There comes a point in the growth of a business when HR stops being mainly about contracts, holidays and the occasional difficult employee and becomes a proper operational issue.
At 10 employees, the managing director may still know what is happening with everyone. At 30 employees, managers usually start taking more responsibility for their teams. By the time a business reaches 75, 100 or 150 employees, the position can look very different. Managers are making decisions about absence, performance, flexible working, pay, recruitment, grievances and disciplinaries, often without the owner being involved.
That is usually when businesses need to stop asking whether they need “some HR help” and start asking what sort of HR function a company of their size and complexity actually requires.
For a growing UK firm with 50 to 250 employees, outsourcing some or all of HR can make sense. It is not, however, simply a question of reaching a particular headcount. What matters is how complicated managing the workforce has become and whether the business has the expertise and capacity to deal with it properly.
The short answer
A growing business should seriously consider outsourcing HR when its people issues have become too frequent, technical or important to be dealt with alongside somebody else's main job.
You may see this when managers regularly ask the owner how to deal with employees, sickness and performance are handled differently between departments, contracts and policies have not been reviewed recently, or difficult grievances and disciplinaries are consuming management time. Rapid recruitment, restructuring and increasing employee turnover can create the same problem.
Another useful question for firms approaching 100, 150 or 200 employees is what would happen if the person currently holding HR together was unavailable tomorrow. If several managers would immediately be unsure who to ask or what process to follow, the business has become too dependent on one person.
Why 2026 changes the calculation
There has always been employment law risk, but employers have a considerable amount of legal change to deal with during 2026 and 2027.
The Employment Rights Act 2025 became law on 18 December 2025, with reforms being introduced in stages. From 6 April 2026, Statutory Sick Pay became payable from the first full day of sickness absence and the lower earnings limit was removed. Paternity leave and unpaid parental leave also became day-one rights from 6 April 2026, although the service requirement for Statutory Paternity Pay remains.
Employers must also now keep annual leave and holiday pay records for at least six years. The maximum protective award for certain failures relating to collective redundancy consultation has increased from 90 to 180 days' pay.
Further changes are due. In October 2026, employers are expected to face a stronger duty to take all reasonable steps to prevent sexual harassment, together with liability for certain third-party harassment unless the required preventative steps have been taken. Employment tribunal claim time limits are also due to increase to six months.
From 1 January 2027, the ordinary unfair dismissal qualifying period is due to reduce from two years to six months. The existing statutory cap on the compensatory award for ordinary unfair dismissal is also due to be removed.
For growing employers, the reduction in the unfair dismissal qualifying period is particularly relevant. A business that has historically treated the first two years of employment as a relatively low-risk period will need to change its approach. Recruitment, probation management, performance conversations and early dismissal procedures will matter much sooner.
For a 150-person organisation recruiting 30 people each year, this is not simply something for HR to put into a new policy. Managers need to know how to deal with probation and performance properly in practice.
Headcount is not the best test in outsourcing HR
Two businesses can each employ 100 people and have completely different HR requirements.
One might have an experienced workforce, low staff turnover, a single location and a stable management team. It may recruit only five or ten people each year and have relatively few employee relations problems.
Another business with exactly the same headcount might operate from four sites, recruit 40 people each year, use different working patterns and have several newly promoted line managers. It may also be planning to increase its workforce from 100 to 160 employees within 18 months.
Those companies have the same number of employees, but they clearly do not have the same HR requirement. Businesses therefore need to look at the number and difficulty of the people decisions being made, who is making those decisions and what happens when they get them wrong.
Seven signs you may have outgrown informal HR
1. Your managers have effectively become the HR department
This normally happens gradually. As a business grows, it appoints more supervisors, department heads and operational managers. Those managers then find themselves dealing with sickness absence, lateness, performance, flexible working, maternity and family leave, grievances, conduct and probation.
The difficulty is that being an excellent sales manager, operations manager or finance manager does not automatically make someone good at employee relations. Without proper support, managers develop their own approaches. One manager gives an employee three months to improve while another wants to dismiss after two conversations. One keeps detailed notes while another records virtually nothing.
The result is several unofficial versions of HR operating within the same organisation. Employees may receive different treatment depending on who manages them, while senior management ends up becoming the final decision-maker for everyday employee issues.
External HR support can help by introducing sensible processes, training managers and establishing which matters managers can handle themselves and which should be escalated.
