If you're a founder, COO, or operator trying to figure out your HR strategy, you've probably seen these three options laid out side by side in a comparison table. The table is usually misleading — because it implies these models do the same thing at different price points. They don't.
Here's the honest breakdown.
The three models
Full-time HR leader
A VP of HR or CHRO on your payroll, full-time. This person attends every leadership meeting, owns all people operations, and builds HR infrastructure from the inside. The cost — salary, benefits, equity — typically runs $150,000 to $250,000 per year before overhead. This model makes sense when you have 200 or more employees with sustained, complex HR needs that justify the fixed cost. Before that threshold, you're paying for capacity you don't fully use.
PEO (Professional Employer Organization)
A co-employment arrangement where a PEO handles payroll processing, benefits administration, and basic compliance. Companies like ADP TotalSource, Insperity, and TriNet operate in this space. PEOs are efficient at what they do. What they don't provide: strategic HR leadership, culture building, DEI expertise, workplace investigation capability, or any real knowledge of your organization. You get a system, not a partner.
Fractional HR leader
A senior HR executive — typically a Chief People Officer or CHRO — embedded in your organization on a part-time or retainer basis. They attend leadership meetings. They know your people, your culture, your risks. They own HR strategy and outcomes. Engagements typically run $3,000 to $8,000 per month depending on hours and scope. For companies between 20 and 250 employees, this is usually the highest-leverage HR investment available.
What each model actually gives you
- Full-time hire: Maximum presence, maximum cost, appropriate at scale
- PEO: Administrative efficiency, zero strategic leadership, appropriate for payroll and benefits outsourcing
- Fractional HR: Strategic leadership at reduced cost, appropriate for growth-stage companies
The mistake most growing companies make is treating these as substitutes. They are not. A PEO does not replace HR leadership — it handles administration. A fractional HR leader does not process payroll — they build strategy. Many organizations benefit from running both: a PEO for administrative efficiency and a fractional HR leader for strategic direction.
When to choose each
Choose a full-time hire when:
- You have 200+ employees with sustained HR complexity
- HR is a daily, full-capacity function requiring someone on-site and always available
- You have the budget and the volume to justify it
Choose a PEO when:
- You need payroll, benefits, and basic compliance handled efficiently
- Your HR environment is relatively simple — low employee relations complexity
- You want administrative infrastructure, not strategic partnership
Choose fractional HR when:
- You are between 20 and 250 employees and growing
- You need senior HR strategy without a full-time salary
- You are facing specific HR complexity — investigations, EEOC matters, DEI work, rapid scaling
- You want someone who knows your organization, not a call center
The question underneath the question
Most founders asking "which HR model do I need" are really asking: "how do I stop HR from being a liability?" The answer is not a vendor category. It's senior expertise applied to your specific situation.
If your company is growing fast, facing compliance pressure, or navigating active HR challenges, the fractional model almost always produces better outcomes at lower cost than any alternative. If you're not sure where you fall, that is exactly what a strategy conversation is for.