PEO vs. Administrative Services Organization: What’s the Difference

Jan 19, 2020Blog0 comments

Human resources outsourcing is on the rise. The market is expected to grow around seven percent annually in the next few years.

It’s easy to see why outsourcing HR has become more popular. Expert teams can provide so much more, including better advice and flexible services.

One question you have as a business owner is who you should partner with when it’s time to outsource HR. There are several different kinds of HR providers. These include an administrative services organization and a professional employer organization.

What’s the difference between a PEO and an ASO anyway? This guide will help you discover the differences and decide which one is the right fit.

The Administrative Services Organization

If you’re just beginning to research HR outsourcing services, you may feel a bit overwhelmed. What is ASO? What does an ASO business do?

ASO stands for administrative services organization. This type of HR provider offers help with many of the routine tasks you’ll face in your business, often in an a la carte way. You can pick and choose the services you need and leave those that you don’t.

A provider working under the ASO model offers many HR services to your business. They usually manage compliance and offer HR support for your business. They may also provide payroll and assist with filing your taxes.

ASO providers may also offer benefits administration. In rare cases, a provider may get coverage. More often, you’ll need to provide your own benefits coverage.

The Professional Employer Organization

Now you know what an administrative services organization does. So what’s a PEO do?

A professional employer organization can do everything the ASO does, and then some. The big difference between the two types of provider is the extent of service they provide. PEO services usually go a step beyond what the ASO offers.

Another major difference between a PEO and an ASO is how they handle your employees. With an ASO, you are the employer of record, which means you’re responsible for your employees. The ASO may help you manage your people and policies, but they don’t act as an employer.

That’s one reason the ASO may or may not manage unemployment claims or get benefits coverage. You’ll also be liable to payroll tax, among other things. In short, you assume all the risk associated with employing workers for your business.

With a PEO policy, you enter into a co-employment agreement. That is, you and your PEO partner jointly act as employers. This allows the PEO to assume some of the risk and share it with you.

The PEO can:

  • Pay taxes
  • Manage claims and safety programs
  • Obtain and administer benefits
  • Use their own SUTA rate

That’s in addition to offering payroll, compliance management, and unemployment claim management. When you work with an ASO, you’ll have to use your own SUTA rate and manage your own safety programs.

Responsibility for Workers’ Compensation

Another major difference between PEOs and ASOs is the responsibility for workers’ compensation.

A PEO usually offers their clients coverage under their master policy. In some cases, they work to coordinate their policy with yours in states that allow sharing.

An administrative services organization can’t offer workers’ compensation insurance. Coverage must be provided by your own policy.

Which is Better?

After reading about the differences between PEOs and ASOs, you have one question.

Which is better?

The answer is, “The one that fits your business needs.”

Suppose you have great workers’ compensation coverage and good benefits, but you need help with payroll. Partnering with an ASO could be the right move.

If you need help managing your unemployment claims or access to a better workers’ compensation program, a PEO is likely the right choice.

Many small business owners find the PEO model offers them some unique advantages. The shared liability can make the difference when it comes to claims management. Working with the PEO allows small business owners to offer their employees more.

The PEO’s more encompassing solution also tends to offer better scalability and value to a company.

Take this example. In some states, you don’t need to get workers’ compensation right away. You may decide to partner with an ASO.

When you do have enough employees for your state’s requirements to kick in, you may need to rethink working with the ASO. Partnering with a PEO in the first place saves this step.

How to Choose a Provider

Another question is likely looming large in your mind. How do you find the right partner for your business?

In many ways, either a PEO or an ASO can be a great fit for many small businesses. Making the right choice often hinges on finding the right partner, especially since both PEOs and ASOs offer many of the same services.

Suppose you’re really in need of someone to help with payroll. You could partner with an ASO, but PEOs also offer payroll services.

While you may not need everything the PEO offers right now, you might still want to talk to a few PEOs and get quotes. You may find a PEO that offers great service for the right price.

The first step in choosing the right provider, whether it’s an ASO or a PEO, is doing your research. Read reviews and case studies. Talk to companies and get quotes.

Once you’ve had a chance to test each provider’s offerings, you can compare the value they offer your company.

Finally, be sure to consider scalability. Can the provider grow with you? If you need different services tomorrow, will they be able to help?

The Right HR Provider for Your Business

Now you know the major differences between an administrative services organization and a professional employer organization. This information should help you choose the right type of provider for your business.

If you’re thinking a PEO might be right for your business, get in touch with an expert team today. Discover just what the right PEO policy could do for you.

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