There are various ways to structure an administrative or HR outsourcing arrangement, and each has its strengths and weaknesses. Most full-service PEOs can structure their offering to match your needs, but before you can uncover the power of sharing certain liabilities through co-employment with a PEO, it is helpful to understand the distinction between the various models.
Comparing outsourcing models
- Administrative Service Outsourcing (ASO): Under an Administrative Service Outsourcing (ASO) arrangement, a service provider performs the administrative duties associated with one or more of your back office functions. Outsourcing tedious tasks, like payroll, HR or benefits administration, is very common. An administrative service provider can collect payroll data and cut checks or make direct deposits to your employees’ account. They can also conduct open enrollment for insurance benefits and assist in submitting benefit premiums on time. This can alleviate an administrative burden, but you and your company are still responsible for seeing that everything is done correctly and fully liable for any mistakes that might occur in the process.
- Human Resource Outsourcing (HRO): Using the Human Resource Outsourcing (HRO) model, a professional service provider essentially becomes an adjunct HR department for your company. Not only can they assist with administering payroll and benefits, but they can also help with hiring, training, compensation, succession planning and termination of employees. Outsourcing HR provides companies access to a breadth and depth of HR expertise that they often can’t sustain within their own in-house HR departments, but many of the responsibilities and all of the risks associated with employment still remain.
- PEOs & Co-Employment: Unlike other HR outsourcing arrangements, in a co-employment relationship, a PEO becomes the employer of record to your workers. So in addition to assuming much of the responsibilities for your company’s complex employee matters, such as employee relations, health benefits, workers’ compensation claims administration, payroll administration, payroll tax compliance, and unemployment insurance claims, a PEO also shares some of the risks of employment with you. That means that the PEO can share certain liability for monetary fees, penalties, or settlement obligations that can result from administrative mistakes and missed deadlines. (But thankfully, because the PEO is managing those administrative processes, such mishaps are rare.)
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