good bridge between early and growth stages.
3. Outsourced HR or HR-as-a-Service
- Pros: immediate expertise, predictable pricing, compliance support.
- Cons: may lack company-specific intimacy.
- Great for companies that want HR fast but don’t want to hire a full-time HR leader.
4. Full internal HR department
- Pros: deep integration, strategic partnership.
- Cons: higher fixed cost and hiring overhead.
You can combine approaches—start with outsourced HR while recruiting an internal HR leader.
How to structure your first HR hire?
If you decide to hire one HR person, consider this simple job structure:
Title: HR Manager or People Operations Manager
Core responsibilities:
- Recruitment and onboarding
- Employee relations and basic performance management
- Benefits administration (liaising with carriers or brokers)
- Policy development and handbook maintenance
- Compliance basics (posters, record-keeping, simple audits)
Skills to prioritize: communication, basic employment law knowledge, empathy, organization, and a willingness to build processes.
An HR generalist who can document processes and train managers is more valuable than someone with only administrative experience.
Must-do items when you spin up HR (practical checklist)
When you start an HR function, the following should be created or reviewed immediately:
- Employee handbook with clear policies (leave, remote work, code of conduct).
- Job descriptions for existing roles.
- Onboarding checklist for new hires (IT, payroll, first 90 days).
- Performance review process (frequency, criteria, documentation).
- Payroll & benefits setup and records management.
- Basic compliance documents (poster notices, I-9s in the U.S., or local equivalents).
- Termination checklist including final pay, benefits COBRA/continuation, and return of company property.
- Incident & complaint reporting process (who to notify, how to investigate).
- HR system selection (HRIS, ATS, payroll) — even a simple cloud tool helps scale.
Start with a “good-enough” approach and iterate — policies should be living documents, not final law.
HR tech: what you need first
You don’t have to buy heavy enterprise software at the beginning.
Focus on:
- Payroll system (essential): accuracy is non-negotiable.
- Applicant Tracking System (ATS) or even a simple shared spreadsheet for hiring.
- Document storage (secure place for employee files).
- HRIS (human resources information system) once you have 30+ employees.
Choose cloud tools that integrate (payroll ↔ HRIS ↔ benefits) so you reduce manual work.
Common mistakes companies make when starting HR
- Waiting too long. Reactive HR (only after incidents) costs more.
- Overbuilding processes for a tiny team. Keep policies simple and practical.
- Ignoring manager training. Managers are the front line of HR — equip them.
- Copying another company's handbook blindly. Policies must match your culture and legal environment.
- Treating HR as purely administrative. Done right, HR is strategic and improves performance.
When to outsource vs. when to hire in-house?
Outsource HR when:
- You need compliance expertise quickly.
- You don’t want to handle HR admin.
- You prefer predictable monthly costs.
- You want to test the value of HR before hiring.
Hire in-house when:
- You need a strategic partner embedded in your company culture.
- You need to run high-volume hiring internally.
- You want deeper coaching for managers and employees.
- You need frequent, tailored training and development.
Hybrid model: outsource compliance and payroll while keeping an HR manager focused on people strategy.
Measuring HR success (simple metrics)
Don’t measure HR only by cost. Some practical metrics:
- Time to hire — how long to fill open roles.
- Turnover rate — voluntary and involuntary.
- Offer acceptance rate — are your offers competitive/compelling?
- Employee engagement scores — regular pulse surveys.
- HR ticket resolution time — how fast HR addresses employee requests.
- Cost-per-hire — recruiting spend divided by hires.
Track a small set of meaningful metrics — 4–6 — and revisit them quarterly.
Real-life scenarios (short case examples)
Scenario A: 18 employees, high turnover
This company spends lots on recruiting and loses productivity when employees leave. A part-time HR generalist or outsourced HR could standardize onboarding and manager training, immediately reducing turnover costs.
Scenario B: 55 employees, inconsistent manager decisions
Managers give raises and promotions unevenly. A full-time HR manager to create pay band guidelines and a performance process will prevent legal risk and boost fairness.
Scenario C: 8 employees, founder overloaded
Founder spends hours on payroll and benefits. Outsourced HR for payroll and benefits administration frees the founder to focus on product and sales.
How to estimate the budget for HR?
Rough budgeting guidance (varies by location):
- Part-time HR or outsourced HR: $500–$3,000 per month.
