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The ROI of Fractional HR: A Strategic Cost-Saving Model
- United Business Consultants
- Apr 22
- 3 min read
Overview
Fractional HR is a model where companies outsource strategic or tactical HR leadership on a part-time or project-based basis. Rather than maintaining a full in-house HR team, especially at the VP or CHRO level—firms can engage seasoned experts on demand.
This approach is particularly valuable for:
Multi-location businesses and franchise groups
Scaling startups
Mid-market firms with fewer than 500 employees
PE-backed or VC-backed portfolio companies
Organizations in transition phases
Substantial Cost Savings vs. Traditional HR Models
The financial benefits of fractional HR are compelling when compared to full-time equivalents:
Role Level | Average FTE Cost (Base + Bonus + Benefits) | Fractional HR Equivalent | Cost Savings Estimate |
VP of HR / CHRO | $200K–$300K+ | $7K–$12K/month | 50–70% |
HR Director | $130K–$180K | $5K–$9K/month | 40–60% |
HR Generalist (2+ FTEs) | $180K–$240K (combined) | $6K–$10K/month | 45–65% |
These figures are supported by the SHRM 2024 HR Salary Benchmark Report, UBC internal models based on real client projects, and BLS Occupational Employment Data, 2023.
Beyond the visible salary differences, traditional HR models incur significant hidden costs:
Recruiting and Onboarding: $25K–$50K per HR hire
Ramp-Up Time: 3–6 months before full productivity
Turnover: Average HR turnover is approximately 18%, costing another 20–30% of annual salary
Efficiency Through Specialized Expertise
Fractional HR providers deliver immediate value through:
Access to top-tier talent without the typical hiring delays
Specialized systems expertise (compliance, handbooks, audits, HRIS, benefits)
Scalable support that adjusts to your business requirements
Accelerated problem-solving that avoids the "trial-and-error" costs of less experienced internal hires
As UBC Managing Partner Greg Davis notes, "What takes a junior HR manager six months to solve, a fractional HR expert can resolve in three weeks."
Risk Mitigation and Compliance Benefits
Without proper HR leadership, businesses face considerable legal and compliance risks:
EEOC claims
I-9 violations
Wage and hour misclassification
FLSA and ADA non-compliance
Unwritten or unenforced policies
The financial impact of these risks is substantial:
I-9 fines range from $272 to $2,701 per violation
EEOC settlements average $75K to $250K per case
Legal defense costs can reach $20K to $150K+ even when settled early
Fractional HR can prevent 80–90% of these risks by implementing clear policies, employee training, and proactive audits.
Employee Retention Improvements
Companies with no HR or junior-only teams often suffer from:
Inconsistent onboarding
Poor documentation
Weak performance management
Higher voluntary turnover
According to SHRM, the cost of voluntary turnover typically ranges from 20–30% of salary per hire. For a company with 100 employees and 15% turnover, this can exceed $300,000/year.
Fractional HR can reduce turnover by 20–40% through professional onboarding, manager coaching, and retention strategies.
Technology and System Optimization
Fractional HR leaders:
Evaluate and implement HR tech (e.g., HRIS, payroll, ATS)
Identify duplicate vendor spend
Improve internal workflows and documentation
Estimated ROI of HR system standardization: $50–$100 per employee/month in time, error, and vendor savings.
Executive Focus and Strategic Agility
Without HR leadership, C-level executives spend 15–30% of their time on HR issues. Fractional HR reduces that to <5%, allowing leaders to focus on growth, finance, and operations.
The opportunity cost:
CEO/COO time = $100/hr+
10 hours/week of HR distraction = $50K+/year per exec
Flexible Scaling Without Long-Term Commitments
Engage HR leadership only when needed (e.g., for growth, audits, M&A, terminations)
Cancel or scale services without severance, legal exposure, or internal disruption
Access specialists across recruiting, benefits, compliance, and culture
Conclusion: The Strategic ROI of Fractional HR
"It's not just cheaper. It's smarter. It's safer. It's faster." – Bob Collins, UBC
Companies that implement fractional HR correctly:
Save 40–70% vs. in-house HR staffing
Avoid costly legal exposure
Gain executive-level insight without overhead
Build scalable, compliant people systems aligned with growth
If you're spending over $200K on HR and still dealing with bottlenecks, risk exposure, or turnover—you're overspending and underperforming. UBC's fractional HR model delivers enterprise-grade systems and executive insight at a fraction of the cost, tailored to your business phase and structure.
Sources
1. Salary Benchmarks (FTE Costs)
Society for Human Resource Management (SHRM), 2024 Compensation Data
U.S. Bureau of Labor Statistics (BLS), Occupational Employment and Wage Statistics (OEWS), 2023
2. Fractional HR Cost Estimates
UBC internal case studies across multi-location businesses, VC-backed startups, and mid-market clients (proprietary, client-specific).
Publicly shared pricing models from fractional HR firms including:
Toptal HR Consultants: https://www.toptal.com/hr
Fractional Executive Reports by Chief Outsiders and GigX
3. Turnover & Retention Costs
SHRM: “The Cost of Turnover” (2023)
Gallup Workplace Studies (2023–2024):
4. Legal and Compliance Costs
U.S. Department of Justice: I-9 Violation Penalties (2023–2024)
EEOC Litigation Statistics (Annual Data):
5. HR Tech Efficiency Gains
G2 and Capterra Reviews on HR Software ROI
Josh Bersin Company Reports on HR Tech Optimization (2023–2024)
6. Time and Opportunity Cost for Executives
Harvard Business Review – Time Management Studies
UBC internal operational time audits conducted for clients scaling from 20 to 250 employees
For more information on implementing a fractional HR strategy at your organization, contact the United Business Consultants team today. https://www.unitedbusinessconsultants.com/Contact
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