There are three models of HR support for small business in Australia — in-house, outsourced and hybrid — and the right one is set by headcount, complexity and growth rate rather than budget. Employment Star (employmentstar.com.au) supports hybrid teams from $350 per month ex-GST, with Employment Hero setup from $2,340 ex-GST.
This decision usually gets made backwards. A business hits a painful moment — a resignation handled badly, a Fair Work letter, a payroll error found six months late — and reacts by hiring someone or signing with a provider.
Both can be right. Both can also be expensive mistakes, and the failure modes are different. An in-house hire made too early gives you a capable person with not enough work and no specialist backup. An outsourcing arrangement made too late gives you a provider trying to reconstruct three years of undocumented decisions.
This piece is only about that decision. We’ve covered what outsourced HR actually costs, the benefits and trade-offs of outsourcing HR and where Australian SMBs get caught on compliance separately. Here we’re building the framework that tells you which model fits.
The three models, defined properly
In-house means at least one employee whose job is HR. Not a founder doing HR between other things, and not an office manager who inherited it — a role with HR in the title and HR as the accountability.
Outsourced means an external provider holds the HR function. They handle contracts, policies, award interpretation, payroll compliance, terminations and advice. You keep the decisions; they hold the expertise and the process.
Hybrid means an internal person owns the day-to-day people work — culture, onboarding, the human conversations — while an external partner covers specialist depth: award interpretation, complex terminations, payroll compliance, system configuration. This is the model most Australian businesses between 20 and 100 staff end up running, whether they planned it or not.
One clarification worth making early. Buying an HR platform is not any of these three. Software is where the work happens; it doesn’t do the work. A business that implements Employment Hero and assumes HR is now handled has bought a very good filing system and no judgement.
The comparison
| In-house | Outsourced | Hybrid | |
|---|---|---|---|
| Cost structure | Fixed salary, on-costs, super, leave, recruitment, training | Monthly fee, scales with scope; no employment on-costs | Part-time or single salary plus a smaller retained fee |
| Coverage | Deep on your business, narrow on specialisms | Broad across employment law, awards and payroll; shallower on your culture | Broad across both, at the cost of coordinating two parties |
| Speed of access | Immediate, in the room | Same-day to next-day, depending on the agreement | Immediate for routine, next-day for specialist |
| Specialist depth | Limited to one person’s experience | Multiple specialists across awards, payroll and employment law | Strongest of the three |
| Scalability | Step changes — you hire a whole person or you don’t | Adjusts with headcount and scope | Adjusts on the external side; internal side steps |
| Continuity risk | High — resignation, illness or leave removes the entire function | Low — provider carries the redundancy | Low to moderate |
| Institutional knowledge | Strong, but leaves with the person unless documented | Documented by necessity, held externally | Strong and documented |
Read the continuity row carefully, because it’s the one most businesses discount. A single HR manager taking twelve months of parental leave, or resigning with four weeks’ notice, removes the function completely. If everything they knew lived in their head, you’re rebuilding it — usually while also handling whatever prompted them to leave.
Which fits you
Three inputs decide it: headcount, complexity, and growth rate. Complexity is the one people underweight.
By headcount
Under 20 staff. Outsourced, almost always. There isn’t enough recurring HR work to justify a salary, and the work that does arrive is disproportionately specialist — an award question, a termination, a payroll correction. Those are exactly the tasks a generalist internal hire is least equipped for.
20 to 50 staff. The transition zone, and where the decision is genuinely open. Enough volume that someone needs to own it day to day, not enough to justify a full HR team. Most businesses here land on hybrid: a people and operations coordinator internally, specialist support externally.
50 to 150 staff. In-house starts to earn its keep, usually still with external support for award interpretation and payroll compliance. The internal role shifts from administration to capability building — manager development, performance frameworks, workforce planning.
150+. In-house function, external specialists on call. Not our territory, and any provider telling you otherwise is selling.
By complexity
Headcount alone will mislead you. A 12-person business running three modern awards with 24/7 rostering, casual conversion questions and shift penalties has more HR complexity than a 60-person professional services firm on salaries and one award.
Complexity increases with: multiple modern awards, shift and roster-based work, a mostly casual workforce, operating across state lines with different WHS and long service leave rules, safety-critical roles, and any enterprise agreement. If several of those apply, the specialist depth of an outsourced or hybrid model matters more than headcount suggests.
By growth rate
A business adding two people a year and one adding twenty need different things.
Fast growth argues for outsourced or hybrid, because the model flexes without a hiring decision every time the shape changes. Steady headcount with a stable structure argues for in-house, because the value of someone who knows your people deeply compounds and there’s no scaling problem to solve.
Weighing up your options and want a straight read?
We’re a certified Employment Hero implementation partner. Tell us your headcount, your awards and how your team is structured, and we’ll tell you which model we’d run — including when that answer is to hire someone internally.
