5 Signs You’ve Outgrown Your Current HR Setup

In the early days of starting and running a business, handling payroll with simple software, emailing job offers, and reading up on state labor laws during lunch breaks might work just fine. But as the team and business grows, so does the paperwork, the HR compliance risks, and—more quietly but no less importantly—the stress.

Unfortunately, many business owners don’t realize they’ve outgrown their HR setup until they are already knee-deep in a workers’ comp, payroll, or some other HR-related issue they don’t even fully understand. The result is an expensive, time-consuming effort to fix a mistake that could have been avoided if the business had ensured its HR kept pace with its growth.

Recognizing when you’ve outgrown your current approach can mean the difference between scaling successfully and risking legal, financial, or cultural setbacks.

Here are key indicators that your business might be ready for a more robust HR solution—and why outsourcing HR through a professional employer organization (PEO) might be the strategic next step.

1. The business is growing, but the owner is still trying to do HR themselves.

One of the clearest signs that a business has outgrown its HR setup is when the owner is still trying to handle HR tasks themselves.

Small business owners spend more than a third (36%) of their workweek on administrative tasks, including people and payroll related tasks, according to a survey from virtual assistant company Time etc. In the early days, this hands-on approach might have worked, but as the team expands and HR needs become more complex, the owner’s time becomes a bottleneck. 

If the owner is still the default HR point of contact, it’s a strong indicator the company needs a more scalable solution—whether that’s a dedicated HR role or outsourcing HR to a PEO with the expertise to manage HR compliance and navigate ongoing HR challenges effectively. Plus, that Time etc. survey found that expert delegation results in higher revenue and profit growth on average.

2. Someone else is handling HR, but only as a side duty. 

A common “next step” is delegating HR responsibility to someone like an office manager or accountant (since they may already be handling payroll). 

At first, this might seem like a practical solution, especially if there doesn’t seem to be enough HR-specific work to fill a full-time job. After all, HR tasks like onboarding paperwork or tracking PTO can appear manageable on the surface. But this setup creates risk. What started as a few administrative tasks quickly turns into a complex web of compliance requirements, employee relations issues, policy enforcement, and benefits management. When HR is just one of many hats an employee wears, it’s difficult—if not impossible—to give it the attention and expertise it truly demands. Unless they are trained HR professionals, despite their best intentions, they can easily overlook critical compliance requirements, misclassify employees, or mishandle sensitive employee issues. 

Plus, workers hate it. Of those who work in small companies, 47% of American workers at businesses with 50 or fewer employees say their company’s HR structure is “unprofessional,” with the result that they trust their company less. 

This situation is a clear indicator that the business needs a more sophisticated approach, such as outsourcing HR to a PEO that can deliver the consistency, expertise, and risk mitigation growing companies need.

3. Your HR tech stack is a patchwork of basic and/or outdated tools. 

Payroll in one app, time-off tracking in another, benefits in a third—and no system to tie them together. Sound familiar? As businesses grow, they often collect software solutions to meet immediate needs, not long-term strategy. But this can lead to inefficiencies, duplicate data entry, reporting headaches, and increased room for error. 

Worse are those businesses still using spreadsheets for everything. More than half (51%) of organizations still use spreadsheets to handle payroll, for instance. That is a catastrophic error just waiting to happen. (Just ask Kodak about its $11 million severance overpayments due to an error in Excel).

If your team is juggling multiple platforms and still resorting to spreadsheets to bridge the gaps, it’s a red flag. Sophisticated HR challenges require integrated solutions. Here, a third-party partner like a PEO can help enormously by providing access to enterprise-level systems that streamline and integrate HR functions while reducing administrative load.

4. You've hit a benefits wall. 

Attracting and retaining talent in a competitive market means offering competitive benefits, but small businesses often struggle to access affordable, high-quality benefits packages. If your team is asking for better health coverage, 401(k) options, or mental health resources—and you can’t deliver—it might be time for a change. That’s especially true as your small business begins competing with larger organizations in recruiting workers; businesses rated highly on their benefit offerings face 56% less workforce attrition than others, according to one study.

A PEO genuinely shines in this regard by enabling easy access to large group benefits typically reserved for bigger companies. That’s because PEOs have a level of purchasing power on parity with large enterprises and, further, can enable small businesses to access a wider range of benefits packages. That can help level the recruitment and retention playing field without blowing up your budget.

5. Your recruiting and onboarding process feels chaotic.

Recruitment is challenging for everyone right now. Over two-thirds (69%) of HR professionals reported difficulty recruiting for their full-time positions over the last 12 months in a SHRM survey earlier this year. But that makes it all the more important to have an HR team or partner in place to help your small business navigate the challenges of the modern labor market. 

So, if you’re struggling with open positions or high turnover, or if your recruitment processes are producing uneven outcomes, it might be slowing your business down. “On the outside, recruiting may appear to be operating just fine, but inconsistencies in the recruiting process secretly impact the organization’s long-term ability to successfully attract and hire quality talent,” Richard Dunn, senior director of Recruitment Process Outsourcing (RPO) Operations for Yoh, an RPO vendor, told HRDive.

Outsourcing recruitment to a PEO, which operates as a co-employer, transforms hiring from a time-consuming burden into a strategic advantage. With access to seasoned HR professionals and established recruiting infrastructure, a PEO can help businesses attract and onboard top talent more efficiently and professionally. As a co-employer, the PEO can also potentially reduce the business owner’s legal risk while also improving the quality and speed of hiring, allowing them to focus on leading and growing the company rather than getting bogged down in the details of recruiting and compliance.

Is It Time for a Smarter HR Strategy at Your Business? 

Recognizing these signs isn’t a failure, it’s a milestone! It means your business is growing. But growth demands more than just hustle; it requires systems that support your people, mitigate risk, and help you focus on strategy instead of scrambling over paperwork.

Outsourcing HR through a trusted PEO is a powerful way to address modern HR challenges without the overhead of building a full internal HR department. From HR compliance to payroll, benefits, and risk management, a PEO becomes a strategic partner that grows with you. If you’re unsure whether your current HR approach is sustainable, now is the time to take stock. 

Our HR Readiness Checklist is a great place to start—walk through it to evaluate whether you’re equipped for the next stage of growth, or if it’s time to elevate your HR game.

**The information provided on this website is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and completeness of the information, we make no guarantees about its correctness, completeness, or applicability to your specific circumstances.  Laws and regulations are subject to change, and you should consult a qualified legal professional before making any decisions based on the information provided here.