173.3 hours. That’s the standard full-time employee hours assumption that businesses budget for HR and payroll. But in today’s dynamic business environment, are full-time HR staff always the most efficient and cost-effective solution? HR is a multi-faceted function with each requiring specialized expertise, often with skillsets that difficult to find in one person.
The HR functional leader should have strategic vision, know how to plan and execute, set the bar for collaboration and leadership, and have familiarity with each facet of HR and expertise in a few. A recruiter is a salesperson able to convey brand, connect to people, and execute on sourcing and selection strategy. Compensation requires technical expertise, attention to detail, a keen understanding of job characteristics, and labor market savvy. Policy experts require an in-depth understanding of employment law as well as company culture and operations. And so on through the HR systems, employee relations, labor relations, benefits, and other facets of HR.
Forward-thinking CEOs are increasingly turning to fractional HR solutions for greater flexibility, specialized expertise, and a better return on investment.
Factor 1: Fit & Efficiency
In specialized functions like HR, paying only for the expertise you need is a strategic advantage. Fractional HR ensures you’re not overpaying for skills that aren’t fully utilized or burdening employees with tasks outside their core competencies. How often have you seen an HR person tasked with office administration or payroll, a finance function, or vice versa?
Consider the cost of unproductive time. Studies in 2016 by Voucher Cloud and 2019 by RescueTime found that workers only spent about 36% of their time on productive tasks, with the balance spent on correspondence, meetings, interruptions, and personal business. A 2021 Microsoft Work Trend Index analysis found similar results.
Fractional HR staff focus on critical functions identified by clients and the provider. Clients receive highly concentrated attention and work, with most of the administrative burden and costs borne by the provider. This arrangement maximizes productivity and minimizes wasted resources.
Factor 2: Loaded Labor
Wages represent only a fraction of the total cost of an employee. Benefits, taxes, and overhead can significantly inflate labor expenses. Fractional HR solutions transfer many of these burdens to the provider, resulting in substantial cost savings.
For example, the real cost of a $100,000 employee can be $140,000 or more with benefits, mandated benefits, employment insurance, and taxes. That number further increases when factoring in office space, equipment, supplies, IT and HR support, and other employment-driven costs. Fractional HR can provide the same level of expertise for a fraction of that cost, freeing up capital for strategic investments in other areas of your business.
Factor 3: Risk Management
Hiring right and navigating the complexities of employment law and compliance is a significant risk for businesses. Even the best hiring recruiters, hiring managers and selection processes won’t bat 1.000, and the tightest compliance culture won’t eliminate risk.
Fractional HR providers are experts in HR and can manage compliance with ever-changing regulations to minimizing the risk of wrongful termination lawsuits and other employment-related disputes. Fractional HR offers a critical layer of protection for your organization.
Factor 4: Ease & Flexibility
In today’s volatile market, agility is paramount. Fractional HR provides the flexibility to scale your HR resources up or down as your business needs evolve, avoiding the financial strain of underutilized full-time staff or the disruption of rapid hiring and layoffs.
Whether you’re experiencing rapid growth, navigating a period of uncertainty, or simply seeking to optimize your HR function, fractional HR offers a scalable and adaptable solution.
Factor 5: Specialized Expertise, Tools & Resources
Fractional HR professionals bring an array of specialized expertise, tools, and resources that are often unavailable to smaller businesses. This includes access to industry best practices, cutting-edge HR technology, and extensive professional networks.
Imagine having access to a proven HR leader, seasoned compensation expert, or professional investigator – all with tools and resources to complement their expertise, and without the overhead of hiring full-time employees. Fractional HR makes this a reality.
In Summary
Fractional HR empowers businesses to access top-tier HR expertise on demand, without the constraints of a full-time commitment. Fractional HR leadership makes a lot of sense to small and mid-sized organizations, allowing them to access experienced, sophisticated, and strategic leadership. Fractional solutions in highly specialized HR areas such as compensation, systems, policies, and investigations can make sense for organizations of any size. By embracing this strategic approach, CEOs can optimize their HR function, drive business growth, and achieve a competitive edge.
Written by Thomas Showalter
Senior Consultant
Thomas is a seasoned HR leader with a track record of guiding some of Alaska’s most recognized organizations through complex people and performance challenges. He brings deep expertise in competitive employment strategies and operational excellence, with a focus on interim leadership, employer recruitment branding, total rewards, process optimization, employee engagement, and change management.