Fractional HR vs. Outsourced HR Consulting: Which is Better?

You didn’t start your business to become an HR expert, so it’s only natural that HR consulting comes to mind as your business grows and you can no longer wear the HR hat. Have you ever wondered if fractional or outsourced HR could be a good fit for your business?

Navigating the HR labyrinth can feel like building a house without blueprints.

It’s not impossible, but the result might scream “sloppy, inexperienced, DIY job.”

(Obviously, this can be frustrating and dangerous for everyone.)

DIY HR can also put you and your team at risk and become a major setback for your business if the foundation is poorly laid or begins to crumble under pressure.

When it comes to HR, modern strategies and proven processes are the key to laying a sturdy foundation that will stand the test of time, but you need the right expert to guide you.

And if you aren’t ready to commit to a full-time HR hire, you might initially think that outsourced HR consulting is your ideal (or only) solution. Sure, it can throw you a lifeline, but outsourced HR often lacks the consistency and depth needed to build these crucial foundations.

HR should be involved in implementing the right modern processes and strategies and setting your entire team up for long-term success; to do so, you’ll need someone with over a decade of experience in your corner.

You need proactive, proven approaches and expert oversight. Getting it right the first time is vital, and fractional HR can save the day!

(Okay, as a modern, fractional HR firm, we may be slightly biased, but many of our clients would agree…)

“The Castle team helped us build foundational People Ops building blocks when we needed them the most. They take ownership as if they are part of the team and engage us in a healthy and professional debate to ensure what they end up implementing has the necessary buy-in and is truly what is best for [our team] at Plooto.” – Wajdi Ghoussoub, VP Finance & Operations at Plooto

Keep reading to learn more about Fractional vs. Outsourced HR, check out some scenarios (and how each type of consultant would handle them) and discover the best solution for your business.

Outsourced HR vs. Fractional HR: Which is Better?

Before we detail all that fractional HR has to offer, let’s compare outsourced HR consulting and fractional HR by painting a picture of what they both entail:

What is Outsourced HR Consulting?

Outsourced HR involves hiring external consultants or agencies to handle various HR functions part-time or as needed.

These professionals work for you, often stepping in to address specific issues, manage compliance, or handle urgent HR tasks without being fully integrated into your team.

The individuals employed at outsourced HR agencies might be junior professionals (meaning they lack experience at no fault of their own). With that said…

Picture this:

Imagine you run a tech startup and need to address a sudden compliance issue.

You hire an outsourced HR consultant to help. They step in, review your policies, ensure you meet legal requirements, and handle the immediate problem. Once the issue is resolved, they move on, leaving you to manage your HR processes until the next crisis arises.

…which happens days later.

You’d love to avoid being in ‘crisis mode every week,’ but nothing has been done proactively in your HR department. Instead, you get a la carte solutions as issues come up. You realize that a reactive approach causes a lot of turmoil and instability.

Why Outsourced HR Isn’t Always the Best Solution

Outsourced HR might seem like an easy fix, but it often falls short in the long run. Here’s a summary of why:

1. Inconsistency: Outsourced HR professionals are not consistently embedded in your team, which means they might miss the nuances of your company culture and daily operations. You may also get some call centre vibes (ick) and have a different professional throughout your contract.
2. Lack of Integration: Outsourced HR providers often lack a deep understanding of your business’s unique needs and challenges because they’re not always present. This can lead to generic solutions that don’t quite fit.
3. Reactive Approach: Outsourced HR tends to be more reactive than proactive. They’re great at putting out fires but not necessarily focused on preventing them. This can leave you constantly in crisis management mode.
4. Limited Influence: An outsourced HR professional might not have the authority or influence to drive significant cultural or strategic changes within your organization. They’re seen as external consultants, not integral team members.

What is Fractional HR?

Fractional HR provides a dedicated HR professional who works with you consistently and becomes an embedded part of your team.

You get a fraction of their time and expertise tailored to your specific needs, offering strategic HR support at a fraction of the cost of a full-time hire.

Plus, at Castle HR, we only hire senior professionals with a track record of success!

What Does Fractional HR Look Like In Action?

Imagine you run the same tech startup we mentioned in the section above, but instead of hiring an outsourced consultant, you engage a fractional HR professional.

