PEO vs ASO: Understanding the Differences

When it comes to scaling your business, HR support is crucial. Whether you're a startup entrepreneur or an experienced HR professional, understanding the differences between Professional Employer Organizations (PEOs) and Administrative Services Organizations (ASOs) can help you make an informed decision. These services can streamline your HR processes, reduce administrative burdens, and ensure compliance with regulations. But which one is right for you?

While both can enhance your HR functions, understanding their differences is essential for choosing the right partner for your business.

In this post, we will explain PEOs and ASOs, how they differ, and which might be the best fit for your needs. This will help you clearly understand the advantages and disadvantages of each and make an informed decision.

Understanding the Differences Between PEOs and ASO’s

PEOs and ASO’s are third-party service providers that handle HR functions, but they do so in different capacities. Let's examine each term.

What is a PEO?

A PEO provides comprehensive HR support, handling everything from payroll processing to benefits administration, helping businesses streamline processes and incur cost savings by making procedures more efficient. PEOs can often secure better rates for benefits and insurance by pooling employees from multiple client companies, giving clients access to high-quality and lower-cost benefits plans.

PEOs also take on some of the compliance risk and help to ensure regulatory compliance - so your internal team no longer has to worry about regulatory changes. Their extensive expertise in HR management offers critical advice to your team and allows your company to focus more on core activities, driving growth and productivity.

What is an ASO?

An ASO offers HR support and handles various administrative tasks, such as payroll processing, employee benefits administration, and compliance assistance. They provide the expertise and resources needed to manage complex administrative tasks, reducing your company's administrative burden. However, they do not take on the same risk or handle tasks as comprehensively. They can facilitate smoother operations, but the company is responsible for conducting most of its regulatory tasks.

How Services Differ Between PEOs and ASO’s

Let's break down how each entity handles different HR functions to understand the best service.

Employment Relationship

• PEO – A PEO enters a co-employment relationship with your company, sharing responsibilities and liabilities with the employees. This means the PEO becomes the employer of record for tax and compliance purposes.
• ASO – With an ASO, your company maintains a direct employment record with its employees. The ASO provides administrative support but does not share liability.

Employee Benefits

• PEO – The PEO provides access to its comprehensive employee benefits plans, often offering better rates due to aggregated purchasing power. This can result in significant cost savings for your business.
• ASO—Employee benefits are typically offered through your company's plans, with the ASO providing administrative support.

Regulatory Compliance

• PEO — The PEO shares the responsibility for regulatory compliance, taking on a more active role in ensuring adherence to employment laws. This reduces your company's risk and ensures compliance more effectively.
• ASO—Your company is primarily responsible for complying with employment laws and regulations, and the ASO provides guidance and administrative support.

Payroll Management

• PEO – The PEO handles payroll processing and acts as the employer of record for tax and compliance purposes. This can simplify payroll management and reduce administrative burdens.
• ASO – The ASO manages payroll, but your company remains the employer of record on all payroll documents.

Risk Management

• PEO – The PEO may assume certain liabilities, such as workers' compensation and employee-related lawsuits, which can significantly reduce your company's risk exposure.
• ASO – Risk management services are typically limited to advisory roles, with your company bearing most of the liability.

Tips for Choosing the Model That Works for You

Both models provide HR support, but the level of support your company needs will significantly affect which one is best for you.

Consider Your Compliance Needs

PEOs provide comprehensive support and help manage compliance and liability, helping your company remain in good standing while reducing the burden on your internal team to keep up with constantly changing regulations. This can be particularly beneficial for businesses in highly regulated industries or those with a high level of employee-related risk, as it provides additional cover to demonstrate your commitment to compliance.

Evaluate Cost Savings

PEOs often offer lower costs for benefits such as insurance and workers' compensation by achieving better economies of scale that help them bulk rates and use their leverage in negotiating. They help you offer quality benefits at a lower cost while streamlining your work efficiencies in other areas (like payroll) to achieve cost savings across the board.

Assess Your Internal Resources

The ASO model does not integrate directly with your team. They take on administrative tasks and help keep you up to date with regulations without taking on the risk themselves. If you have a strong HR team that can manage compliance and risk internally, an ASO can sufficiently help lower their administrative burden.

With TEL – You Can Choose!

Certain HR partners, like TEL, are equipped to offer both models and will customize their service offerings to fit your needs. Whether you need the comprehensive support of a PEO or the administrative assistance of an ASO, TEL can help you find the right solution for your business.

Understanding the differences between ASOs and PEOs is crucial for making an informed decision about which type of HR support is best for your business. Both models offer valuable services that can reduce administrative burdens, ensure compliance, and help you focus on your core activities.

For businesses looking to explore these options further, consider partnering with a provider like TEL that offers both ASO and PEO services. This flexibility allows you to customize your HR support to fit your unique needs, ensuring you get the best possible outcome for your company.

Reach out today to get started!