In a recent survey, 61% of respondents said they outsourced payroll and 56% said they outsourced benefits.¹ Many small and midsize businesses may want to avoid incurring the costs of running a full Human Resources department. Business owners planning to outsource some or all of their HR tasks will most likely look at both PEO and ASO options. The ASO vs. PEO comparison is important because either model may be the best choice, depending on the organization’s needs.
Here we’ll explore specific differences between PEOs and ASOs that might make one a better choice for your company than the other.
What is a PEO?
A professional employer organization (PEO) offers a full suite of HR services within a co-employment partnership. Organizations rely on them to handle any number of responsibilities traditionally managed by HR departments. These include:
- Payroll services and administration. (Internal link to unpublished article: Anchor Text: Payroll services and administration
- Tax filings.
- Unemployment taxes.
- Health and welfare benefits.
- Compliance reporting.
- Workers’ compensation coverage.
- Other HR administration tasks as needed.
When an employer decides to work with a PEO, they enter a co-employer arrangement with them. The PEO takes responsibility for the employees and “leases” them back to the organization as worksite employees. Under this setup, the employees are paid under the PEO’s EIN.
What is an ASO?
An administrative services only (ASO) company offers most of the same services as a PEO, such as:
- Payroll taxes.
- Unemployment taxes.
- Employee benefit plans.
- Workers’ compensation.
- Insurance filings.
Unlike a PEO, companies do not enter into a co-employer agreement with an ASO. The client company retains full liability for paying the employees.
Biggest differences between a PEO and an ASO
ASO and PEO clients receive some similar services, while others differ greatly. Several aspects of the processing and operations vary, making them 2 distinct options for companies.
Level of control
While both options leave companies in full control of their day-to-day operations, a PEO takes over more of the HR administration than an ASO model. For example, a PEO can sponsor employee benefit programs and take charge of benefits administration, recruiting talent, employee training, and even terminations. The co-employer designation also assigns greater liability to the PEO.
An ASO doesn’t take this on. The business owner retains more hands-on control with an ASO than with a PEO.
Variation in ASO vs. PEO costs represents another primary difference. PEOs typically charge a percentage of the client company’s total gross wages. ASOs set administrative fees that are a specific dollar amount for each employee, per month.
Employer and co-employment arrangement
The PEO model is a co-employment relationship between PEO and employer/client, whereas the ASO model is not.
Generally, an ASO provider may present more flexibility than a PEO, especially in terms of securing employee health coverage. The options with a PEO may be limited to only a few choices. An ASO doesn’t sponsor employee benefit programs, but it can work with the employer to find the best employee health insurance for their specific needs.
Should you choose an ASO model or a PEO model for your company’s HR outsourcing?
As with any business decision, you should research and weigh your options before moving forward. Asking yourself these questions can get you started in determining whether an ASO or PEO would suit you best.
How big is your company?
A PEO typically works well for small businesses and startups with fewer than 20 employees. PEOs can handle every HR function, so they work well for small companies that haven’t yet hired any HR staff. But a PEO’s pricing structure gets more expensive as the total gross payroll grows. This makes it a more cumbersome choice for growing midsize businesses and larger companies.
Do you already employ HR staff?
If you already employ a human resources management team of any size, an ASO company may be your better choice. They can fill in your department’s skills gaps and handle the overflow from your department.
If you haven’t begun staffing an internal department yet, working with a PEO may be best for now.
Which HR functions do you want to outsource?
If you prefer another company handle HR services like payroll processing, taxes, benefits, insurance, and HR and tax compliance, a PEO may be for you. On the other hand, if you just have a single or a few HR needs and don’t like the concept of joint employment, an ASO may be a smarter option.
ASO vs. PEO: Weigh your company’s needs
Business owners must consider their needs and weigh the options before deciding between an ASO or PEO. Talk with representatives from both models. Assess the costs vs. likely ROI. The goal is to feel confident that your choice is the best for your company’s growth and viability.
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1 The 2022 Identity of HR Survey, Industry Dive