PEO, ASO, or HRO: Which Solution is Right for You?
HR outsourcing is an increasingly attractive option for small business owners looking to offload some of the administrative burden of running a business. As you’re looking into outsourcing some or all of your HR functions, you will come across a number of different types of providers. These differing approaches to outsourcing carry different benefits and ramifications for your business, which is why it’s important to understand what they can (and cannot) do for you.
In this post, we’ll take a look at three of the most common types of HR outsourcing providers: PEO, ASO, and HRO.
PEO: Professional Employer Organization
The distinguishing feature of a PEO as compared to other HR outsourcing options is that when you partner with a PEO, they become the employer of record. PEOs provide a full range of services to their clients, including basic HR functions like payroll, benefits, safety and risk management, workers compensation, and compliance as well as strategic services such as safety training, leadership training, career transitions, ethics, and recruiting.
As the employer of record, the PEO removes much of the administrative burden as well as the burden of risk from your company. Benefits of the partnership include:
- Vendor Management—The PEO offers one point of contact for all your administrative needs and communication requirements. Rather than scheduling meetings with your insurance broker, payroll company, legal advisor, tax advisor, and numerous others, you can discuss everything in one meeting with your PEO.
- Expertise on HR tasks and functions—An experienced PEO makes routine HR tasks easy by removing the burden from the business owner. Their expertise in areas like tax filing, compliance, and workers compensation help you keep your business running smoothly while protecting you from violations or legal problems.
- Shared risk, better employee benefits—A PEO provides economy of scale, enabling small businesses to access better benefits and insurance rates that would normally not be available to them based on their size.
- Better SUTA Rates—In many cases, a PEO can reduce your SUTA rate by paying employees under their experience rate instead of yours. They will also calculate SUTA for you, which is extremely helpful for businesses with employees in multiple states.
- Compliance Management—Your PEO will handle compliance research and maintenance in areas like safety, tax filing, and workers compensation, freeing up hours of your time each week and protecting you from litigation.
ASO: Administrative Services Organization
When you work with an ASO, your business retains a unique Tax ID number, meaning that the ASO is not the employer of record. This is the primary difference between the ASO and the PEO. The ASO will manage daily operations and HR tasks, but usually do not sponsor benefits or workers compensation coverage, except as part of a service agreement that may assess an additional cost. Although they do not hold the final responsibility on issues like legal questions, compliance, and benefits, they do offer assistance with information about these issues. In addition, the ASO will handle:
- Payroll
- Tax filing
- Risk and safety information
- Evaluation and processing of claims
- Time and Attendance
- Recruiting
- COBRA
- Other administrative tasks as specified in the agreement
HRO: Human Resource Outsourcing
Like the ASO, HRO solutions do not provide an employer partnership, meaning that the client remains the employer of record. An HRO provider will manage your HR processes for you. You can choose to outsource the entire HR department or only those tasks for which you need additional expertise. They will use their own technology and tools to develop a solution that meets the needs of your business. An HRO is often a good choice for large businesses that wish to maintain an added measure of control over their business processes, but need help with administrative tasks or other HR functions.
Which HR Outsourcing Option Is the Right Choice for You?
PEO, ASO, and HRO providers offer similar types of services to the client, but each model brings unique value based on the specific terms of the agreement. The PEO is an excellent choice for small businesses, because as the employer of record, they shift much of the risk and responsibility away from the small business and onto the PEO. The business retains control over all business critical decisions and growth activities, while the PEO manages time-consuming and risky processes such as workers compensation, benefits administration, compliance, and tax filing.
ASO and HRO models may also be a good choice, depending on how much administrative responsibility you want to keep in house. Ultimately, however, PEOs offer the greatest flexbility and the greatest support for small businesses looking to offload some or all of their administrative burden.
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