What size company needs an HR department?

People often ask: “What size company needs an HR department?” The answer isn’t a single number. It depends on your business goals, legal environment, and how much time you want to spend on people problems instead of growing the business. This blog post breaks the decision into clear, practical steps so you can pick the right path for your company — whether you’re a tiny startup or a fast-scaling firm.

Quick answer (TL;DR)

• 1–10 employees: No full-time HR required — founder-led HR or a part-time/outsourced solution usually works.
• 11–50 employees: Time to consider a part-time HR manager or outsourced HR for compliance, hiring, and policies.
• 51–150 employees: Strong case for a dedicated in-house HR professional (or small HR team).
• 150–500 employees: You’ll likely need a robust HR department covering recruiting, benefits, employee relations, learning, and compliance.
• 500+ employees: Definitely a full HR organization with specialized roles and leaders.

Keep reading for the why, the how, a practical checklist, and real-world tips.

Why HR matters — even for very small companies?

HR is more than hiring and firing. At its best, HR helps your company:

• Stay legally compliant with employment laws and avoid costly lawsuits.
• Attract and retain talent through thoughtful hiring, onboarding, and retention strategies.
• Create consistent policies so employees know expectations and managers act fairly.
• Protect managers and leaders from people problems that eat time and morale.
• Build company culture and employee engagement, which drives productivity and reduces turnover.

Even a small company can benefit from basic HR practices. The question is whether those practices need to be handled by a founder, a generalist employee, a part-time pro, or a full HR team.

The classic size-by-size breakdown (practical guide)

Below is a practical, real-world breakdown by company size. Use it as a starting point — adapt to your industry and legal context.

1–10 employees: founder or manager-led HR

Typical setup:

• No formal HR department.
• HR tasks handled by founder(s), office manager, or finance lead.

Why this works:

• Fewer employees means simpler payroll, benefits, and fewer compliance filings.
• Informal culture can work well early on.

When it's not enough:

• You hire employees across different states/countries (legal complexity).
• You’re growing fast and frequently hiring.
• A manager lacks HR experience and compliance tasks pile up.

What to do instead:

• Put basic HR processes in writing (onboarding checklist, simple employee handbook).
• Use an outsourced HR provider or part-time HR consultant for legal docs, payroll, and policy templates.
  
  

11–50 employees: time to bring in HR help

Typical setup:

• Part-time HR manager or HR consultant.
• Some companies hire an HR generalist or people operations manager.

Why this matters:

• More hires = more interviews, onboarding, and people issues.
• Employee questions about benefits, time off, and policies mount.
• Compliance risk increases with headcount and geographies.

Key responsibilities to cover:

• Recruiting and onboarding
• Payroll and benefits coordination
• Employee handbook and core policies
• Performance review process
• Basic training for managers

Options:

• Hire a part-time or full-time HR generalist if hiring is constant.
• Use outsourced HR (PEO/HR as a service) to handle compliance and benefits while you focus on growth.
  
  

51–150 employees: hire a full-time HR lead

Typical setup:

• At least one full-time HR manager or HR business partner.
• May start a small team for recruiting, benefits, and employee relations.

Why full-time HR helps:

• Administrative burden grows rapidly.
• You need consistent manager training, disciplined performance management, and stronger benefits programs.
• More channels for complaints and disputes — require structured processes.

Critical HR functions to establish:

• Talent acquisition team/process
• Structured onboarding and learning programs
• Benefit plan management and vendor relationships
• Employee relations and investigations
• HRIS (Human Resources Information System) for records

Tip: If growth is uneven, consider combining an in-house HR lead with outsourced support for payroll, benefits, or legal compliance.

150–500 employees: build a formal HR department

Typical setup:

• Multiple HR roles: recruiting, HR operations, benefits, learning & development, employee relations, HR analytics.
• HRBP(s) (HR Business Partners) aligned to departments or regions.

Why this is necessary:

• Complexity: multiple locations, managers, or product lines.
• Benefits programs become expensive and require expert negotiation.
• Legal, regulatory, and safety issues are more likely and more serious.

What to focus on:

• Strategic HR planning that ties people strategy to business goals.
• Leadership development and succession planning.
• Advanced HR analytics to track retention, hiring velocity, and engagement.
• Compensation strategy to stay competitive.
  