This professional works with you consistently for a set number of hours a week. And they only require about one hour of your time each week, too!

They help you establish robust HR foundations, develop long-term strategies, and integrate into your team. They understand your culture and business goals, manage ongoing HR tasks, and develop repeatable processes for everything from hiring and onboarding to performance reviews to terminations, ensuring continuous alignment with your company’s needs and values.

Why Fractional HR is a Game-Changer

It’s like having your cake and eating it too.

via GIPHY

…By now, you know that a fractional HR professional works with you consistently. You get a slice of their time and expertise, tailored to your needs, for a fraction of the cost of an internal hire.

Here’s why Fractional HR is the secret sauce your startup needs:

1. Consistent Expertise: Fractional HR professionals are embedded in your team. They’re not just showing up for the occasional fire drill; they’re helping prevent those fires in the first place.
2. Cost-Effective: Why pay for a full-time HR executive with years of experience when you only need part-time support? Fractional HR gives you access to top talent without the hefty price tag.
3. Strategic Partner: Fractional HR is about building a partnership. They work with you, understanding your unique challenges and helping you craft strategies that align with your business goals.
4. Scalability: As your company grows, your HR needs evolve. Fractional HR scales with you, ensuring you have the right level of support at every stage of your journey.

Why Do Companies Hire Fractional Help?

Companies hire fractional help (for HR, among other fields) because they are not yet ready to make an internal hire for a specific role(nor do they typically have the budget to do so).

However, HR still requires expert insight and assistance and wants to have strong HR foundations as it grows.

They want something economical and based on proven processes that can bring success quickly…and that’s precisely what fractional HR can accomplish. However, as we’ve noted above, there’s a stark difference between basic outsourced HR and fractional HR.

At Castle HR, our fractional HR professionals essentially become your team members. They’re in the corner working with you. And, if you already have a junior HR hire, they’ll guide them and supercharge them throughout the partnership!

What Can Fractional HR Achieve?

The right HR strategies can help businesses hire better and retain longer, see a steady increase in revenue, avoid lawsuits, and build a strong company culture.

Battle-tested processes brought to the table by a senior fractional consultant with a proven track record is a great way to accomplish all these things.

At Castle HR, we’ve had clients have partnered with us because they need an HR expert to help them achieve the following:

• Less time spent on HR challenges
• Improved compliance and reduced legal risks – think custom employee handbooks and up-to-date policies
• Automation of HR processes, HRIS, AI and other tech integration
• Better retention/less turnover
• Turn values into virtues and foster a stronger company culture
• Game-changing employee referral programs, talent acquisition strategies and onboarding
• Confidence in their ability to scale their business the right way

And we’ve been successful in helping over 150 companies do all of this…and more!

Psst! Looking for a sneak peek at some of our magic?

Click the image below to download our Employee Referral (Red Rover) Guide.
Who doesn’t love a good freebie?…

When should companies consider fractional HR?

We often say that 15 people is the optimal company size for fractional HR services; our typical clients have headcounts ranging from 15-75 people. If this sounds like you, fractional HR could be your solution.

Why? Before a headcount of 15, growing revenue and establishing product-market fit were likely your priorities.

But, once you have hired 15 people (if you haven’t already), you’ll likely set your sights on bigger growth goals and need to focus on adding even more talent to your team.

A rapidly growing team brings new challenges – it’s no longer just about revenue.

Companies with 15 people do not need a full-time HR professional…yet.

However, they still require solutions, processes, and strategies to be implemented to solve their HR problems, help them reach their goals, and avoid mishaps as they scale.

Once your company has reached ~50 people, it will be time to consider a full-time internal HR hire.

With fractional HR at Castle HR, we can help you find that person and get them up and running with all the repeatable HR processes we’ve helped you build.

How does fractional HR work?

Fractional HR is a strategic approach that enables companies to leverage expert knowledge and experience to tackle their human resources challenges – and while we can only speak to our approach here at Castle HR, fractional HR generally works quite differently than having an internal HR hire.

Here’s general summary of how fractional HR consulting works:

• A consultant comes in or works remotely to assess your HR needs: Your HR consultant will work with you to identify your HR challenges and understand your business goals and current processes. You may have them several days throughout the week, or for limited periods – this varies depending on the firm.

