PEO Vs ASO (What's the Difference?)
A PEO (professional employer organization) and ASO (administrative service organization) are both great options for a business looking to alleviate their human resources and administrative duties. The question, however, is which organization is right for your business?
A professional employer organization (PEO) is a firm that provides a service under which an employer can outsource employee management tasks, such as human resources, employee benefits, payroll and workers' compensation, recruiting, risk/safety management, and training and development.
By filing under a joint EIN number, the PEO is able to leverages its buying power via economy of scale. This helps keep costs down with shared employees and generally better rates on insurance lines.
WHAT IS PEO?
WHAT IS ASO?
An administrative services organization (ASO) offers cost effective human resources, payroll and benefits administration. The employer can pick and choose from an a la carte menu of available services (recruitment, benefits administration, payroll, etc.). There’s no co-employment relationship in this model, the employer maintains all business liability and receives no group buying power on insurance lines.
Which Service is Right for You?
How much help do you need with HR? If you need help with just a few minor HR tasks, but in general are self-sufficient, then an (ASO) is good for you. If you very much need access to HR professionals that can help design and deliver policies, then a PEO would be the better choice.
What is your budget? Although both options save money in soft costs, the PEO carries a higher administration fee than the ASO model. However, PEOs can generally offset some cost from group buying power on insurance lines. They also provide more assistance with hands-on administration, which helps reduces back-office soft costs.
Is workers' compensation coverage and risk management important to me? If you are in a high-risk category for workers' compensation, PEOs can provide a layer of protection in their master policy. In an ASO model, however, you would remain on your own.
The PEO also helps with administrative tasks related to worker's comp. The team can take in claims, answer questions, coordinate medical treatment, etc. They also provide pay-go options, this means the premium is deducted each pay period rather than upfront and audited at year end. The painful audit goes away in this model, meaning less headaches.
Do we need more employee benefits options at a better cost? Do we need help to administer our benefits plans? The PEO offers master policies that are generally more cost effective than the ASO model. Both can provide administrative tasks, but the PEO can integrate into the payroll/technology platform they are providing which creates additional efficiencies.
We have high turnover and unemployment claims, our SUTA rate is high? In an ASO model you report under your own EIN number. If your claims are low and your rate is low, you may benefit from an ASO model. If you have a high turnover, with employees seeking unemployment, the PEO model would be more cost effective.
You would not only save money by reporting under the PEO's SUTA rate, but they would also attend claims hearing on your behalf. The HR department would be very hands on in the PEO, and help put in policy that would reduce turnover and mitigate claims.