- Entry-level HR hire: salary + benefits — often $45,000–$70,000/year in many markets.
- Experienced HR manager: $70,000–$120,000/year depending on region and industry.
- HR tech stack: $50–$500+ per month depending on tools.
Remember: these costs are often offset by savings from lower turnover, fewer legal issues, and faster hiring.
Quick checklist to decide today
Answer these yes/no questions. If you have 3 or more yeses, take action this quarter.
- Do managers spend excessive time on hiring or firing?
- Are payroll or benefits mistakes causing complaints?
- Have we had any legal or near-legal employment issues?
- Is turnover increasing or costly?
- Are managers asking for HR templates, coaching, or policy help?
- Are people unclear about roles, raises, or expectations?
If yes, start with either an HR generalist or an outsourced HR partner.
Implementation roadmap — first 90 days
Days 0–30: Assessment & quick wins
- Audit current people processes.
- Fix payroll/benefits issues.
- Create an emergency policy (code of conduct, anti-discrimination).
- Start documentation (job descriptions, onboarding checklist).
Days 31–60: Build processes & choose tools
- Implement simple HR tech (payroll + ATS).
- Draft an employee handbook.
- Train managers on basic performance conversations.
Days 61–90: Scale & measure
- Launch routine performance cycles.
- Start recruitment pipelines and employer branding.
- Define 4–6 HR metrics to track monthly.
Small wins early build trust and show value quickly.
FAQs (short answers)
Q: Can a company of 10 employees survive without HR?
A: Yes — but only if founders keep things organized and consistent. When founders get overloaded, it’s time to add HR support.
Q: What’s cheaper — hiring HR or outsourcing?
A: Outsourcing is usually cheaper short-term and faster. Hiring is an investment for deeper integration.
Q: Does HR handle payroll?
A: Often yes, but payroll can be outsourced separately to payroll providers if needed.
Q: Will HR slow us down with bureaucracy?
A: It can if policies are overcomplicated. Good HR removes friction, not creates it.
Red flags HR can prevent
- Lawsuits or labor claims. Proper record-keeping and policies reduce risk.
- Unfair pay practices. Structured compensation programs protect you.
- Toxic managers. HR can coach or remove leaders who damage culture.
- Benefits mismanagement. Errors here cost money and trust.
If any of these are already happening, HR isn’t optional — it’s essential.
Tips for leaders starting HR
- Start simple. One clear handbook beats ten vague memos.
- Document everything. Policies and records reduce ambiguity.
- Train managers early. Managers shape employee experience daily.
- Choose tools that scale. Look for systems that grow with you.
- Measure impact, not activity. Track outcomes like time-to-hire or turnover.
Final checklist — should you start HR now?
If you answered “yes” to any of these, take the next step this quarter:
- Are hiring needs increasing?
- Are managers spending too much time on people issues?
- Are you worried about compliance or legal risk?
- Is turnover impacting customers or revenue?
- Do you want to professionalize how people are treated?
If yes, consider hiring a part-time HR generalist or partnering with an outsourced HR provider while you build your internal capability.
Recommendation: consider Bambee for fast, compliant HR
If you want to stand up HR quickly without hiring an entire team, we recommend checking out Bambee.
Bambee specializes in providing dedicated HR managers for small and growing businesses, offering:
- A designated HR manager who becomes your company’s HR point person.
- Help building policies and an employee handbook.
- Ongoing compliance support and HR expertise.
- Predictable pricing that often costs less than a full-time HR hire.
For many companies in the 1–75 employee range, Bambee is a practical way to get professional HR support immediately while deciding whether to build an internal HR team later.
Closing thoughts
Deciding when to create an HR department is less about the exact headcount and more about the problems you’re facing. When people issues start consuming time, exposing you to legal risk, or pulling managers away from strategic work, HR pays for itself — often quickly. Start simple, measure impact, and pick the approach that matches your company’s culture and pace: in-house, outsourced, or a hybrid. If you want an efficient way to get HR expertise today, look into Bambee as a practical first step.
Disclosure: Some of the links in this post may be affiliate links. This means if you click on a link and make a purchase, we may earn a small commission at no extra cost to you. We only recommend products or services we truly believe add value to our readers — like Bambee, which helps small businesses simplify HR.