2. Senior people are spending too much time resolving employee problems
Businesses often look at the monthly cost of outsourced HR without calculating what their existing arrangements already cost.
Suppose a managing director spends four hours each week dealing with employee matters, a finance director spends another two hours and three department heads each spend an hour. That is nine hours of senior management time every week and hundreds of hours over the course of a year.
The cost is not simply the hourly equivalent of their salaries. There is also the work those people are not doing while they are dealing with HR problems. For a growing business, returning senior managers to the work they were actually employed to do can be part of the commercial case for outsourcing.
3. Nobody is quite sure whether your employment documents are current
Ask somebody in the business to locate the current employment contract, disciplinary procedure, grievance procedure, sickness policy, family leave policies, flexible working procedure, equal opportunities policy, sexual harassment policy and relevant employee data protection documents.
Then ask when those documents were last properly reviewed.
If the answer is that a previous consultant prepared them several years ago, or nobody is entirely sure which version is current, the problem is not simply old paperwork. It suggests that nobody has clear responsibility for maintaining the company's employment framework.
That is harder to ignore in 2026 because employment law changes are being introduced in stages. Updating a handbook once every few years is not enough where statutory rights and employer obligations are changing during the year.
4. HR only becomes involved after something has gone wrong
This is an expensive way to use professional support.
An employee raises a grievance after months of problems. A manager sends an unfortunate email before asking for advice. Somebody tells an employee that their job is definitely redundant before consultation has started. A manager dismisses an employee in a meeting and only afterwards asks what paperwork is required.
By the time HR or an employment lawyer becomes involved, the options may already have narrowed considerably. Effective HR support should help managers decide what to do before they act, particularly where dismissal, discrimination, redundancy or contractual rights could be involved.
This matters more as a company grows because an increasing number of employment decisions are being made by managers without a director in the room.
5. The business is about to grow quickly
The best time to build the HR structure for 150 employees is usually before the company reaches 150 employees.
A business growing from 80 to 140 staff may need to deal with dozens of employment contracts, recruitment processes, probation reviews, new managers, salary decisions, onboarding requirements, employee records, absence management, flexible working requests and performance issues.
Trying to introduce consistent processes after that recruitment has happened is much harder. Rapid growth also exposes informal arrangements that worked perfectly well when everybody knew one another.
An informal promise made to employee number 17 can become an awkward precedent when employee number 117 asks to be treated in exactly the same way.
6. Your HR administrator is being asked to make legal decisions
Many growing businesses have an excellent HR coordinator, office manager or people administrator. They know the organisation, employees trust them and they keep the day-to-day administration under control.
Problems arise when the business starts asking that person questions such as whether an employee can be dismissed, whether a redundancy process is legally safe, whether a flexible working request can be refused, whether an employee may be disabled under the Equality Act 2010 or whether contractual terms can be changed.
These are no longer routine administrative questions. Some can carry substantial legal and commercial consequences.
Outsourcing does not necessarily mean replacing the internal employee. In many 50 to 250 employee businesses, the better arrangement is to support them. The internal person keeps responsibility for day-to-day HR, culture and employee relationships while external HR specialists or employment lawyers provide technical support on difficult matters.
7. The business still relies heavily on the two-year unfair dismissal rule
Businesses should address this during 2026 rather than waiting for the law to change.
At present, ordinary unfair dismissal generally requires two years' qualifying service, although there are important exceptions, including discrimination and automatically unfair dismissal claims.
From 1 January 2027, the qualifying period is due to reduce to six months. This means employers should be looking at probation management now.
A six-month probation period where the first serious conversation about poor performance happens in month five or six is going to become much more problematic. Managers should be identifying concerns earlier, setting clear expectations, holding review meetings and keeping sensible records.
Businesses that use 2026 to improve probation management will be in a much better position than those that wait until the new qualifying period is already in force.
What should a growing business actually outsource?
Outsourcing HR does not have to mean handing the entire employee relationship to an external provider. In most businesses, that would be undesirable anyway. Employees still work for the company and managers still need to manage them.
What can be outsourced is the expertise and infrastructure around those relationships.
This might include employment contracts, handbooks, policies and template letters, together with support on disciplinary matters, grievances, sickness absence, capability, probation and performance. An external provider may also assist with restructures, redundancy exercises, manager training, employment law updates and larger HR projects.
