ASO vs. PEO: Which is Right for Your Business?

What is an Administrative Services Organization (ASO)?

Simply speaking, an administrative services organization is a company that contracts with employers to provide administrative and HR services. An ASO is an HR outsourcing partnership in which employers pick and choose from several services (recruitment, benefits administration, payroll, etc.), allowing them to essentially build their own offering from an a la carte menu of available services.

This is similar to many other business process outsourcing (BPO) service models and vendor/client relationships. For large and established companies that have an existing structure in place for HR, an ASO can be a good option – one that allows your in-house HR team to offload time-consuming administrative tasks, so they can focus on strategic, long-term initiatives.

What is a Professional Employer Organization (PEO)?

A professional employer organization arrangement is slightly more involved than an ASO arrangement. When a company decides to partner with a PEO, they enter into a co-employment relationship with their provider. This relationship allows the PEO to act as the “employer of record” for its clients’ employees, giving the PEO authority to perform many of the tedious administrative tasks associated with being an employer on the company’s behalf.

The co-employment relationship also facilitates shared liability between the PEO and its clients, which allows the PEO to assume some of the risk of carrying employees. And because PEOs become the employer of record for their clients’ employees, they’re able to pool employees from their entire client base – giving them the ability to negotiate significantly lower rates and premiums on insurance plans and technology platforms than a smaller employer could do on their own.

Compared to an ASO arrangement, the PEO service model offers employers a more comprehensive outsourced HR option, and it typically works best for small and mid-sized companies, rapidly growing companies, and companies that are just starting out.

What is the difference between ASO and PEO?

When assessing an ASO vs. PEO to decide which is best for your organization, it’s important to understand their key differences. Both provide similar HR services, but how those services are structured and delivered vary.

Co-employment agreement
As mentioned above, when you choose to partner with a PEO, you enter into a co-employment agreement, which allows the professional employer organization to perform administrative HR duties on your behalf. And though the PEO shares employment-related liability with your company, you will continue to manage day-to-day operations, retain full control over your employees, and handle all business decisions.

With an ASO, you do not enter into a co-employment agreement, but rather a traditional vendor/client relationship. As such, you are liable for all risk associated with carrying your employees.

In-house HR staff
Because a PEO becomes the “employer of record” for your employees, enabling them to manage administrative HR tasks for your company – it can reduce the need for a full in-house HR team, or it can free up team members (currently bogged down with HR tasks) to focus on more strategic initiatives. You will, however, likely need to designate an employee to be a liaison between your company, your employees, and the PEO.

When working with an ASO, you can choose which HR services you need assistance with, which means you are likely managing some HR tasks on your own. You’ll need an in-house HR team or staff member to manage those tasks, in addition to common actions such as approving payroll.

Full service vs. a la carte
While not all PEOs are exactly alike, many like G&A Partners offer a comprehensive, full-service solution that encompasses a broad scope of HR services. An ASO, however, typically allows you to pick and choose the HR services you need.

What are the similarities between an ASO and PEO?

Since both an ASO and PEO are designed to help you with your HR needs, they do have some similarities:

• When comparing an ASO vs. PEO, you’ll find that both provide some of the most common HR tasks, such as payroll processing, benefits administration, assistance with regulatory compliance, and more.
• ASOs and PEOs are cost-effective alternatives to in-house HR.
• Generally, both types of HR outsourcing providers offer access to a single source data system, eliminating the need to reenter data and reducing data entry errors.
• Both provide benefits administration. With a PEO, you also gain access to high-quality, affordable employee benefits packages. Some ASOs may be able to help you obtain benefits.

Which is right for your company?

When deciding between an ASO vs. a PEO, you should make sure you know exactly what you’re looking for from your provider. To help you narrow in on your specific needs, ask yourself these questions:

• How much help do you need?
  • Does your company just need help with one or two key functions, or do you need help with every aspect of your company’s HR? Are you simply looking for a service provider, or do you want access to a team of HR experts who can help you design policies, offer compliance guidance, and more?
• What’s your budget?
  • While both ASOs and PEOs offer employers a much more cost-effective alternative to handling HR in-house, you should have a general idea of what you’re willing to pay before you begin your search. Generally speaking, PEOs charge for their services either as a percentage of total payroll (usually between 3-8 percent), or as a flat, per-employee-per-year fee. ASOs also typically charge on a flat, per-employee basis, depending on the services purchased.
• Why are you choosing to outsource your HR?
  • This is perhaps the most important question you should ask yourself prior to choosing the type of HR provider for your business. Are you looking for a provider to augment your existing staff, or are you looking for someone to completely take over your company’s HR responsibilities?

Both the ASO and PEO service models help you lighten the burden of HR and administrative tasks, as well as provide you with much-needed tools and expertise. The key differentiating factor between these two models is the way the services are delivered. Depending on what your company is looking for, one model may make more sense than another. Either way, however, by outsourcing HR and administrative tasks your company is sure to enjoy a more efficient and cost-effective solution to HR.