  

500+ employees: an HR organization is essential

Typical setup:

• Full HR function with specialists: talent acquisition, total rewards, learning & development, employee experience, HR technology, and HR operations.
• Senior HR leaders: CHRO/VP HR, Directors for each HR area.

Why you need this:

• Scale requires specialization and formal governance.
• HR becomes a strategic partner to executive leadership.
• Risks and costs of getting HR wrong become very high (lawsuits, turnover, compliance fines).

Expectations:

• Robust HR systems, clear KPIs, and leadership-aligned programs.
• Dedicated compliance/legal counsel for employment law and investigations.
• Employee experience programs to maintain culture across many teams.
  
  

Other important factors beyond headcount

Headcount is a great starting point, but several non-headcount factors can push you to hire HR earlier:

• Regulatory complexity: Hiring across states or countries increases legal obligations.
• Industry risk: Healthcare, finance, and construction often need earlier HR expertise due to safety and compliance rules.
• High growth rate: Rapid hiring creates administrative and cultural chaos fast.
• Employee profile: If you hire a lot of senior staff, contractors, or hourly workers, the HR workload changes.
• Unionization risk: If union activity is possible, you’ll want skilled HR and legal counsel sooner.
• CEO/founder capacity: If founders are busy building product, it’s smart to offload people ops early.
• Reputation and retention goals: If your brand depends on being a great place to work, invest in HR early.
  
  

Core HR functions you’ll need eventually

Whether in-house or outsourced, these are the core HR functions companies rely on:

• Recruiting and hiring — find and close candidates.
• Onboarding — make new hires productive and engaged.
• Payroll and benefits administration — accurate pay and good benefits.
• Employee relations — handle disputes, complaints, and investigations.
• Performance management — reviews, goal setting, and coaching.
• Compliance and legal — labor law, taxes, safety, documentation.
• Learning and development — training and career growth.
• HR technology (HRIS) — employee records, reporting, and automation.
• Compensation and total rewards — salary bands, bonuses, and perks.
• Culture and engagement — ensure employees feel valued and aligned.
  
  

Outsource vs. Hire: a simple decision framework

Many small and medium businesses choose outsourced HR (including PEOs and HR-as-a-service) because it’s faster and often cheaper than hiring. 

Here’s a simple framework:

Choose outsourced HR if:

• You want quick compliance and payroll setup.
• You need benefits access (health, retirement) without building a benefits team.
• You prefer predictable monthly costs.
• You need HR expertise intermittently or during growth spurts.

Choose in-house HR if:

• You need strong culture-building and performance management.
• You want HR closely aligned with business strategy.
• You have consistent, ongoing people needs and can afford the investment.
• You need immediate, local support for managers and employees.

Hybrid approach: Start with outsourced HR for admin and compliance, and hire one in-house HR lead to focus on culture, talent strategy, and manager coaching.

A practical checklist to decide now

Answer the following — if you check three or more, it’s time to add HR support (in-house or outsourced):

•  Are you hiring regularly (more than 5 hires/year)?
•  Do you operate in multiple states or countries?
•  Are you facing repeated employee issues or manager complaints?
•  Are your founders spending significant time on people problems instead of product/clients?
•  Do you need formal performance reviews and training programs?
•  Do you offer benefits that need vendor management?
•  Is your company growing fast (20%+ headcount growth in 12 months)?

If you checked 0–1: keep founder-led HR and standardize basic policies.
If you checked 2–3: get part-time HR help or outsourced HR.
If you checked 4+: hire a full-time HR professional or build a team.

How to build an HR team (step-by-step)

If you decide to hire HR in-house, here’s a simple roadmap:

1. Start with one hire: an HR generalist or HR manager who can cover recruiting, compliance, and operations.
2. Invest in HR tech: get an HRIS and applicant tracking system (ATS) to automate basics.
3. Create core policies: employee handbook, remote work policy, anti-harassment, and leave policies.
4. Add recruiting support: talent acquisition specialist or recruiter when hiring grows.
5. Add specialists as needed: benefits manager, L&D, compensation analyst, HRBP.
6. Measure and iterate: use simple KPIs (time-to-hire, turnover rate, engagement score).
7. Train managers: give managers the tools to lead people effectively. HR should coach, not do all people work.

Tip: Hire people who can scale with you — generalists with strong processes first, then specialists later.

Budget considerations — what does HR cost?

