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As businesses grow, so does the complexity of managing human resources, payroll, and compliance. Many companies, especially small to mid-sized ones, face significant challenges in managing these functions effectively. Outsourcing HR functions can be a cost-effective and efficient way to handle the administrative burden. Two popular solutions that businesses consider are ASO (Administrative Services Organization) and PEO (Professional Employer Organization).

Although both solutions can streamline HR processes, they differ in how they operate and what they offer. We will compare the ASO vs. PEO HR solutions, exploring their respective roles, advantages, and the types of businesses each solution is suited for.

What is an ASO (Administrative Services Organization)?

An Administrative Services Organization (ASO) offers outsourced administrative support for HR-related functions such as payroll, benefits administration, and compliance management. However, unlike a PEO, an ASO does not assume responsibility for the employer-employee relationship. Instead, the ASO works on a fee-for-service basis and handles specific administrative tasks, while your business retains full control over its workforce.

ASOs are typically hired by businesses that want to outsource certain HR functions but still wish to manage their employees independently. ASOs do not become co-employers, and your business remains the sole employer. Instead, ASOs offer the following services:

 

  • Payroll Processing: ASOs handle payroll management, ensuring that employees are paid on time and that taxes are filed accurately.
  • Benefits Administration: ASOs help manage employee benefits such as health insurance, retirement plans, and other perks, but your company remains responsible for offering and overseeing these benefits.
  • Compliance Support: ASOs help your business stay in compliance with federal, state, and local labor laws. This includes ensuring tax filings are completed, benefits are administered correctly, and reporting requirements are met.
  • HR Consulting: Some ASOs offer HR consulting services to help businesses with areas such as employee relations, performance management, and training.

 

ASOs generally offer flexibility, allowing businesses to pick and choose which HR services they want to outsource. However, unlike a PEO, ASOs do not provide access to a broader employee benefits package, and businesses must still handle employment-related risks, such as workers’ compensation and insurance coverage, independently.

What is a PEO (Professional Employer Organization)?

A Professional Employer Organization (PEO), on the other hand, operates in a fundamentally different way. PEOs enter into a co-employment relationship with your business. This means that the PEO becomes a co-employer of your employees, sharing responsibility for employee-related tasks and legal obligations. As a co-employer, the PEO handles many of the administrative and compliance duties that come with being an employer, allowing your business to focus on its core operations.

PEOs typically offer a full suite of HR services, including:

 

  • Payroll Administration: PEOs manage all aspects of payroll, including tax filings, pay processing, and any deductions related to employee benefits.
  • Employee Benefits: PEOs provide access to a wide range of employee benefits, such as health insurance, retirement plans, dental and vision plans, and more. The PEO can negotiate better rates on behalf of your employees due to their large pool of clients.
  • Workers’ Compensation Insurance: PEOs manage workers’ compensation claims and often provide access to better insurance rates, especially for small businesses, because of the collective buying power of the PEO.
  • Compliance and Risk Management: PEOs assume responsibility for keeping your business compliant with federal, state, and local employment laws, such as OSHA regulations, FMLA, and other labor laws.
  • Employee Management and HR Support: PEOs offer assistance with hiring, onboarding, employee relations, performance management, and terminations. The PEO also provides guidance on managing employee issues.

 

The co-employment relationship between a PEO and your business means that the PEO takes on many of the legal responsibilities associated with being an employer. The business owner remains in charge of day-to-day employee management, but the PEO handles the back-office functions.

Key Differences Between ASO and PEO

Now that we’ve defined ASO and PEO services, let’s understand the key differences between these two models. Choosing the right service depends on the structure of your business and the level of HR support you require.

Co-Employment vs. Outsourced Services

The most significant difference between an ASO and a PEO is the co-employment relationship. With a PEO, your business shares employment responsibilities with the PEO. This means that while you manage day-to-day employee functions, the PEO is responsible for several legal and compliance aspects, such as tax filings, benefits administration, and workers’ compensation insurance.

