Deciding to outsource some of your HR responsibilities can be an enlightening experience. It can give business owners more time to focus on growth and customer acquisition instead of complex HR regulations and employee management. But, not all HR outsourcing solutions are built the same. The two most popular forms of HR outsourcing — PEOs and ASOs — both have unique properties that make them ideal for specific business needs.
So, what's the difference between an ASO and a PEO?
Defining a PEO:
A Professional Employer Organization (PEO) is a co-employment outsourcing service that provides comprehensive HR solutions to businesses. These services typically include payroll, benefits, workers' compensation, HR compliance, and other HR needs that can often be time-consuming and complex for small businesses to handle. A big component of PEO value is that they can handle your employee responsibilities directly through co-employment.
What is co-employment?
Co-employment is a legal tool that allows PEOs to become your employer of record. This allows PEOs to have a direct impact on your payroll and benefits AND it frees you from some of your HR liability. Your business will still be in control of day-to-day hiring and firing. But, your payroll will be run under the PEOs tax ID number.
What are the benefits of a PEO?
- PEOs can save your business money on benefits by providing economy of scale. Since PEOs handle many businesses, they have a large pool of workers to leverage against benefits providers. This can help them secure discounts and rates that are typically only available to massive corporations.
- PEOs handle your day-to-day HR needs — freeing you up to focus on business growth.
- PEOs will keep you HR compliant and shelter you from some of your HR liability.
- PEOs can help remove burdens associated with workers' compensation such as evidence gathering and claims help outside of court.
Defining an ASO:
An Administrative Service Organization (ASO) is also an outsourcing service that provides HR services to businesses but without the co-employment model. This means that ASOs can also help you with benefits, payroll, and compliance. But, they do not share any liability with your business, and they don't fall under the co-employment model.
What are the benefits of an ASO?
- ASOs can handle some of your day-to-day HR operations — though not as many as PEOs due to the co-employment relationship.
ASO Vs. PEO: What's the Difference?
The primary difference between ASOs and PEOs is the co-employment model. ASOs operate similar to any other outsourcing solution or vendor; they help where you tell them to help. PEOs, on the other hand, leverage co-employment to help make an HR impact at every layer of your business. This means handling mundane day-to-day payroll tasks and ensuring that you have robust compliance procedures.
Let's go over a few of the critical differences.
- PEOs choose your benefits vendors for you. ASOs simply help you manage the ones you choose. This means that PEOs can give you economy-of-scale with insurance companies, but ASOs cannot. Since ASOs are typically treated as small businesses by insurance providers, you will likely get similar rates to your current benefits package with an ASO. PEOs will often secure incredibly low rates due to volume pricing.
- PEOs have a liability investment in your business. ASOs don't. So, compliance is front-of-mind for PEOs who want to protect both your business and their own.
- PEOs can handle some of the more nuanced payroll activities. Unlike ASOs, PEOs have additional payroll capabilities due to co-employment. This means they can fully manage your entire HR operation.
Both PEOs and ASOs can help businesses run their HR departments. But, there are some key differences you should be aware of. For most small businesses, PEOs will help them save more money and be capable of handling more significant HR responsibilities. Are you looking for a PEO that's the right fit for your business?
Check out our Free PEO Comparison Report!