How Much Should HR Really Cost Your Business? Here’s What You’re Not Calculating
If you’re a small or medium-sized business owner, chances are you’ve wondered, “How much should HR actually cost me?” You’re not alone—and you’re also not asking the full question.
What you’re really asking is:
How much do I need to invest in my people?
How do I reduce risk and still grow sustainably?
Am I spending too little—or too much—on HR?
These are important questions. But here’s the truth: HR isn’t a fixed cost line in your budget. It’s a dynamic investment that changes as your business evolves. And if you’re treating it as a compliance checkbox or admin task, you’re likely missing massive opportunities to build culture, reduce turnover, and scale faster.
Let’s unpack what good HR should cost, what it should deliver, and what the hidden risks are if you underinvest.
What the Numbers Say About HR Investment
While HR spend varies, some benchmarks are helpful:
Most businesses spend less than 1% of their revenue on HR.
The average HR cost per employee is around $2,500 per year.
Replacing an employee can cost between 50% to 200% of their salary.
In Australia, the average cost to hire someone is about $20,000.
That means if you think “we’re too small for HR,” and push the responsibility to payroll or admin, you might think you’re saving money—but you’re actually spending more. You’re likely paying it out in:
High turnover
Delayed hiring
Recruitment fees
Lost productivity
Low morale
Legal risks
The Hidden Costs of Neglecting HR
When businesses fail to invest in HR, the consequences often show up quietly—but painfully:
Disengaged employees can cost you around $20,000 per person per year in lost productivity.
A bad hire can cost 30% to 200% of their salary, depending on the role.
Relying on manual HR processes instead of a system costs about $600 per employee per year.
And 70% of employee engagement is linked directly to the quality of their manager.
If you’re not actively developing your leaders, investing in onboarding, or aligning performance management with your strategy, the result shows up on your bottom line.
HR as a Profit Driver
It’s time to flip the narrative: HR is not a cost centre. It’s a profit driver.
Research by Jan-Emmanuel De Neve shows that employee happiness is directly correlated with business profitability. When HR is done right, it’s not just about compliance—it fuels growth.
The key is to match your HR investment with the stage of your business. Here’s how.
The 5 Stages of HR Investment for Growing Businesses
1. The DIY Phase (Under 10 Employees)
HR is usually tacked onto someone else’s role—admin, finance, or payroll.
The sot may be minimal, but the risks can be high.
You risk:
Burnout
Missed compliance
Poor onboarding
Inconsistent culture
Tip: Consider a professional outsourced HR partner to provide on-demand support and to lay solid foundations without the full-time salary.
2. Admin-Heavy Phase (10–20 Employees)
Now you might have a dedicated admin or office manager handling HR. The salary cost is around $70–95K/year plus on-costs.
They’re great at the logistics of HR like:
Recruitment
Inductions
HR paperwork
But:
No strategic input
Still reactive
Lacks deeper business alignment
You’re ticking boxes but not building systems.
3. In-House HR Pro (20–50 Employees)
You’re feeling the pain. Time for an HR professional. This can cost $120–150K/year plus on costs.
You’ll gain:
Policies and procedures
Safety frameworks
Performance systems
But… they might:
Get bogged down in admin
Lack strategic influence
Be hard to manage if you don’t know what good HR looks like
Fractional HR support might offer better ROI and flexibility.
4. Strategic HR Manager (50–100 Employees)
Now you need HR leadership. The salary cost is $150K+ per year plus oncosts.
You benefit from:
Strategic workforce planning
Leadership coaching
Culture shaping
Measurable reduction in turnover costs
At this stage, HR should be an investment that pays for itself. If you can’t afford an internal hire, you can start with an outsourced solution like our Accelerate Program until you are ready to take the leap.
5. HR Business Partner (100+ Employees or High Growth)
This is where HR becomes central to business strategy and the right person will cost more than $200K+ per year.
At this level, your HR leader:
Sits at the executive table
Drives innovation
Transforms engagement
Helps scale sustainably
Strategic HR here unlocks culture as your competitive edge.
Ask Yourself: What Stage Are You In?
Whether you’re just starting out or scaling fast, here’s the golden question: Is your HR investment helping you grow—or just keeping the lights on?
Too many businesses stay stuck in a reactive loop—addressing problems only when they explode. But proactive, strategic HR isn’t just about people. It’s about performance.
It’s Time to Rethink HR
Great HR isn’t about more policies or checklists. It’s about building systems, culture, and leadership that help your business thrive. And the cost of getting it wrong is far greater than you think.
If you’re unsure where your HR function stands—or where it should go next—Amplify HR can help. We offer strategic, flexible HR support tailored for growing businesses that aren’t quite ready for a full-time HR team, but still want all the benefits of one.
Ready to find out if your HR is helping or hindering your growth? Book your free discovery call here