Some providers will additionally deal with HR systems, employee records, absence tracking and document management. More strategic support may cover workforce planning, organisational structure, management development, retention and succession planning.
A company does not necessarily need all of these services. The purpose of outsourcing should be to identify what the business cannot sensibly provide internally and fill those gaps.
What should remain inside the business?
Management responsibility should remain with management.
An external HR consultant should not become the person who effectively manages employees because line managers are uncomfortable having difficult conversations. Managers should still set expectations, give feedback, deal with minor problems early, manage performance and understand what is happening within their teams.
Good HR support should make managers more capable. If managers become increasingly dependent on HR for every minor conversation, something is wrong with the arrangement.
Outsourced HR or an internal HR manager?
For businesses between 50 and 250 employees, this is often the more useful question.
An internal HR professional has obvious advantages. They work inside the organisation, understand its personalities and history, are accessible to managers and can become part of the senior management team. Once there is genuinely enough HR work to justify a full-time role, an internal appointment may make commercial sense.
There are limitations, however. One HR manager is still one person. They take holidays, may become ill and may eventually leave. They will also have areas where they are more experienced than others. A strong HR generalist may be very good at employee relations but have limited experience of complex restructuring, TUPE or contentious employment matters.
An outsourced provider can give the business access to a wider range of expertise without requiring it to employ several specialists. The trade-off is that an external adviser will rarely understand the culture and personalities as naturally as somebody working inside the company every day.
For that reason, the decision does not always need to be internal HR or outsourced HR. For many businesses at this size, a hybrid model works well. An internal HR manager, People Lead or coordinator handles everyday matters and culture, while external specialists provide support with difficult employee relations cases, legal questions, restructuring and major projects.
When outsourcing HR may be the wrong decision
Not every growing company needs an outsourced HR service.
A business may already have an experienced HR team with sufficient capacity, properly trained managers, regularly reviewed employment documents and clear responsibility for keeping on top of employment law changes. If it also has access to specialist employment lawyers when required, there may be little benefit in paying for another layer of general HR support.But it is generally not common that an employment lawyer is employed internally at this stage of growth and hourly legal costs can be expensive.
Outsourcing is also unlikely to solve a business where managers simply refuse to manage people. If managers will not address poor performance, give feedback or hold difficult conversations, the underlying issue is management capability. An HR helpline cannot fix that on its own.
Be careful what you buy regarding HR
The term “outsourced HR” covers a very wide range of services. At one end of the market, the business may receive access to templates and a telephone advice line. At the other, an experienced adviser may work closely with senior management, understand the organisation and provide hands-on support with difficult cases.
Before entering a contract, find out who will actually advise the business. Will there be a named adviser who knows the company, or will managers call a central helpline and speak to whoever is available? Neither approach is necessarily wrong, but they are very different services.
Businesses should also establish whether advisers will review documents, draft letters, attend meetings and support grievances, disciplinaries and redundancies. Ask what happens when a problem becomes legally contentious and whether matters such as TUPE, collective redundancies, settlement agreements, tribunal claims and complex discrimination cases are included or charged separately.
Contract terms deserve the same attention. Check the minimum term, renewal provisions, notice requirements, annual price increases and termination charges. A low monthly fee is not particularly attractive if the company is committed to a service for years after it has stopped meeting its needs.
Finally, consider the style of advice being provided. Business owners rarely need somebody simply to tell them the theoretically lowest-risk option. They need to understand what their realistic options are, the legal and practical risks attached to each and what those options mean commercially.
HR advice and employment legal advice are different
As employee issues become more serious, businesses also need to understand the distinction between HR advice and employment legal advice.
HR professionals are often very good at process, employee relations, management and the practical handling of workplace issues. Employment lawyers deal with legal interpretation, litigation risk, settlement agreements, tribunal proceedings and contentious situations.
A routine absence management issue may sit comfortably with HR. A proposed dismissal involving allegations of disability discrimination may require legal input. An experienced HR professional may be perfectly capable of managing a straightforward restructure, whereas a complicated collective redundancy or TUPE situation may require specialist employment law advice.
A sensible outsourced arrangement should therefore make it clear where ordinary HR support ends and specialist legal advice begins.
A simple test for businesses with 50 to 250 employees as to whether should outsource HR
Business owners can get a reasonable indication of whether their existing HR arrangements are still suitable by answering ten questions.
Give the business one point for every question where the answer is yes:
1) Do senior managers regularly spend time dealing with HR issues?
