What is a PEO?
A Professional Employer Organization (PEO) is a company that provides comprehensive HR solutions to businesses. By partnering with a PEO, businesses can outsource various HR functions, such as payroll processing, employee benefits administration, compliance management, and risk management. Essentially, a PEO becomes the employer of record for the client’s employees, taking on legal and administrative responsibilities. This allows businesses to focus on their core competencies while relying on the expertise of the PEO to handle their HR needs.
What is an ASO?
An Administrative Services Only (ASO) is a service that provides businesses with administrative support for their HR functions. Unlike a PEO, an ASO does not become the employer of record for the client’s employees. Instead, it works alongside the client to handle specific HR tasks, such as payroll processing, benefits administration, and compliance management. With an ASO, businesses retain control over their employees, while benefiting from the expertise and support of the ASO in managing their HR needs.
Key Differences between a PEO and an ASO
In today’s competitive business landscape, companies are constantly seeking ways to streamline their operations and improve efficiency. One area where businesses often seek outside help is in human resources (HR) management. This is where Professional Employer Organizations (PEOs) and Administrative Services Only (ASO) providers come into play.
While both PEOs and ASOs offer HR solutions, there are some key differences between the two. Understanding these differences can help businesses make an informed decision and choose the option that best suits their needs.
1. Employer of Record Status
One of the key differences between a PEO and an ASO is the employer of record status. With a PEO, the organization becomes the employer of record, also referred to as co-employment, for the client’s employees. This means that the PEO takes on legal and administrative responsibilities, including payroll taxes, workers’ compensation, and employment laws compliance. In contrast, an ASO does not become the employer of record. The client business retains this status and remains responsible for these obligations.
2. Risk Management
Another important distinction between a PEO and an ASO is the level of risk management provided. With a PEO, the organization assumes a higher level of risk management responsibilities. This includes managing workers’ compensation claims, unemployment claims, and employee misconduct issues. On the other hand, an ASO typically provides limited risk management support or might not offer it at all. The client business would be responsible for managing these aspects on their own.
3. Control and Flexibility
When it comes to control and flexibility, an ASO offers more autonomy to the client business. Since the client retains the employer of record status, they have greater control over HR decisions and the ability to customize HR policies and practices. In contrast, a PEO limits the client’s control to an extent, as the PEO becomes the legal employer for HR purposes. This may result in less flexibility in certain HR areas, such as benefits offerings or employee policies.
4. Regulatory Compliance
Both PEOs and ASOs can help businesses with regulatory compliance, but the level of support may differ. A PEO typically takes on a greater role in ensuring compliance with employment laws and regulations. This includes staying up to date with changes in legislation, providing guidance on compliance requirements, and managing employee-related paperwork. An ASO, on the other hand, may offer more limited compliance support or leave it entirely up to the client business.
5. Employee Benefits
Another important difference between a PEO and an ASO is in the area of employee benefits. A PEO often offers a wide range of benefits options to client businesses and their employees. This can include health insurance, retirement plans, and other voluntary benefits. The PEO leverages its size and buying power to negotiate competitive rates and offer a comprehensive benefits package.
In contrast, an ASO typically does not offer employee benefits directly. They may, however, assist the client business in finding and selecting benefit providers. This can involve researching different options, obtaining quotes, and providing guidance on the selection process. Ultimately, the client business remains responsible for managing and administering the employee benefits programs.
6. Cost Structure
One of the main differences between a PEO and an ASO is their cost structure. A PEO typically charges a bundled fee that covers a range of HR services, including payroll, benefits administration, compliance management, and others. This fee is usually based on a percentage of the client’s payroll. On the other hand, an ASO often charges a fee for each specific HR service provided or offers a customizable package based on the client’s needs. The cost structure of an ASO may be more flexible and tailored to the specific requirements of the client business.