PEO vs ASO vs HRO - What is the difference?

Understanding PEO, ASO, and HRO

The fact that you have proceeded beyond the title of this article affirms that you either have some knowledge of these three acronyms or have just experienced a déjà vu moment recalling a recent family game night playing Scrabble.  What are PEO, ASO, and HRO? Why would a business choose one over the other? Your answers lie below.

In the world of business, understanding the differences between PEO (Professional Employer Organization), ASO (Administrative Services Organization), and HRO (Human Resources Outsourcing) can be crucial for making informed decisions about managing your workforce and optimizing your HR processes.

What is a PEO?

A Professional Employer Organization (PEO) arrangement is a co-employment relationship between a licensed Professional Employer Organization and a business (client).

In a PEO relationship, the PEO becomes the employer of record to assume and manage employer-related responsibilities such as payroll and tax compliance, human resources, workers' compensation, and employee benefits, among others.

Partnering with a PEO includes benefits such as transferring employer-related liabilities and responsibilities and providing an essential benefit by freeing up time for the business and key staff members to focus on core business activities versus employment-related, non-revenue-generating administrative activities.

“A Professional Employer Organization (PEO) arrangement is defined as a co-employment relationship between a licensed Professional Employer Organization and a business (client).”

So why would you choose the PEO option?

There are many factors to consider when choosing an outsourcing solution for your business. The PEO option provides so many benefits that I cannot highlight them in a single article. I can, however, highlight some of the key advantages of the PEO arrangement for you to consider:

• The first advantage is the Co-employment relationship. A simple definition - you transfer all of the payroll processing and tax compliance responsibilities to someone else.

• The second advantage is the state unemployment tax rate. A simple definition - you are now under the PEO's SUTA rate. If you have experienced high employee turnover in the past and a high SUTA rate, you could benefit significantly from being under the PEO's lower SUTA rate.

• The third advantage is the workers' compensation. A simple definition - you are now under the PEO's master workers' compensation policy and can say goodbye to annual workers' comp audits and premium deposits.

• The fourth advantage is expertise. A simple definition - you no longer have to be an expert at everything. Through the PEO relationship, you can access a team of professionals and industry experts dedicated to helping you manage your business's and your employees' risks and responsibilities.

Using a PEO will reduce business costs and free your management team from administrative work that slows productivity. Most importantly, it gives you the freedom to know you are working with a trusted organization that will enable you to concentrate on business. At the same time, we take care of your most important investment-your employees.

What is an ASO?

The ASO acronym has been defined using a few different terms, i.e. Administrative Services Only, Administrative Services Outsourcing, or Administrative Services Organization.

All these benefit businesses (clients) by offering a suite of services similar to the PEO arrangement, such as payroll and tax compliance, human resources, and insurance administrative services, including assistance with finding, implementing, and managing workers' compensation and employee benefits.

The significant difference between the PEO and the ASO is the co-employment relationship. Unlike the PEO arrangement, the employer retains the employer of record status with the ASO, and all payroll taxes are reported and filed using the client's FEIN.

Who may benefit the most from utilizing an ASO?

So why would you choose the ASO option?

Like the PEO, the ASO option provides a bundled suite of services to help you manage your business more effectively. Although the ASO arrangement is not a co-employment arrangement, it is designed to minimize your risks and liabilities through outsourcing key employment-related tasks and responsibilities to industry experts. The following are a few reasons you may consider the ASO option over the PEO option:

Specifically, businesses that stand to gain significantly from adopting an ASO model include:

• Companies that have a dedicated HR team but require additional assistance to manage their growing needs.

• Businesses that are looking to tailor HR solutions to enhance their existing infrastructure without completely overhauling their systems.

• Organizations that have established relationships with insurance brokers, carriers, and providers, and wish to maintain these while outsourcing the administrative tasks.

• Larger companies that benefit from large group status when negotiating health benefits, enabling them to leverage better terms and conditions.

The following are a few reasons you may consider the ASO option over the PEO option:

• The Co-Employment relationship: A simple definition – even though businesses do not lose control over their employees in the PEO relationship, it is still a common fear for some business owners to consider this option.
  Under the ASO model, you retain the employer of record status and gain the same level of service and access to a team of professionals and industry experts to help manage your business more effectively.

• You are happy with your current benefits and workers’ compensation carrier: A simple definition – under the ASO option, you can retain your current relationships with insurance carriers while gaining access to experts to manage the insurance administration functions on your behalf.