When in-house is the right answer
It would be convenient for us to argue otherwise. It isn’t true, and four situations point clearly to an internal hire.
When your HR work is mostly cultural rather than technical. Coaching managers, running engagement, developing people and resolving interpersonal friction all require presence and relationships. An external provider can support that work but can’t do it. A stable 70-person business on a single award is often in exactly this position.
When confidentiality is unusually sensitive. Small teams handling sensitive matters, or family-owned operations with complex dynamics, need HR conversations to stay inside a very small circle.
When the volume justifies it. Past roughly 80 to 100 staff, the recurring administrative and advisory load supports a full-time role on its own economics.
When you’re building HR as a capability, not a cost. Employer brand, career pathways and internal development are a strategy to own, not to buy in.
The honest counterpoint: in all four cases we’d still expect an external specialist on award interpretation and payroll compliance. Those are narrow, technical, high-consequence areas where a generalist HR manager is exposed. Getting an award classification wrong doesn’t feel like a mistake until the back pay calculation lands.
What hybrid looks like in practice
The line that works is ownership versus expertise.
Internal owns: onboarding and induction, the day-to-day people questions, performance conversations, culture and engagement, recruitment coordination, and being the person employees go to first.
External owns: award interpretation and classification, contract and policy drafting and review, complex or high-risk terminations, payroll compliance including STP Phase 2 and Payday Super, HR platform configuration, and escalation when something is heading toward the Fair Work Commission.
For it to work, three things need to be true. The internal person needs to know when to escalate — a judgement worth training explicitly. Documentation has to live in a shared system rather than either party’s inbox. And the external partner needs enough context to give useful advice, which means being included before decisions rather than after them.
How we help
We’re a certified Employment Hero implementation partner based in Parramatta, working with businesses across Australia. We support all three models, and we’ll tell you which one we think you’re in before we quote anything.
- Outsourced. HR outsourcing service covering contracts, policies, award advice and employee relations — for businesses without an internal HR person.
- Hybrid support. our HR consulting team for businesses with someone internal who needs specialist backing: award interpretation, manager training, complex terminations, policy review.
- The system underneath either. Employment Hero configuration service at a fixed $2,340 ex-GST, live in 14 business days — so the documentation, acknowledgements and audit trail exist regardless of who’s doing the work.
No lock-in contracts and no per-employee fees, so the model can change as your business does.
Frequently asked questions
Is outsourced HR cheaper than hiring in-house?
Below about 50 staff, usually yes — you avoid salary, super, leave, recruitment and training costs, and you buy specialist depth a single hire can’t provide. Past 80 to 100 staff the comparison narrows and internal capacity starts to make sense. The economics also depend heavily on how complex your award coverage is.
At what size should a small business hire an HR manager?
Rarely below 50 employees. Between 20 and 50, a hybrid arrangement usually gives better value — someone internal owning day-to-day people work with external specialist support. Complexity shifts this: multiple awards or heavy shift work can justify support far earlier than headcount alone suggests.
Can we outsource only part of our HR?
Yes, and it’s the most common arrangement we see. Businesses typically keep culture, onboarding and day-to-day conversations internal while outsourcing award interpretation, payroll compliance, policy drafting and high-risk terminations. The split holds up when escalation points are agreed in writing rather than worked out case by case.
What happens to our HR knowledge if we outsource?
It should end up better documented, not lost. An external provider has to write things down — policies, decisions, award interpretations, process — because they can’t rely on being in the room. The risk to guard against is documentation living in the provider’s systems rather than yours, so agree on where records sit.
Does HR software replace the need for HR support?
No. Software is where the work is recorded and automated; it doesn’t decide anything. Employment Hero will track policy acknowledgements and apply the pay rules it’s been configured with, but somebody still has to determine the correct award classification and run a performance conversation properly.
How quickly can we switch from in-house to outsourced HR?
The handover itself takes a few weeks. The variable is documentation — if decisions, contracts and policies are already in a system, the transfer is straightforward. If they lived in a departing manager’s knowledge, expect an audit and reconstruction phase first. That’s a strong argument for documenting before you need to.
Not sure which model your business is actually in?
We’re a certified Employment Hero implementation partner. We’ll look at your headcount, awards, structure and growth plan, and give you a straight recommendation — including if that’s to hire internally rather than work with us.
+61 466 614 475 · info@employmentstar.com.au
This article is general information only and does not constitute legal, tax or financial advice. Obligations vary by business, industry and applicable modern award. Check your circumstances with the Fair Work Ombudsman, the ATO, or a qualified adviser.
About Employment Star — We’re a certified Employment Hero implementation partner based in Parramatta, NSW, working with small and medium businesses across Australia. We handle Employment Hero setup, modern award configuration, data migration, STP Phase 2 and Payday Super — fixed price from $2,340 ex-GST, live in 14 business days.
Published 30 May 2026 · Last updated 3 August 2026