Does My Small Business Need an HR Department?
Written by Law on Call Staff | Reviewed by Nathan Askins | Last Updated December 12, 2025
From hiring and managing finances to attracting customers and posting on social media, small business owners do it all. As your team grows, managing everything tends to get more complex. That’s where HR comes in.
But how do you know when it’s time for your small business to add a human resources department? Let’s find out.
Main Takeaways
- Growing your business means more hiring, training, and legal details to manage. A dedicated HR department can take that load off your plate.
- By the time your business gets to 10+ employees, you should start thinking seriously about HR.
- Think of HR as an investment in the future of your business. Whether you build your own HR department or outsource to a service, the right support can save time, prevent headaches, and help your business grow.
What Does hr Do?
Human resources, or HR for short, handles the people side of business operations. Everything from hiring (and firing), onboarding, payroll, training, and legal compliance. An effective HR team hires top talent, supports employees, ensures compliance, and builds a positive workplace culture.
Whether you started an LLC or formed a corporation, you’re not alone if you’ve yet to establish an HR department. Many small businesses go without HR teams initially, which often leaves management to handle those tasks alongside their other duties. An HR department can help fill this gap, making recruitment and workforce management more efficient, and keeping your business on the right side of regulations and the law.
Is HR required by law?
Having an HR department isn’t legally required. However, certain HR-related tasks are mandatory for every business. This includes maintaining employee records, following labor laws, handling payroll taxes, and ensuring a safe work environment.
pros and cons of hr departments
As your business grows and you hire more employees, deciding whether to add an HR department becomes important. Here we address some of the benefits, and challenges, small businesses might face when choosing to add a dedicated human resources team.
What are the benefits of having HR?
Here are the key benefits of a small business having an HR department:
Streamlined Hiring
An HR department manages recruiting, interviewing, and onboarding processes, ensuring you attract and retain qualified candidates. By standardizing hiring procedures, HR helps you fill roles faster and create a smooth start for new employees, which boosts productivity and engagement from day one.
Compliance and Risk Management
HR professionals stay up to date with local and federal labor laws, wage regulations, and workplace policies to protect your business from costly compliance errors or fines. They also ensure proper documentation and consistent application of policies, reducing risks such as workplace safety issues or potential employee lawsuits.
Employee Development
HR can support continuous learning through training programs, performance reviews, and professional development plans. This not only improves employee skills and efficiency but also makes your business attractive to top talent.
Improved Employee Retention
It’s expensive to hire and train new employees. A well-managed HR department helps create a positive workplace culture where employees feel valued, supported, and heard. By addressing concerns early and promoting engagement initiatives, HR helps reduce turnover and save the business money on hiring and training costs.
Time Savings
Delegating HR responsibilities allows business owners and managers to focus on building the business instead of administrative tasks like payroll, benefits, and employee issues.
What are the challenges of having HR?
Implementing HR policies or building out an actual department isn’t always easy. Here are some challenges you might face:
Limited Budget and Resources
HR isn’t cheap, and it may be scary for a small business owner to allocate resources to support a proper HR team.
Staffing and Expertise
Finding and staffing an internal HR department can be challenging. A small business may not already have the personnel to dedicate to HR functions, which means you’ll need to spend time finding outside hires with HR experience.
Time and Cultural Integration
Implementing HR processes like streamlined onboarding, performance reviews, and benefits administration takes significant time. Installing these processes can require a culture shift, which may be a difficult transition for your team.
Everything your small business needs.
Is an HR Department Right for Your Business?
The typical time to start thinking about an HR department is when your business hits 10-50 employees. But there’s no hard and fast rule, so ask yourself these questions:
- Are you spending more time managing and training employees than running your business?
- Do you struggle to keep up with labor laws and payroll?
- Are you dealing with repeated employee conflicts?
- Are you managing a growing team where performance reviews and benefits take too much of your time?
In short: If you can’t focus on your business and your strategy for growing it, it’s probably time to delegate HR responsibilities.
Building In-House HR vs. Outsourcing
When it comes to HR, business owners have two main options: building an in-house team or outsourcing HR functions to another company.
Outsourcing typically works best for small or growing teams, while in-house becomes a smart investment once your workforce expands and your needs become more complex.
In-house
- Hiring your own HR staff gives you full control over employee management and company culture.
- You can scale in-house HR operations as your team grows and your HR needs change.
- In-house HR comes with higher costs, including salaries, benefits, and administrative overhead.
outsourcing
- Often more cost-effective for small businesses.
- You can hire professional services or use HR software to handle payroll, compliance, recruiting, and benefits.
- Flexible, scalable, and reduces the administrative burden on you and your management.
- An outside HR team may not know your company’s culture well, and you might have less control over how things are done.
- Communication may be slower, and sharing employee information with another company can raise privacy concerns.
What are the costs of adding an HR Department?
Running an in-house HR department for a business with 50 to 100 employees can easily cost over $350,000 per year, including salaries, benefits, and administrative expenses. That number may be significantly higher, or lower, depending on the size of your company and employee needs.
Outsourcing HR typically costs much less. Software and service packages for small businesses generally range from $1,000 to $10,000 per year, depending on the level of support your business needs.