On the other hand, an ASO does not engage in co-employment. Instead, the ASO acts as an outsourced provider of specific services, while your company retains full control over employment decisions. If you prefer to maintain a greater level of control over your workforce and HR processes, an ASO might be a better fit.

Control Over Employee Management

Another key difference between ASOs and PEOs is the level of control your business maintains over its employees. With an ASO, your business keeps complete control over hiring, firing, and managing employees. The ASO’s role is limited to providing administrative support, such as processing payroll and managing benefits.

With a PEO, the co-employment relationship means the PEO shares certain responsibilities related to managing your employees. While your business retains control over day-to-day management, the PEO has a say in areas such as benefits administration, compliance, and risk management. This arrangement can be beneficial for businesses that need a full-service HR solution but don’t want to become overwhelmed by the administrative burdens of managing employees.

Employee Benefits and Insurance

PEOs generally offer a much more extensive range of employee benefits than ASOs. The co-employment structure of a PEO allows it to negotiate better rates for employee benefits, such as health insurance, retirement plans, and other perks. This makes PEOs an attractive choice for businesses that want to offer competitive benefits packages to their employees but may not have the resources to do so independently.

ASOs, however, do not have the same purchasing power as PEOs. While they can help manage benefits, they don’t typically offer the same breadth of options as a PEO. If offering a comprehensive benefits package is a priority for your business, a PEO might be the better choice.

Cost Structure

The cost structure for ASOs and PEOs also varies. ASOs typically charge a flat fee for their services, which may be based on the number of employees, the services required, or a combination of both. This makes ASOs a good option for businesses that need specific HR services but want to avoid paying for services they don’t need.

PEOs usually charge a percentage of your total payroll. While this can result in higher costs as your business grows, it also includes a broader range of services, such as workers’ compensation insurance and access to employee benefits. If your business is growing quickly and needs comprehensive HR support, the cost structure of a PEO may be more cost-effective in the long run.

Which Solution Is Right for Your Business?

Choosing between an ASO and a PEO depends on your business’s specific needs. Both solutions offer valuable services, but they are best suited for different types of organizations.

Consider an ASO If:

  • You prefer to maintain full control over your employees and HR processes.
  • You only need specific HR services, such as payroll and compliance assistance.
  • Your business has a strong internal HR team and you want to outsource certain administrative tasks.
  • You don’t require a comprehensive employee benefits package and prefer more flexibility in benefits offerings.
  • You’re a smaller business that doesn’t need the full suite of services offered by a PEO.

Consider a PEO If:

  • You want to outsource the majority of your HR functions, including compliance, benefits administration, and risk management.
  • Your business is growing rapidly and needs a scalable HR solution that can handle the administrative burden.
  • You want to offer a competitive benefits package to attract and retain talent.
  • You need access to workers’ compensation insurance and the expertise to manage risks effectively.
  • You’re willing to share some control over your workforce management in exchange for comprehensive HR services.

COMPEO: Accelerate Your Success with Streamlined Payroll and HR Services

Both ASOs and PEOs offer valuable services for businesses looking to outsource HR, payroll, and compliance functions. The key difference lies in the level of involvement each service has with your workforce.

At COMPEO, we specialize in providing comprehensive payroll, HR, and workers’ compensation solutions tailored to businesses across various industries. This includes construction, hospitality, medical, and white-collar professional sectors. Founded in 2021, we have quickly become one of the fastest-growing companies in America, securing the #17 spot on the INC 5000 list for 2024.

Our solutions are designed to simplify your operations, boost efficiency, and help you maintain compliance. From flexible workers’ compensation programs to the COMPEO mobile app access for payroll management, we focus on delivering the tools that enable your business to grow.

If you’re ready to streamline your HR processes and take your business to the next level, we’re here to help. Contact us today at 1 (855) 688-0104 or request an online quote to get started with COMPEO.