Fractional HR, a PEO or a first HR hire: which fits a Bay Area company?

Last updated September 29, 2026. What changed: HR manager cost updated to the May 2025 federal wage release.

These three options get compared as if they do the same job. They do not. A PEO is an administrative platform, fractional HR is senior judgment part time, and a first HR hire is a person whose week is yours. The right answer depends on which of those your company is missing, and sometimes the best PEO alternative is not a PEO at all.

What each one actually does

	PEO	Fractional HR	First HR hire
Payroll, tax filings, benefits administration	Yes, core service	Oversees, does not run	Runs or manages a vendor
Group health plan access	Yes, often better rates for small groups	No	No
Policies, handbook, California compliance review	Templates	Yes, written for you	Yes
Investigations, terminations, manager coaching	Hotline advice	Yes	Yes
Pay structure, leveling, pay equity	Rarely	Yes	Depends on seniority
On-site presence and daily availability	No	Scheduled	Yes
Co-employment	Yes: the PEO is employer of record for tax purposes	No	No

The cost math at 25 employees

• PEO: ADP puts typical PEO pricing at $40 to $160 per employee per month, or 2 to 12 percent of payroll (ADP, cost of a PEO). At $120 per employee, 25 people cost $3,000 a month, before benefit premiums, which pass through separately.
• HR advisory: $2,000 to $4,000 a month for advice on call. Fractional HR: $5,000 to $10,000 a month for a senior HR lead working part of each week. The full breakdown is in what fractional HR costs in the Bay Area.
• First HR hire, generalist level: the median HR specialist in the Oakland and East Bay area earns about $99,900, per the state’s 2026 wage survey on my Bay Area salary map. With benefits at roughly 43 cents per wage dollar, that is about $11,900 a month.
• First HR hire, manager level: a San Francisco-area HR manager at a $219,270 salary, the May 2025 federal average, costs about $26,100 a month fully loaded.

Which one fits

The PEO vs. HR consultant decision comes down to what you need covered: administration, or judgment. By headcount:

• Under 15 employees, simple workforce: a payroll platform or PEO, plus a one-time compliance check-up.
• 15 to 75 employees, growing or in California’s higher-risk industries: a PEO or payroll platform for administration, plus fractional HR for policy, pay structure and people issues. This is the most common setup I recommend.
• 75 or more employees, or constant employee relations work: a full-time HR hire, often with fractional support to build the systems they will run.

Common mistakes

• Buying a PEO and assuming compliance is handled. PEO handbooks are templates, and the PEO’s HR hotline cannot know your city ordinances, pay practices or managers.
• Hiring a junior HR coordinator as the first HR person and expecting strategy. Generalists run process well; they are rarely positioned to push back on a founder.
• Hiring a senior HR leader at 20 people, when the work fills two days a week.

Before signing with anyone, including me, run through the questions to ask an HR consultant.

If you already run payroll and benefits well, fractional HR on its own is the PEO alternative: senior HR judgment without co-employment.

Fractional HR is also sold as outsourced HR, part-time HR or a fractional HR director. The labels differ; the model is the same.

McKinley holds a J.D. but is not a licensed attorney. Articles here are general information, not legal advice. For your specific situation, talk with an employment attorney.

Data current as of September 2026. Sources are linked where each figure appears.