ASO vs. PEO: What’s the Difference?

An ASO is a third-party vendor that offers specific outsourced HR services. Unlike other HR providers, HR ASOs allow you to pick which services you want, so you only have to pay for the services you actually need. 

This is not a co-employment situation, so employers still carry the full level of risk and liabilities. Instead, businesses contract with the ASO to get help with benefits administration, payroll, and HR tasks. 

What Services Are Offered by an ASO?

Each HR ASO is different, so the services offered can vary. Additionally, you aren’t required to sign up for every service. In general, the more services you need, the higher the overall cost will be.

• Payroll processing
• Compliance support
• Risk management
• HR tools, like performance management and time-tracking platforms
• Benefits administration
• Leave administration
• Workers’ compensation insurance
• Performance management
• HR assessments for your company’s existing processes
• Employee relations

Before you work with an ASO, you should always ask about the services they have available. While these are common ASO services, not every ASO has them. For the best results, you need an ASO that has the exact service options and cost you need.

The Advantages of an ASO

By partnering with an ASO, you can enjoy a few important benefits.

• Expert Support: An ASO provider spends all of its time working with HR and payroll compliance, so it has developed significant expertise on the topic.
• Efficiency: By using an ASO, you can make your company more efficient. 
• Employee Satisfaction: When employees have access to top-quality benefits and excellent support, it can boost their overall morale and satisfaction.
• Flexibility: An ASO lets you select the individual services you want, allowing you to achieve a higher level of flexibility.
• Cost Savings: If you don’t have a large enough company to spread out the cost of an HR and payroll team, switching to an ASO can save you money. 

The Disadvantages of an ASO

Before you sign an ASO contract, it’s a good idea to consider some of the drawbacks associated with the arrangement. 

• Cost: While an ASO can lower costs, there are situations where it can increase costs instead. If you need many services and have to buy all of them individually, it can quickly get expensive.
• Limited Benefits Access: In general, ASOs offer significantly less access to group benefits plans than PEOs.
• HR Vendor Management: Unlike a PEO, an ASO provider typically doesn’t manage vendor relationships on your behalf.
• Risks: With an ASO, you still carry the full liabilities and risks associated with being the employer. An ASO is not a co-employer model.

Currently, around 200,000 American businesses work with a PEO. Since 2012, the industry has quadrupled in size. Today, the PEO industry brings in $414 billion in revenue every year. 

One of the reasons for this employment model’s popularity is the convenience and risk management it offers. PEOs are co-employers, so they take on a share of the liability and risk. The PEO manages your HR and payroll compliance, while you deal with the day-to-day aspects of running your company. 

What Services Are Offered by a PEO?

Because of how PEOs are set up, they typically sell services as a package. You can’t simply choose not to have some of these PEO services, although there may be add-ons you can get as an extra option. 

Once you work with a PEO, you are no longer in charge of reporting employee wages or withholding taxes. Instead, the PEO is responsible for processing payroll using its federal employer identification number (EIN).

Although each PEO provider is different, you’ll typically find the following range of services.

• HR consulting
• Payroll processing
• HR compliance
• Employee safety guidance and support
• Risk management
• HR technology platforms, like time-tracking and attendance tools
• Employee development support
• Worker’s Compensation

The Advantages of a PEO

When you partner with a PEO, there are a few common benefits you can expect to enjoy.

• Cost Savings: As your company grows, it can be time-consuming and expensive to add HR and payroll staff. By using a PEO, you can reduce these expenses and have an easier time scaling your organization.
• Expert Support: PEOs specialize in being co-employers, ensuring a high level of expertise.
• Liability: A PEO is a co-employer, so it takes on your HR and payroll compliance risks and liabilities. 
• Benefits: As your co-employer, the PEO is in charge of making sure your benefits align with state, federal, and local laws. Because they have multiple PEO clients, they can often offer a broader range of benefits at a lower cost.
• Employee Satisfaction: Thanks to better HR management and improved benefits, PEOs can often boost employee satisfaction and morale.
• Turnover Rates: Companies that hire PEOs have turnover rates that are 12% lower than those of other organizations.

The Disadvantages of a PEO

Although there are many benefits to using a PEO, there are also important drawbacks you should be aware of.

• Operational Control: Once you hire a PEO, they are solely in charge of your HR and payroll because they are the employer of record. Because of this, you lose some of your operational control.
• Flexibility: PEOs offer a package of services, so there is less flexibility in which options you can receive.
• Cost: If you only wanted a single service, paying for the entire package of PEO services can quickly get expensive. 
• Organizational Culture: The PEO’s culture can be entirely different from yours. Because the PEO interacts with your employees whenever they have a question or need support, this can end up leading to issues.

While a PEO and an ASO are both outsourcing companies, there are key differences between how these two options work. If you are unsure about which option makes sense for your business, reach out to our HR experts today.

The following are some of the most important differences you should know as you try to decide which choice will work best for your company.

PEOs and ASOs provide many similar services, but there are distinct differences between the two types of providers. A PEO is the employer of record and a co-employer, so it shares in your employment responsibilities. PEO companies offer a full scope of services that are bundled together and handled by their staff members. 

An ASO is convenient if you simply want to access a handful of services. You retain full control of your workers, but the ASO provides expert support in handling your HR and payroll services.