• I have a low SUTA rate and low employee turnover: A simple definition – under the ASO arrangement, you retain your own SUTA rate but gain access to a team of professionals to assist with unemployment claims and administration as they occur.

Each of these points illustrates how different types of businesses can benefit from the flexibility and expertise offered by an ASO, ensuring they are well-equipped to handle their specific HR and administrative needs effectively.

ASO is a strategy that most businesses take. When considering an Administrative Services Outsourcing (ASO) solution, your business can reap the benefits of easier management conveniently done for your company’s interest. The ASO solution involves many business transaction-based human resources services, including payroll, employee data management, and benefits support.

The primary services offered by an ASO (Administrative Services Organization) encompass a range of administrative tasks crucial for the smooth functioning of a company. These services typically include payroll processing, tax filing and compliance, and maintaining employee records. ASOs specialize in providing expert guidance and support in these areas, working closely with the client company's management team to ensure accuracy and timeliness in completing necessary paperwork.

Additionally, ASOs can streamline administrative functions, optimize processes, and ensure compliance with state and federal regulations, facilitating efficient and compliant operations for the client company.

What are the benefits of HR outsourcing,
particularly through HRO, PEO, and ASO?

HR outsourcing, particularly through HRO, PEO, and ASO, can bring unique benefits to businesses. With an HRO, you’re relieving your company from administering and handling human resources functions and issues. So whether you are a start-up or an established business, HRO can significantly impact your employees and bottom line. Using a PEO will reduce business costs and free your management team from administrative work that slows productivity. Small to medium-sized businesses, mainly, find significant value in partnering with a PEO. A PEO provides administrative relief, crucial HR expertise, and compliance assistance for these businesses.

Beyond just these operational efficiencies, opting for a PEO enables companies to focus on core business growth while ensuring competitive benefits negotiation, regulatory compliance, and robust employee relations support. The co-employment arrangement typical of PEOs allows for a comprehensive approach to managing human resources that includes administrative tasks, strategic benefits administration, and access to leading HR technologies.

ASO services, on the other hand, offer a different model by managing human capital without the co-employment structure. This arrangement particularly benefits businesses that prefer to maintain direct legal responsibility over their employees while outsourcing certain HR tasks. ASOs provide tailored support depending on the specific needs of the company, ranging from payroll processing to employee training programs, thus allowing businesses to retain control over HR functions but with expert guidance.

The entire premise behind outsourcing any or all of HR is to allow an organization to spend more time on meaningful tasks that are core to the business. By delegating HR responsibilities to experienced outsiders, companies gain efficiencies and enhance their capabilities to focus on strategic business initiatives that drive productivity and growth. This strategic shift streamlines processes and equips businesses with the innovation and agility required to thrive in competitive markets.

1. How do PEOs specifically assist with regulatory compliance and employee relations?

PEOs help businesses navigate the complex regulatory compliance landscape by staying updated on laws and regulations, thus reducing the risk of non-compliance. They also manage employee relations, including handling disputes, ensuring proper employee benefits administration, and maintaining a productive workplace environment.

2. How do PEOs and ASOs specifically benefit a business regarding growth and compliance?

PEOs support business growth by managing HR tasks, allowing companies to focus on core operations and strategy. They also negotiate benefits and ensure compliance with employment laws, which safeguard and aid in the sustainable scaling of the business. ASOs, while offering expert HR services, leave more control over the business, especially concerning legal and employee-related decisions.

3. What is an ASO, and how does it differ from a PEO?

An Administrative Services Organization (ASO) handles specific HR tasks for client companies without the co-employment arrangement typical of PEOs. This means while ASOs provide similar services, they do not share legal responsibility for employees.

4. What is a PEO, and how does it function differently from other HR outsourcing options?

A Professional Employer Organization (PEO) partners with client companies through a co-employment arrangement, taking over the management of the company’s HR tasks and employee-related responsibilities, which differentiates it from other HR outsourcing options that may not use a co-employment model.

5. What specific benefits does HR outsourcing provide to businesses?

HR outsourcing enables businesses to enhance productivity, leverage advanced technology, maintain compliance with regulations, streamline benefits administration, and access professional HR guidance.

PEO (Professional Employer Organization): A PEO provides comprehensive HR services by entering into a co-employment relationship with your company. This means that the PEO becomes the employer of record for tax purposes while you retain control over your employees' daily tasks and responsibilities. PEOs offer various services, including payroll processing, benefits administration, workers' compensation, compliance assistance, and HR support.

