What’s the Big Difference Between a PEO and an ASO (And Which One Should You Choose?)
HR outsourcing can take many different forms. From using an outside firm for a single element of the HR process to entering a co-employer partnership with a PEO, the approach you take depends on the needs of your company and your reasons for outsourcing.
As you work through the possible options, you may have some questions about the type of firm you should work with:
- What is the difference between a PEO and an ASO?
- What does the relationship with each provider look like?
- Do they offer the same services?
In this post, we’ll address those questions by taking a look at the pros and cons of a PEO vs. an ASO, and then we’ll address the Big Difference between the two.
PEO: Professional Employer Organization
PEOs handle your full range of HR tasks and processes, including payroll, compliance, safety, risk management, recruiting, training, and more. They can assist with onboarding, answer employee questions about benefits and withholdings, and manage workers’ comp claims. You retain decision-making power and responsibility for the operation of your business.
Pros of the PEO Model:
- Manages your total HR function—both administrative and strategy
- Manages vendor interactions
- Sponsors benefit and workers’ comp
- Better SUTA rates
- Assumes responsibility for tax filing, compliance, and risk management
- Shared risk
Cons of the PEO Model
- Less flexibility in choosing benefits providers
- Potential for unexpected changes in coverage
- May seem less personal than an in-house HR office
ASO: Administrative Services Organization
ASOs manage many of the same HR tasks and administrative operations that PEOs do, but they do not usually offer benefits coverage or workers’ compensation insurance. They will, however, assist you in securing coverage and in some cases they may offer coverage through the ASO for an additional fee.
Pros of the ASO Model:
- Offers à la carte services so you pay only for the services you need
- Client retains functional control over HR processes
- Provides administrative and back office support
- Expertise in areas like compliance, tax filing, and legal questions
Cons of the ASO Model:
- Does not sponsor benefits coverage
- Does not provide workers’ compensation coverage
- Client is responsible for vendor interactions
- Does not assume risk
The Big Difference
Weighing the pros and cons of each solution gives you a clearer understanding of how each one can help you manage your HR function, but it doesn’t answer the most basic question:
What is the primary difference between a PEO and an ASO?
Here’s the Big Difference: A PEO becomes the employer of record. An ASO doesn’t.
When you partner with a PEO, they essentially become your co-employer. They will file taxes under their Tax ID number, assume responsibility for compliance, and share the burden of risk. In many cases, they can also offer better insurance rates based on economy of scale.
PEOs make a good fit for small to mid-sized businesses that can’t support an internal HR staff or that need the expertise of an external provider for regulatory and legal issues. By freeing up internal resources, PEOs help smaller businesses focus on their core competencies, giving them the freedom they need to grow.
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