• Tackling HR challenges: Once the consultant has identified the areas that need improvement, they will develop an HR strategy that addresses your specific challenges. This could include reviewing your employee handbook, performance management processes, recruiting and hiring processes, or compensation and benefits plans.

• Bringing in processes: The consultant will introduce new HR processes, policies, and procedures to streamline your HR operations. These could include HR technology solutions, leadership training and development programs, or changes to your benefits and compensation plans.

How to choose the best fractional HR firm for your business

Once you’ve decided to hire a fractional HR consultant, you’ll want to know how to find the best firm/consultant to work with your business. Here are the steps involved:

Step One: Determine your business needs

Do you need to hire? Or promote? Are you striving to keep key people at your company?

It’s always best to assess your current HR landscape, determine where you want to go in the next 12 months…and consider how a consultant can help.

Having a goal in mind can help you decide between outsourcing or hiring an internal HR professional. To aid in this decision, you should also set a budget for your HR needs and determine the time commitment required by an HR consultant!

Step Two: Research and talk to colleagues

When you Google ‘fractional HR consulting’ (or something of that nature), you’ll yield 43817485000 results.

Hello, confusion and despair…

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Don’t stress – talking to your friends and your team might be able to help.

It’s best to avoid choosing the first company that appears is not the best course of action—they might just have the best ads!

Reaching out to colleagues and connections within in your industry to see if they have any recommendations or experience working with specific firms is a great place to start.

Once you get a few names, connecting with (or, just lurking) LinkedIn and website can help too…find out who works at each firm and get to know them. Reviews and testimonials can speak volumes, too!

Step Three: Shortlist and book a call to learn more

Once you’ve researched, create a shortlist of potential firms and book a call to learn more about their services and experience if you feel they might be a good match for you.

When you have a conversation, ask questions based on what you need and ensure that they can offer precisely what you’re looking for. Ideally, somebody should resonate with you and check some of your boxes…if not, keep looking!

Step Four: Evaluate and sign an agreement

Just as service offerings will vary by firm, so will contracts.

At Castle HR, year-long contracts aren’t our thing! We’re like your Netflix subscription, but better.

Your world can change in 6 months. That is why we operate on a ‘subscription’ basis. We understand that our clients may not require our help extensively; thus, we do not believe in multi-year contracts.

Before you sign any contracts, be sure to ask any questions and read all fine print!

Step Five: Evaluate the partnership

Once your partnership has commenced, you must rely on data and experience to ensure your chosen outsourced HR consultant delivers as you expected.

Simply put, ask yourself, are you getting value from the partnership?

We’re always happy to track, analyze and share HR Data with our clients to back up and reflect our work.

Fractional HR can accomplish great things at your business and benefit you in many ways, but the last thing you want to do is select the first option you stumble upon on Google.

Taking the time to assess your current HR landscape and business goals, talking to others in your industry and researching your options thoroughly is a great place to start.

By following these steps, you can narrow your options and make a confident decision, and one that is the best for your business!

How do you measure the success of fractional HR?

Success doesn’t come overnight, but you will undoubtedly want to track and understand the value you’re getting from fractional HR.

Here are 5 ways to measure the success of a fractional HR partnership within the first year:

• Reflect on your goals – did you successfully implement new policies? Were you able to reduce HR costs?
• Conduct surveys to measure your team’s satisfaction – your dedicated HR professional can help!
• Analyze retention rates and turnover costs – are things improving?
• Assess your company culture – surveys, morale, productivity…
• Look at your lack of lawsuits – enough said.

Small businesses that outsource HR functions experience an average savings of 24% over those that manage in-house. – PWC

You didn’t get into business to become an HR expert, and with Fractional HR, you don’t have to (woohoo!)…

Focus on what you do best—innovating, leading, and growing your company—and leave the HR heavy lifting to the experts who are with you every step of the way.

Ready to see the difference Fractional HR can make? Let’s build that solid foundation and watch your company thrive. Because a great business isn’t just about brilliant ideas; it’s about brilliant people, too.

Schedule FREE consultation with our CEO to see if Castle HR is right for you.