ASO vs PEO: What’s The Difference?

When it comes to outsourcing your HR, it’s important to know your options. PEO and ASO services can help you save time and money while giving your employees great benefits.

But each service has its benefits for businesses. For instance, PEOs typically work best for small and midsized businesses, especially those looking to expand.

Curious to learn more about the differences between ASO vs PEO services? Keep reading to learn everything you need to know.

What Is a PEO?

The term PEO means professional employer organization. There are 487 PEOs in the United States.

PEOs help small and medium-sized businesses with a variety of HR services. These include payroll health benefits and workers’ compensation.

How Does a PEO Work?

A PEO works by offering its services as a “co-employer” relationship with a business. The PEO allocates employer responsibilities with its clients in a two-party agreement.

Usually, the PEO will handle all of the HR responsibilities of the clients who work with the company. These responsibilities will be expressed in a contract between the PEO company and the client.

This way, the client has a separate employment relationship with its employees. But the PEO will also provide worksite employees access to HR services, processes, and benefits that many small business employees would not normally have access to.

You may have the common misunderstanding that a company no longer has control over workforce decisions when it opts into co-employment. This isn’t true. Companies working with PEOs have control over their workforce and their day-to-day operations. They can benefit from the PEO’s HR expertise, offerings, and systems.

What Tasks do PEOs Handle?

PEOs handle different tasks depending on the allocation of responsibilities in the service agreement. The PEO usually takes over processing payroll, reporting wages, and assisting with HR tasks.

PEO services can prove more help with other tasks if agreed upon in the contract. The flexibility of PEOs is one of the reasons why they’re one of the fastest-growing service organizations in the United States.

What Is an ASO?

The term ASO stands for Administrative Services Organization. Unlike a PEO, an ASO does not establish a co-employer relationship.

For instance, an ASO doesn’t process payroll under its own EIN. It also doesn’t sponsor the health and welfare benefits of its customers’ employees.

How Does an ASO Work?

An ASO oversees the day-to-day administrative aspects of a company’s HR functions. It will not sponsor employee benefit programs or workers’ compensation. But it can assist in finding coverage.

With an ASO, a company will stay as the sole sponsor of all benefits and insurance coverage.

Primary Differences Between PEO & ASO

Essentially, PEOs and ASOs use a different business structure to do a few similar tasks. The PEO is the co-employer, but it only takes over tasks that you have assigned to it.

The PEO offers benefits as though it is the employer, even though this is not the case.  Because PEOs work with so many employees, they have access to higher-quality and lower-cost insurance plans.

A PEO will also use its own EIN for your company’s taxes. The ASO is not your co-employer, so it will not eremite taxes under its own EIN. It will just help your run payroll and obtain benefit plans.

Comparing ASO vs. PEO

We’ve explained the general business models of PEO and ASO. But each HR outsourced type has its benefits and drawbacks. Below we’ll discuss a comparison of the services, as well as pros and cons.

Benefits Flexibility

Choosing a PEO means you’ll choose from an outsourced selection of employee benefits. Plans are often high-quality but won’t give you as many options. PEO companies usually work out plans with their insurance partners and then offer them to you.

An ASO will allow your company to choose from more benefit plans. But with more choices come higher premiums and deductibles. Employees will also be subject to higher copays and out-of-pocket limits.

Costs

PEO costs depend on pricing models. Some PEOs charge a percentage of your payroll, while others will charge a flat fee for employees and administrative fees.

PEOs also may charge you on how much they spend on your taxes and insurance premiums.

ASOS usually will charge a flat fee per employee each month. Fees may be lower than a PEO’s costs, but you’ll also have access to fewer services.

Risk Absorption

With a PEO, you’ll have a partner. This means that you’ll share equal risk with the PEO.

The PEO will also offer HR services like workers’ comp, employee training, and regulatory compliance to help to lower your risk.

An ASO will take on none of the risks involved with your business. If you’re afraid of potential lawsuits or problems, an ASO won’t give you the security you want.

The Bottom Line

If you’re looking for a more postal touch to your HR with administrative support, then an ASO may be the better option for you. You won’t have a partner, but you will have the assistance you need.

Meanwhile, a PEO may be best for small and mid-sized businesses. They can do numerous helpful services under one roof.

While PEOs can be expensive, they’ll ultimately cost less than HR staffers. And the helpful advice they give you can save you even more in the long run.

And if you’re looking to expand your business globally – say to Spain – PEO services are the best bet. Click here to learn more about international PEO service offerings.

Leveraging Your Outsourced HR

Regardless of the HR services you choose, it’s important to be familiar with the industry. Understanding the differences between ASO vs PEO services will ensure you make the best decision for your business.

To learn more helpful business advice, visit the rest of our blog.