How your company delivers HR matters as much as the work itself.
Some businesses rely on owners or finance leaders to coordinate HR. Others hire internally, engage HR consultants and specialized vendors, or partner with a professional employer organization (PEO).
Each HR operating model offers a different level of ownership, execution, expertise and administrative support.
Compare the options to determine which structure fits the business you operate today—and the one you are building for tomorrow.
Thinking about following an HR Operating model that works? Reach out »
What Is an HR Operating Model?
An HR operating model defines how a business organizes and delivers its human resources work. It establishes who owns employment decisions, who performs day-to-day administrative tasks, how managers and employees receive support and where the company turns when specialized expertise is needed.
For small and mid-sized businesses, the practical choices often include managing HR through existing leadership, hiring an internal HR professional, outsourcing selected responsibilities or partnering with a full-service PEO.
The right model should make responsibilities clear, provide access to appropriate expertise and support the company as its workforce becomes more complex.
Businesses specifically exploring outside providers also can compare the broader categories of HR outsourcing companies.
Compare HR Operating Models
Choosing an HR operating model involves more than comparing an employee’s salary with an outside provider’s fee. Each structure affects how much work remains inside the business, how many systems and vendors must be coordinated and what support is available when more complex needs arise.
The comparison reflects recurring issues Axcet evaluates when helping prospective clients assess their HR structures, including leadership time, vendor coordination, access to expertise, compliance support, scalability and accountability.
| What it looks like | An owner, finance leader, office manager or other employee coordinates HR alongside another role | One employee or an internal team manages HR | Consultants and vendors handle selected responsibilities | One coordinated relationship supports multiple employment functions |
| Internal time required | High leadership involvement | Moderate to high management oversight | Continued time coordinating providers | Lower day-to-day administrative burden |
| Payroll and Benefits | Managed internally or through separate vendors | Handled by internal staff, outside vendors or both | Often divided among payroll, broker and other providers | May be coordinated through the PEO relationship |
| Access to expertise | Depends on internal knowledge and outside resources | Depends on the experience and breadth of the internal team | Expertise is available within each provider’s specialty | Access to professionals across multiple employment disciplines |
| Systems and vendors | May involve manual processes and separate platforms | Selected and managed by the business | Often involves several providers and systems | Services and systems are more closely coordinated |
| Compliance and risk | Leadership identifies requirements and seeks help as needed | Depends on internal knowledge, training and capacity | Responsibilities may be split among several providers | Support can be coordinated across HR, payroll, safety and compliance |
| Scalability | Administrative demands increase as the company grows | Growth may require additional hiring and infrastructure | New needs may require more providers | Support can expand without proportional internal hiring |
| Accountability | Leadership remains the final coordinator | Primarily rests with the internal employee or department | Divided among the business and its providers | One coordinated service relationship |
| Best fit | Businesses with manageable HR needs and available leadership capacity | Companies prepared to build and support an internal HR function | Businesses needing selected services or targeted expertise | Businesses needing coordinated administration and broad support |
The services and responsibilities included in each model vary. Businesses should evaluate the scope of the specific employee, consultant, vendor or PEO relationship rather than relying on the category alone.
Which HR Structure Looks Most Like Yours?
Leadership-Led HR
Leadership-Led HR
In working with prospective clients, Axcet often finds that an owner, finance leader or existing employee is coordinating several employment functions and outside providers alongside their primary responsibilities.
This model may work when HR demands remain manageable and leadership has enough time to oversee employee issues, payroll, benefits and vendors.
It may be time to reconsider the structure when HR responsibilities regularly interrupt leadership priorities, administrative work requires extensive follow-up or the company depends on one person to keep every process moving.
Learn more about the signs that indicate a small business needs HR support.
In-House HR
In-House HR
An internal HR professional provides direct company knowledge and a clear point of contact for employees and managers.
This model works best when the organization has enough ongoing HR work to support the position and can provide the employee with appropriate technology, training and access to specialized expertise.
The primary limitation is capacity. One HR employee may be expected to manage employee relations, recruiting, compliance, payroll coordination, employee benefits, policies and documentation. Even an experienced generalist cannot realistically specialize in every HR discipline.
Businesses considering this approach should compare the full cost and capabilities of a PEO versus an in-house HR professional.
Partial HR Outsourcing
Partial HR Outsourcing
Partial outsourcing allows a business to obtain selected services or expertise without transferring its broader HR function to one provider.
The model may include an HR consultant, fractional HR professional, payroll company, employee benefits broker, safety adviser or other specialized provider.
This approach can work well when the company has a defined need and enough internal capacity to implement recommendations and coordinate the providers involved. However, outsourcing individual pieces does not automatically create an integrated HR operating model.
Internal leaders still may be responsible for moving information between systems, following up with vendors, resolving gaps and determining who owns an issue when several functions overlap.
The key question is:
Has the business outsourced responsibility—or only added more vendors for leadership to manage?
Learn more about the considerations involved in outsourcing HR functions.
Full-Service PEO
Full-Service PEO
A full-service PEO may fit when the company needs more than occasional advice or isolated vendor services.
Through a co-employment relationship, the business continues directing its operations, supervising employees and making workforce decisions. The PEO assumes defined administrative and employer-related responsibilities and may provide coordinated support across HR, payroll, employee benefits, compliance, workplace safety and risk management.
This model may be appropriate when:
- Leadership wants to reduce day-to-day administrative responsibilities.
- Managers need continuing access to practical HR guidance.
- Payroll, benefits and HR processes need better coordination.
- Compliance requirements are becoming more complex.
- The company needs expertise across several employment disciplines.
- Growth would otherwise require additional internal hires or vendors.
Not all PEOs provide the same level of service, responsiveness or guidance. Businesses that already work with a provider can review the signs it may be time to switch PEOs.
Your HR Operating Model Does Not Have to Be Either-Or
Many businesses combine internal ownership with outside administration or specialized expertise.
An internal HR employee may engage a consultant for a defined project. An HR department may work with a PEO for payroll, employee benefits, compliance and risk support. Business leaders may retain employment judgment while outside professionals provide the infrastructure and expertise needed to carry out those decisions consistently.
The right model is not determined solely by whether HR sits inside or outside the company. It depends on whether ownership, execution, expertise and accountability are aligned.
What Does Your Business Need From HR?
Before choosing a structure, consider what the business needs the model to accomplish.
Build a Coordinated HR Operating Model With Axcet
Since 1988, Axcet has helped small and mid-sized businesses build more coordinated HR operations. As an IRS-certified PEO, we provide HR, payroll, employee benefits, compliance, workplace safety and risk management support through a dedicated local service team.
Your leadership team retains control over business operations, employee direction and organizational decisions. Axcet provides the administration, systems and expertise that help those decisions be carried out consistently.
HR Operating Model FAQs
Here are a few frequently asked questions – and answers – for those interested in learning more about HR Operating Models.
Got PEO Questions? Start a Conversation.
Grow your business 7-9% faster with 10-14% less turnover with a PEO. Axcet has been helping Kansas City businesses for more than 30 years. Grow with us starting today.
Schedule a consultation with the experts at Axcet HR today.
* We don’t share your personal info with anyone.
Check out our Privacy Policy for more information.