ASO (Administrative Services Organization): An ASO provides a la carte HR services without entering into a co-employment relationship. This model allows you to choose specific services that meet your needs while maintaining full control over your employees. ASOs typically handle payroll processing, benefits administration, and compliance support, but you remain the employer of record for tax purposes and employee management.

HRO (Human Resources Outsourcing): HRO involves outsourcing specific HR functions to a third-party provider. This model offers flexibility and scalability, allowing you to outsource recruitment, training, performance management, and employee relations tasks. HRO providers can tailor their services to your company's needs, helping you streamline operations and focus on core business activities.

Why Choose One Over the Other?

PEO Benefits:

• Comprehensive HR support

• Reduced administrative burden

• Access to competitive employee benefits

• Enhanced compliance assistance

ASO Benefits:

• Flexibility to choose specific services

• Full control over employee management

• Cost-effective for businesses that don't need comprehensive HR support

HRO Benefits:

• Customizable HR solutions

• Scalability to meet changing business needs

• Focus on strategic HR functions

Choosing between PEO, ASO, and HRO depends on your company's size, needs, and goals. A PEO may be ideal for small to mid-sized businesses seeking comprehensive HR support and competitive benefits. An ASO is suitable for companies that want specific HR services while retaining full control over their workforce. HRO is a great option for larger businesses looking to outsource specific HR functions and focus on strategic initiatives.

What are the core differences between
PEO and ASO models?

Unlike the PEO arrangement, the employer retains the employer of record status with the ASO, and all payroll taxes are reported and filed using the client's FEIN. While this is a significant distinction between the two models, more nuances exist.

In the PEO model, the co-employment relationship may cause concerns for some business owners, as they fear losing control over their employees. However, it is essential to note that even though businesses maintain control of the PEO relationship, the legal responsibilities are shared with the PEO. Conversely, the ASO model is structured to provide businesses access to a team of professionals and industry experts who help manage key employment-related tasks efficiently.

While the ASO arrangement does not involve a co-employment relationship, it aims to mitigate risks and liabilities by outsourcing critical functions to experts in the field. By retaining the employer of record status, businesses can leverage the expertise of the ASO while maintaining ultimate control over their workforce. This model balances delegation and control, allowing businesses to enhance their operations without compromising their autonomy.

How do PEOs and ASOs handle
employee benefits and insurance differently?

PEOs and ASOs offer a suite of employee benefits and insurance services. The significant difference between the two lies in the co-employment relationship. In a PEO arrangement, the PEO becomes the employer of record and manages all employer-related responsibilities under its umbrella, including employee benefits and insurance. On the other hand, in an ASO model, the employer retains the employer of record status, and all benefits and insurance are managed directly using the client's FEIN.

While both PEOs and ASOs aim to provide comprehensive support in this area, the distinction in the employment structure determines how these services are administered and managed. In the realm of employee benefits and insurance, PEOs offer a wide array of options, such as workers' compensation, EPLI, and health insurance.

This can be particularly advantageous for client companies lacking the resources or expertise to secure insurance independently. By partnering with a PEO, clients can access more comprehensive insurance and benefits packages at a lower cost than going alone. Additionally, PEOs provide invaluable guidance in selecting the most suitable insurance policies that align with the client's needs and ensure compliance with state and federal regulations.

They also take on the responsibility of keeping abreast of any changes in regulations or market trends to ensure that the client's insurance policies remain current and effective. Conversely, ASOs do not directly provide employee benefits or insurance. Instead, in the ASO model, it is the client company's duty to source and administer these programs as required. This means that client companies must navigate negotiations with insurance providers, manage program eligibility for employees, and ensure that benefits are in accordance with pertinent laws and regulations. While this approach allows client companies to control their benefits plans completely, it can be time-consuming and financially burdensome.

What is an HRO?

Human Resource Outsourcing (HRO) is similar to the ASO and PEO in that it typically provides a suite of services tailored to helping employers manage employee risks and responsibilities.

The HRO model is commonly called the à la carte option since it focuses on specific HR-related tasks based on the HRO provider’s experience and specialty. It is more common for larger companies to consider the HRO option versus the PEO or ASO option when they have already developed internal staff and technology to manage a majority of these tasks and responsibilities but may have a need outside of their internal expertise that could be handled more effectively by an HRO provider.

So why would you choose the HRO option? Regardless of how many employees you have, there is a myriad of employee-related laws and regulations that you face as an employer every day. Managing these employee-related laws and regulations daily is a complicated task that requires a substantial amount of energy, time, and expertise. Here are three reasons why you should consider HR outsourcing for your business:

• The first reason is that hiring and developing the knowledge and expertise required to manage various employee management tasks daily efficiently is costly, energy-sapping, and time-consuming.

