The Real Cost of DIY HR (and Why Hire an Expert)

While it might seem cheaper to rely on DIY HR for your people operations or your next HR initiative, there are numerous hidden costs that can make it less practical than choosing a dedicated expert. Discover how this money-saving measure can end up costing you—and why hiring a fractional HR expert can be a better investment.

Why Some Businesses Do HR Themselves

HR is often the last function for businesses to build out. Often, that means they tap their finance leader or office manager to DIY human resources to help their back office keep running. Many choose to take this route as a cost-saving measure, which makes sense for a very small organization—after all, hiring an HR professional in-house or leveraging an external HR vendor to handle can seem expensive at first.

In other cases, businesses think their sole HR professional or HR team can manage to handle all their day-to-day HR work, new initiatives, and strategic thinking in-house, even as they’re growing. However, overstretching their HR causes tunnel vision and bottlenecks for small businesses, preventing them from achieving their workforce goals.

With labor accounting for up to 70% of total business costs, it’s critical that businesses understand the true costs of DIY HR.

Calculating the Business Costs of Key HR Metrics

We’ve put together a calculator to help you estimate the annual costs of common HR KPIs. This calculator is pre-loaded with average rates for each measurement.

Input yours to identify potential opportunities for improvement and savings.

Read further to understand the numbers behind the calculator above.

Understanding the Costs of Do-It-Yourself HR

Opportunity Cost

At many smaller businesses, the person handling HR needs often is a finance lead or administrative professional. They start out with the responsibility of managing payroll but often get more and more HR responsibilities added to their plate.

The impact of this responsibility creep is two-fold for growing businesses. One, the HR responsibilities take away time from those individuals’ best and highest use. Imagine how much faster your organization could go with a finance lead focused solely on finance and not people issues. Second, there’s a reason why there are degrees and certifications for human resources. Not only are non-HR professionals likely to miss opportunities to increase employee engagement and satisfaction, but they also don’t know what they don’t know about HR compliance rules and regulations.

For companies with an in-house HR professional or team, the opportunity costs of DIY HR come in the form of either bandwidth or expertise (or both). It’s easy for in-house HR specialists to get so focused on keeping up with day-to-day operations and hard to look up to see potential opportunities to help your team develop or grow.

Turnover

As any HR professional can tell you, turnover is extremely expensive—the cost of replacing an employee can range from 0.5x – 2x the employee’s annual salary.

That means replacing a single, $50,000 per year position, costs an organization $75,000 – $100,000.

When you factor in the average turnover rate in the U.S., a 100-person organization with an average salary of $50,000, could have turnover costs between $660,000 – $2.6 million per year.

Reducing turnover rates can have huge cost savings for an organization. But often, in-house human resources teams are already struggling as is. Pushing them to also reduce turnover on top of everything else they’re doing can be a recipe for burnout. And HR professionals currently have one of the highest turnover rates of any job function worldwide. Losing your HR team exponentially increases the turnover costs across the organization.

Hiring

There’s a balance to finding the right pace for the hiring process. If you go too slowly due to mishandling from your hiring team, it could cause the best candidates to get jobs elsewhere. This is because some of the most qualified candidates have multiple active job opportunities at any one time.

DIY HR also comes with a greater risk of potential bias in the hiring process. While every hiring manager would like to think they’re unbiased and can effectively find the best candidate, untrained personnel can unwittingly introduce their bias to the process, accidentally eliminating their most qualified candidates.

Onboarding

Onboarding and orientation are not synonymous. The first 90 days of employment are when you’re most likely to lose a new employee. This is especially true if your onboarding process is mismanaged and they aren’t able to get up to speed as quickly as your management needs.

Studies have shown it can take up to 12 months for an employee to become fully productive in their new role. Relying on DIY human resources and an ineffective onboarding process can make them take even longer to get up to speed—or worse, mishandle their onboarding altogether, leaving them in the dark. This can hurt productivity, causing your business to lose revenue it would’ve otherwise gotten if the employee was onboarded correctly.