2) Do different managers handle similar employee situations differently?
3) Have employment contracts or policies gone more than 12 months without a proper review?
4) Are managers uncomfortable dealing with poor performance?
5) Has the business dealt with a grievance, disciplinary, redundancy or difficult long-term absence case in the last six months?
6) Is substantial recruitment, restructuring or expansion planned?
7) Would the business struggle if the person responsible for HR suddenly left?
8) Is there uncertainty about what the 2026 and 2027 employment law changes require?
9) Do managers sometimes make employment decisions before asking for advice?
10) Is the existing HR resource spending most of its time reacting to problems?
A score of zero to two does not necessarily justify substantial outsourced HR support. Periodic HR and employment law reviews may be enough.
At three to five, there is a stronger case for structured external support. The business may not need to outsource everything, but informal arrangements are starting to become difficult to maintain.
At six or more, HR is already a material management function. The question is less about whether dedicated HR capability is required and more about whether that capability should be internal, outsourced or a combination of the two.
Do not compare the wrong costs internal HR v Outsource HR
Business owners often compare the monthly cost of an outsourced HR provider with the salary of employing an HR manager. That is useful, but it does not show the whole cost.
A better calculation should include senior management time, line manager time, avoidable staff turnover, recruitment costs, sickness absence, external legal fees, unresolved poor performance and time spent managing grievances and disputes.
Some of these costs are difficult to calculate precisely, but they still exist. Equally, outsourcing should not automatically be assumed to be cheaper. A business with 220 employees, regular employee relations work and enough HR activity to occupy several people may be better served by building an internal team.
The aim should not be to find the cheapest possible HR arrangement. It should be to have enough HR capability for the size and complexity of the organisation without paying for resources the company does not need.
What good outsourced HR should look like in 2026
For a growing company, outsourced HR should do considerably more than provide a folder of policies.
Managers should know which issues they can handle themselves, when HR needs to become involved, when legal advice is required, what process should be followed and what records should be kept. The external provider should also know enough about the company to give advice that works in the organisation rather than simply repeating a generic procedure.
There is a useful test here. After a year of good HR support, managers should generally be better at dealing with employees themselves. They should not be calling HR more often about increasingly minor issues.
The HR audit growing firms should carry out in 2026
Before deciding whether to outsource, businesses with 50 to 250 employees should review six areas.
First, check contracts and policies. They should reflect both current law and how the company actually operates.
Second, look at probation. With the ordinary unfair dismissal qualifying period due to reduce to six months from January 2027, managers need to identify and deal with performance concerns earlier.
Third, check sickness absence procedures and payroll arrangements following the April 2026 changes to Statutory Sick Pay.
Fourth, review harassment prevention. This should involve more than checking whether a policy exists. Businesses should consider what preventative steps they actually take, particularly with further legal changes due in October 2026.
Fifth, assess manager capability. Ask whether line managers could confidently deal with a performance issue, flexible working request, grievance or long-term absence case tomorrow without immediately escalating everything to a director.
Finally, review record keeping. The company should be able to show what important employment decisions were made, why they were made and what process was followed.
So, when should you outsource HR?
The best time is usually before weaknesses in the company's HR arrangements turn into expensive employee problems.
A business should not need to wait for a tribunal claim, a badly handled grievance or a major redundancy exercise before recognising that its existing arrangements have been stretched too far. Nor should it outsource simply because it has crossed an arbitrary number of employees.
For firms employing between 50 and 250 people, the better test is whether the volume and difficulty of employment decisions have exceeded the expertise or capacity available internally.
Sometimes the answer will be to recruit an experienced HR manager. Sometimes it will be to outsource the function. In other businesses, the most sensible structure will be a small internal HR team supported by external HR specialists and employment lawyers when required.
By the time a company employs 50, 100 or 200 people, HR is no longer just an administrative task. Recruitment, dismissal, absence, performance, grievances, promotion, restructuring and management decisions all create employment issues that need to be dealt with consistently.
With substantial employment law reforms being introduced during 2026 and 2027, businesses should be particularly wary of relying on old policies, informal processes and managers learning employment law through trial and error.
The question for a growing company is therefore not simply, “Are we big enough to outsource HR?”
A better question is, “Do we have the HR capability needed to manage the business we have now, and the business we expect to become?”
If the answer is no, it is time to decide whether that capability should be hired, outsourced or built through a combination of both.