• The second reason is that outsourcing various human resource tasks gives your business and critical staff members more time and energy to focus on and efficiently run your business.

• The third reason is that the success of any business largely depends on how effective its human resources policies and procedures are.

With an HRO, you’re relieving your company from administering and handling human resources functions and issues. So whether you are a start-up or an established business, HRO can significantly impact your employees and bottom line.

Each form of outsourcing is very different and has the potential to bring unique value to a company whose goal is to improve the overall efficiency of the HR function. The entire premise behind outsourcing any or all of HR is to allow an organization to spend more time on meaningful tasks that are core to the business. It is paramount to partner with the right HR services provider. This relationship is critical to experiencing success in the entire business today and to being better positioned for growth in the future.

How do PEO and ASO services
differ in managing human capital?

PEO (Professional Employer Organization) and ASO (Administrative Services Organization) services differ in managing human capital, primarily regarding legal responsibility over employees. When a company engages with a PEO service, the PEO assumes legal responsibility for the employees. This implies a co-employment arrangement where the PEO handles HR-related tasks such as payroll processing and benefits administration, takes on legal responsibilities and uses its own federal EIN for employee wage reporting. In this setup, the PEO partners with the client company, sharing employer responsibilities and, hence, having a significant role in employee management and compliance.

In contrast, in the case of an ASO, the client company retains legal responsibility for its workforce. This means there is no co-employment arrangement. The ASO facilitates specific HR tasks but does not share legal employer status. Employee wages are reported under the business’s federal EIN, and the company remains solely responsible for setting up and maintaining benefits plans and other coverages with providers and insurance carriers.

This distinction is key, as it impacts the client's control over their employees and the extent of HR outsourcing. Furthermore, while PEOs and ASOs may handle payroll, taxes, and insurance administration tasks, these services are carried out under different tax IDs in each scenario. The ASO’s involvement is generally more limited to administrative support, helping the business manage functions like insurance administration on its behalf. Overall, the key difference lies in the legal responsibility and control over the workforce, with PEOs taking on a more involved role in managing human capital than ASOs. This delineation ensures businesses can choose a model that best fits their needs for support, compliance, and direct employee control.

What types of businesses are suited
to using a PEO model?

In a PEO relationship, the PEO becomes the employer of record to assume and manage employer-related responsibilities such as payroll and tax compliance, human resources, workers' compensation, and employee benefits, among others. Partnering with a PEO includes obvious benefits such as transferring employer-related liabilities and responsibilities and providing an essential benefit by freeing up time for the business and key staff members to focus on core business activities versus employment-related, non-revenue generating administrative activities. Using a PEO will reduce business costs and free your management team from administrative work that slows productivity.

Most importantly, it gives you the freedom to know you are working with a trusted organization that will enable you to concentrate on business. At the same time, we take care of your most important investment—your employees. Small to medium-sized businesses, mainly, find significant value in partnering with a PEO. A PEO provides administrative relief, crucial HR expertise, and compliance assistance for these businesses.

This can include access to significant group employer health and welfare benefits, comprehensive payroll services, and effective risk mitigation programs—all of which are typically beyond the resources of SMBs to manage independently. Additionally, using a PEO allows these businesses to devote more time to their core operations, enhance their ability to attract and retain talent, and minimize the stress associated with HR management and associated risks. Learn more about the companies we have helped in our Case Studies.

How can Dinsmore Steele help organizations make the decision between PEO, HRO and ASO?

Dinsmore Steele assists organizations in making informed decisions between a PEO (Professional Employer Organization), HRO (Human Resources Outsourcing), and an ASO (Administrative Services Organization) by offering comprehensive workforce solutions and access to remote software engineers in Latin America. Their expertise includes providing personalized support throughout the contracting and payment process, ensuring compliance, and delivering high-quality benefits administration services to developers.

Drawing on our deep experience in PEO, HRO, and ASO, Dinsmore Steele guides businesses in navigating the complexities of choosing between a PEO, HRO, and ASO. Through personalized assistance and strategic insights based on unique organizational needs and budget considerations, Dinsmore Steele simplifies decision-making, empowering businesses to select the most suitable solution for their specific requirements.

Is a PEO right for your business?

Consider taking a structured evaluation to determine if a Professional Employer Organization (PEO) fits your business. This assessment will help you understand whether outsourcing HR functions to a PEO efficiently meets your business needs.