HR Compliance Fines & Legal Fees

It’s challenging enough for a dedicated HR specialist to keep track of all the federal, state, and local HR regulations affecting your industry and business. However, if you do DIY human resources with someone who either isn’t an expert or is already overstretched with day-to-day operations, it could cost you dearly.

Fines for everything from tax notice mismanagement for employees paying child support to ADA penalties might not seem like much on their own. However, getting slapped with even one of these penalties can be devastating, especially for small businesses.

Legal Retainer Fees

To mitigate this potential, companies often rely on their legal counsel for DIY HR compliance. While consulting with your employment lawyer is important, starting with an HR compliance expert is substantially more cost-effective.

An average rate for an employment attorney can range from $300 – $1500 per hour.

They can guide you on easy-to-implement practices that significantly mitigate your compliance risk while also giving you guidance on when to reach out to legal counsel. So instead of racking up the bill every time you have an employee relations question, you only use your legal counsel when necessary.

Lawsuit Settlements

While most employee relations issues don’t result in a lawsuit or a settlement, they can be a nasty surprise for companies that handle all aspects of HR in-house.

The average cost of settling an employee lawsuit can easily reach $200,000, with legal fees alone costing around $75,000 and settlements ranging from $5,000 – $100,000. The closer the suit gets to a trial, the more costly it becomes.

In some cases, it could also cause other problems in the form of bankruptcy down the line.

Mishandled Projects & Bottlenecked Operations

It’s rare that anything comes off an in-house resource’s plate when they’re tasked with launching a new initiative. When it comes to HR, one of the functions with the highest burnout rate, this additional responsibility can be the straw that breaks the camel’s back.

A DIY HR project often costs a company double. On one side, it can cause a drag on day-to-day HR operations, which can quickly domino into compliance and legal issues. On the other side, it can lead to poorly planned and rolled out initiatives that leave employees disillusioned and disengaged.

This ripple effect of mismanaged or promised-but-never-implemented HR initiatives can be significant because of their impact on employee experience. Half-completed or rushed implementations not only can negatively affect productivity, they also suggest a company’s lack of commitment or investment in their people. This mismatch in stated values and actual practices can be a culture crusher and churn creator.  

How a Fractional HR Expert Can Help You Save (and Grow)

Fractional HR is a way of boosting your HR bandwidth and expertise—for a fraction of the cost of hiring or DIY-ing your HR. A reliable fractional HR company allows you to maximize healthy growth and focus on the projects your company needs while ensuring the day-to-day operations don’t suffer.

Here are some of the ways working with a fractional HR expert can help your business save money and grow.

Fostering Revenue Streams

Your onboarding and training processes are a “silent” revenue stream for your business. Done right, they can help your most talented employees become even more productive after hiring.

A fractional HR partner can help you streamline your orientation and onboarding processes. This in turn helps employees feel more supported during the early stages of their employment, allowing them to start producing for you earlier and more effectively.

Your fractional HR expert can also collaborate across departments to implement training programs that enable employees to be more productive, even if they’ve been at the company for years.

Attracting and Retaining Top Talent

When you work with a fractional HR leader, they’re able to better recognize the talent in candidates more easily than an in-house HR specialist might be able to. And with their additional bandwidth and optimized processes, they can move top talent quickly through your hiring pipeline to prevent your competitor from hiring them first.

They also know the best ways to attract that talent and keep them engaged and satisfied. In turn, this means better productivity and less burnout—and higher profits further down the line.

Enabling Initiatives for Lasting Change

Even if you have a dedicated, in-house HR expert, there’s a likely chance they don’t have the bandwidth or time to lead initiatives on top of their regular workload. Working with a fractional HR expert allows you to enable initiatives like cross-training or upskilling for your employees, making them more flexible and your entire business more agile in changing industrial conditions.

Increasing Overall ROI

Your labor is one of your biggest expenses. Investing wisely in your human resources function can have just as much, if not more of a return for any other function in your organization. By strategically outsourcing your HR initiatives or operations to a fractional HR team, you’ll be able to accelerate your organizational resilience and long term growth.

Invest in Your People—Hire the Fractional HR Experts

HR can be your greatest business asset for fostering growth, satisfaction, and a thriving culture. However, a fractional HR expert can take your department even further. Connect with us today to get started.