In recent years, studies have pointed to the increased demand for third-party human resources services. Many small and medium-sized businesses are looking for better solutions to help them with administrative HR tasks like employee benefits, payroll processing, and compliance. You might be one of them.
As you consider different partnerships for your business in terms of providing employee benefits, addressing human resources, and payroll processing, you’ll likely come across both PEO and the ASO options.
A professional employer organization (PEO) and an administrative services organization (ASO) can both offer unique benefits to your business, but they are different services altogether. And before you make any decisions, it’s helpful to know what differentiates the two. Additionally, there are pros and cons to consider, especially if you’re interested in finding the most valuable and best-fit solution.
Understanding the PEO Partnership
When you work with a PEO, you’re leveraging a third-party organization with a full suite of human resources services. These include:
- Payroll administration
- Employee benefits
- Workers’ compensation
- Employee relations
- Assumption of HR liability
With a PEO partnership, you contract the PEO to handle your human resources with a co-employment agreement. This agreement designates the PEO as the employer of record in the eyes of the IRS and state tax authorities. As a result, you’ll have fewer HR tasks to manage. Along with that, your employees will typically enjoy better benefits, since the PEO has more expertise and resources for establishing affordable, high-quality health insurance.
As a co-employer, the PEO can act on your behalf for a host of HR-related tasks. This includes resolving employee issues, handling unemployment claims, assuming fiduciary and compliance liability, and payroll taxes. This is a huge benefit for small and medium-sized business owners who are looking to streamline their operations and mitigate risk.
Understanding the ASO Partnership
When a business works with an ASO, it’s outsourcing HR services to a third party. An ASO, however, does not engage in a co-employment agreement, nor does an ASO sponsor benefits or remit your tax filings. An ASO will typically offer task management services that include:
- Benefits administration
- Payroll processing
- Employee handbooks
- Assistance with employee benefit administration
- Provide information for ACA, COBRA, and other reporting
- Guidance for employee issues
Thinks of the ASO as the extra pair of hands and eyes to facilitate and process tasks associated with HR policies and procedures. The ASO is essentially a team of payroll and HR assistants for your company.
Difference Between the PEO and the ASO
The key distinction between an ASO and a PEO is the co-employment element. As mentioned above, with a PEO, you engage in a co-employment arrangement, while with the ASO, you do not. This transfers much of the HR and payroll tax liability from your organization and its owners to the PEO. Without the co-employment element, the ASO functions more as an outsourced administrator of HR services on your behalf. In that regard, the ASO closely resembles a payroll service provider with additional HR assistance.
Comparing the Two HR Service Models
To help you better understand which partnership makes the most sense and offers the most value to your business, here are more precise differentiating factors and benefits to consider.
Human Resources Services
From a human resources perspective, today’s hiring challenges and workplace culture initiatives are top priorities for most companies. And while you may not have the budget to bring in teams of HR pros, you can look to both the PEO and the ASO to help. However, if you’re looking for a more in-depth level of HR support, including compliance, benefits, retirement plans, and payroll, PEO is likely the better solution. Comparatively, ASO will offer help with facilitating programs and HR task management, just more administratively than in a management and co-employment capacity.
Costs and ROI
Pricing models and service offerings will vary for both PEO and ASO options. However, PEO does tend to cost more than ASO. While you might be inclined to evaluate costs, be mindful of the ROI component, too. It may cost more to work with a PEO, but you’re getting more in-depth layers of support and HR services. Likewise, you need to consider the employee benefit aspect of this approach. For many owners, the ROI for PEO is significantly improved also considering improved health insurance options, employee retirement plan offerings, and other ancillary benefits such as dental, vision, life, and disability coverages.
The one advantage that often seals the deal for companies considering a PEO or an ASO is risk mitigation. With a PEO co-employment arrangement, the PEO shares the risk with the business owners, including workers’ compensation, regulatory compliance, tax filing, and employee relations issues. Alternatively, an ASO provides HR advice and assistance, but all associated risk remains with the owners of the business.
Another consideration to help decide between an ASO and a PEO involves the employee experience. Both the ASO and PEO process employee payroll and communicate with employees about certain HR topics. However, the PEO is the only one of the two that provides and administers employee benefits. The improved benefit offerings in the PEO relationship often help smaller employers compete for and retain talented employees.
All in all, working with a PEO offers more services and benefits to your company than an ASO. And when you’re ready to start evaluating the right-fit PEO partner, make your first call to Human Capital Concepts. Our teams of HR pros can work with you to facilitate all your HR needs, benefit and retirement plan administration, payroll processing, tax filings, and compliance efforts. And when HCC handles your HR for you, you can focus on what you do best – run your business.