Costs vary widely by region, benefits, and company size, but consider:

• Part-time HR / consultant: Low monthly retainer — good short-term solution.
• Full-time HR generalist (entry to mid-level): Salary + benefits. Good ROI once you have sustained hiring or people issues.
• HR tech & tools: ATS, HRIS, payroll software — monthly subscriptions.
• Outsourced HR/PEO: Predictable monthly fees per employee (often worth it for benefits and compliance).
• Building HR team: Scale costs as you add specialists and leadership.

When calculating cost, include the time founders spend on HR tasks (this has real business opportunity cost). Often outsourcing early is cheaper than founders doing HR poorly and losing talent.

Common mistakes founders make about HR

• Waiting too long — letting small frustrations pile up into big morale problems.
• Thinking HR is only “hiring and firing” — HR prevents problems before they start.
• Ignoring compliance risk — misclassifying contractors, not filing required documents, or ignoring leave laws can be expensive.
• Hiring the wrong HR person — HR needs both systems skills and emotional intelligence.
• Underinvesting in manager training — managers drive the employee experience more than HR does.

Avoid these by being proactive: set simple policies early, document processes, and get outside help when needed.

Measuring HR success — simple metrics to watch

Track these basic, high-impact metrics:

• Turnover rate (monthly/annual)
• Time-to-fill (how long to hire for open roles)
• Offer acceptance rate
• Employee engagement score (pulse surveys)
• Time-to-productivity (how quickly new hires start contributing)
• Cost-per-hire
• HR response time (how quickly HR handles requests)

Use these to show HR’s value and guide where to invest next.

When HR becomes strategic?

At some point HR stops being a set of administrative tasks and becomes a strategic partner. Indicators you’ve reached that stage:

• HR influences hiring strategy tied to product or sales goals.
• People metrics are part of board or leadership conversations.
• You have programs for leadership development and succession planning.
• HR supports organizational design, not just paperwork.

That’s when you want senior HR leadership (e.g., Head of People, CHRO).

Real-world scenarios (short case studies)

Scenario A: Local coffee shop — 12 employees

• Needs: scheduling, payroll, basic handbook, safety.
• Best solution: part-time HR consultant or outsource payroll + a simple employee handbook.

Scenario B: SaaS startup — 35 employees, hiring aggressively

• Needs: recruiting process, onboarding, benefits, remote work policy.
• Best solution: in-house HR generalist + outsourced payroll/benefits.

Scenario C: Manufacturing company — 220 employees, multiple shifts

• Needs: safety programs, union risk management, benefits, training.
• Best solution: a full HR department with compliance and safety specialists.

These show how the type of work and risk affect the decision as much as headcount.

How outsourcing HR can bridge the gap?

If you’re not ready for a full HR hire, outsourcing gives you:

• Payroll and tax handling
• Access to benefits (group health plans)
• Employment law and compliance support
• HR documents and templates
• Scalable monthly pricing

This is perfect for many small and growing companies because it gives HR expertise without the overhead of hiring and managing HR staff.

Final checklist: Are you ready for HR?

If you answer yes to any of these, take action:

• Do managers spend more than 10 hours/week on HR tasks? Yes/No
• Are you losing hires due to slow processes? Yes/No
• Are you spending time on employee disputes or investigations? Yes/No
• Do you operate across more than one legal jurisdiction? Yes/No
• Is your company growing rapidly (20%+ headcount)? Yes/No

If you answered yes to one or more: consider hiring part-time HR, an HR generalist, or using an outsourced HR partner.

Recommendation: a practical HR partner to consider

If you want an easy, reliable way to get HR done without building a full team right away, consider Bambee. Bambee offers HR support tailored to small and medium businesses: they provide compliance help, policy templates, access to HR managers, and guidance on sensitive employee situations. 

For companies that want expert HR advice without the full-time hire, Bambee is a clear and practical option.

Closing thoughts — people are the business

At the end of the day, your people are your most important asset. Whether you’re 3 people in a garage or 3,000 across multiple countries, being intentional about how you manage and support employees pays off in productivity, retention, and business reputation.

If you’re not ready to build an HR department, there’s no shame in getting help. Outsourced HR can be a smart, cost-effective bridge while you grow.

Disclosure: Some of the links in this post may be affiliate links. This means if you click on them and make a purchase, we may earn a commission at no additional cost to you. We only recommend products and services we truly believe can add value to our readers, such as Bambee for HR support.