When companies outsource HR, they’re usually choosing between an ASO or PEO. Both tackle HR in different ways. If you aren’t already familiar with Administrative Service Organizations (ASO) or Professional Employer Organizations (PEO), distinguishing between them requires some further explanation.
Many businesses outsource their HR to an ASO or PEO. While each type of service provider brings something unique to the table, it’s important to understand where they differ. Otherwise, you may end up choosing the wrong outsourcing company for your needs.
Both, essentially, are options for outsourcing HR, but they achieve that function in different ways. In this blog, we’ll help you understand the differences between ASOs and PEOs.
What is an ASO?
An ASO is an Administrative Service Organization which provides certain outsourced HR services. For example, an ASO might handle or consult on payroll or benefits administration for your organization. They can also provide guidance on employment law and other relevant legal considerations. While they offer valuable HR consulting services, generally speaking, you will need someone to apply their advice internally for your business.
What is a PEO?
A PEO is a Professional Service Organization that takes on any and all human resources needs, most often for small to medium-sized businesses. If you want an expert to walk in and handle payroll, benefits, HR administration, employee relations, recruiting, and everything in between, PEOs are equipped to do that.
They achieve this through a quirk of the United States tax code called co-employment. This means that PEOs take on additional liability as the employer of record regarding tax and insurance purposes, in exchange for more control over HR policies and benefits. Working with a PEO gives small businesses similar HR support to larger companies with built out HR departments.
What are the differences between a PEO and ASO?
As you may have guessed, the biggest difference is the co-employment model used by PEOs. ASOs use their client’s employer tax ID instead of a shared tax ID when handling tax and insurance filings. Additionally, ASOs allow their clients to maintain greater control over their HR functions.
Moreover, PEOs sponsor employee benefit programs such as insurance or workers’ compensation, while ASOs would only handle the administration of those plans. PEOs provide a deeper level of service in which they take over HR for your company, so you can focus on your own work. ASOs, meanwhile, can offer a more targeted approach to outsourced HR.
Where a PEO can send you an HR team, an ASO is more likely to give you a specialist. Both have their merits depending on the size of your company and the depth of your HR needs.
When should you work with a PEO?
PEOs offer game-changing levels of service for small businesses. Unfortunately, most smaller companies can’t afford robust HR infrastructure, and that puts them in a tough position with crucial back office work. Do you split the work across employees with no background in HR out of necessity? Do you put all of your HR work onto an “office manager?”
You may have the budget to hire one human resources representative, but they’ll quickly be stuck with more work than one person should handle. So how do you compete with the expert-level HR, recruiting, benefits, payroll administration, and employee relations enjoyed by bigger competitors?
Work with a PEO. In this relationship, you’ll have access to strategic resources that completely revamp as much, or as little, of your HR for the best. Quickly, you’ll find the administrative side of your business functioning much better than it could without taking on cost-prohibitive internal hires. With experts handling HR, you get to focus on the work you care about most.
Additionally, PEOs access high-quality insurance plans with lower premiums because of the co-employment model. Most small businesses can’t get those otherwise. PEOs can run your payroll like a well-oiled machine, and they cover your bases on employment law and compliance-related needs.
Now, small business owners may be hesitant to hand over so much control to a vendor via co-employment. In that instance, the degree of control is often negotiable depending on your needs. Though, it’s worth noting that when PEOs assume some liability, your small business will be more protected in the event of certain lawsuits.
Essentially, if you’re a small business looking to scale up your administrative work quickly and effectively, PEOs are an excellent choice. Generally, they’re more expensive than ASOs due to the depth of service, but more often than not, they’re more cost-effective than hiring an internal HR team as you’re growing. In addition, with their compliance knowledge, they’ll probably save you a lot of money long term as well.
When should you work with an ASO?
On the other hand, ASOs provide invaluable service for companies needing specialized HR consulting or a dedicated representative to take over specific administrative tasks. Moreover, they often offer greater flexibility in terms of benefits plans compared to PEOs. If you value those options, ASOs are a great choice but expect their plans to come with higher premiums, deductibles, copays, and out-of-pocket limits.
Typically, ASOs fit best with medium-to-large companies that want to save on certain HR functions without sacrificing the quality of work. For example, a company might use an ASO to handle day-to-day HR work such as benefits administration or payroll. That frees up their existing HR staff to focus on higher-level strategic work or more complex initiatives.
ASOs do not assume any liability, as opposed to PEOs. That makes them a little riskier of a fit for smaller businesses with less access to legal support against lawsuits. Again, though, if retaining total control is important enough to sacrifice some of the benefits of working with a PEO, ASOs are a quality option. Otherwise, they still provide excellent HR services to companies needing more specific HR assistance.
ADDA is the best of both worlds!
Our clients have diverse needs, and we can cater to all of them. As both an HRO (Human Resources Outsourcing) service provider and an ASO, we offer specialized consulting services based on your needs. They could range from one a la carte option to a full-service HR solution. So, where do your needs fall? Schedule a call today to discuss with our HR experts.