As a small business owner, you’re pulled in many different directions. You have to develop a compelling product or service, manage staff, handle business logistics and find funding for your business. As your company grows, it can become increasingly challenging to manage all areas of your business, especially from an HR perspective.
A professional employer organization (PEO) or administrative services organization (ASO) can handle all your business’s HR needs while helping with the hiring process and providing payroll, employee benefits administration, and employee training services.
Whether you should work with a PEO or an ASO depends on the services you need and the model that makes the most sense for your company. PEOs use a co-employment model, meaning they sign your employees onto their books to garner better bargaining power with health care and other service companies. ASOs provide small businesses with extensive HR support under a more flexible plan model.
We’ll look at the services ASOs and PEOs provide and explore their differences so you can choose the right organization for your business’s needs.
What is an ASO?
An ASO, or administrative services organization, is an outsourcing service for businesses that specializes in core HR functions, meaning it can help with employee benefits and payroll processing, but it doesn’t directly provide these services to your small business under a co-employment model. Working with an ASO means outsourcing your HR to a partner that can facilitate services and provide excellent HR service options for your business.
Without the co-employment model, however, there are some areas where ASOs can’t help you. Most ASOs don’t provide workers’ compensation, and an ASO’s overall HR risk management offering is limited compared to PEOs. Still, ASOs can provide excellent services to smaller companies with less commitment than working with PEOs.
ASO pros and cons
To better understand what it’s like to partner with an ASO, it helps to see how they’re structured and what they offer. These are some upsides and key offerings of ASOs.
- Ideal solution for small companies: PEOs’ full-fledged offerings can be overkill for smaller companies. Working with an ASO gives you access to top-level HR support without committing to a complex suite of services. Many PEOs provide ASO offerings, so as your company grows, you can always add services to your package.
- Flexibility: Without the co-employment commitment, ASOs are more flexible. If your company is the right size, and you don’t need workers’ compensation or extensive risk management support, partnering with an ASO means having access to excellent services without getting bogged down in a mandatory package.
- Wide range of offerings: ASOs offer a wide range of flexible service offerings, including payroll processing, HR policy development, benefits administration, and, in some instances, risk management support and consultation. Small businesses can access essential HR systems without developing an internal HR department.
- Medical coverage: Despite not operating under the co-employment model, ASOs can provide benefits and medical coverage through third-party service providers. This means very small businesses can access essential medical benefits without shopping for them independently.
The main downside of working with an ASO is limited risk management and workers’ compensation offerings. Because of the co-employment model, PEOs assume a lot of risk when they partner with small businesses, while ASOs assume much less risk.
FYI: With an ASO, if your small business operates in a highly regulated environment, you assume all the risk from an HR perspective, even if your ASO partner helped you with workplace safety policies.
What is a PEO?
PEOs provide extensive HR support to small businesses under a co-employment model. PEOs and ASOs offer similar services. Often, PEOs provide ASO-type services to client businesses until they grow and require more extensive assistance under the co-employment model.
PEOs operate as small business conglomerates, providing top-level services to a wide range of businesses without the high logistical overhead. Your business is still yours, and your employees still work for you.
Partnering with a PEO means working with a representative assigned to your company who handles all of your business’s HR needs. PEOs help with benefits administration and rolling out new HR service offerings, allowing you to scale your services as a company.
Partnering with a PEO means releasing certain HR responsibilities to another organization, thus freeing you to focus more on the day-to-day operations of your business instead of administrative tasks.
What’s the difference between a PEO and an ASO?
The main difference between PEOs and ASOs, and their offerings, is the co-employment model.
When you partner with a PEO, your employees are signed onto their books. With so many employees, PEOs have extensive buying power in the benefits markets and can consolidate HR services into Fortune 500-level offerings throughout the nation.
While you remain completely in control of your business, the PEO acts as a conglomerate organization for thousands of other small businesses across the country, leading to efficient HR offerings.
Working with an ASO can be more flexible since you don’t have to sign a co-employment agreement. You can access similar services tailored to your company’s needs. The only trade-off to working with an ASO is not being able to access the risk management and workers’ compensation services PEOs provide.
Keep in mind that while ASO offerings are great for smaller companies, many PEOs will still provide services to companies with fewer than five employees.
In terms of pricing, what you pay will vary widely with the organization you work with and the types of services you need. ASOs and PEOs have similar pricing plans. PEOs charge companies a percentage of overall payroll or on a per-employee basis, while ASOs typically charge companies only on a per-employee basis.
Did you know? Another partner to consider is a human resources outsourcing (HRO) service. The difference between a PEO and an HRO is that HROs don’t use a co-employment model, and they cater to bigger businesses that only need to outsource a few HR services.
Is an ASO or PEO right for your business?
The best outsourcing partner for your business depends on its needs. If your company is smaller and requires a flexible HR services offering, an ASO may be the right choice. If you run a larger small business that needs extensive HR support, benefits administration and risk management planning, a PEO may be a better fit.
The good news is that shopping for HR outsourcing services lets you explore both options. The best PEOs usually have an ASO offering, so if you’re not sure, you can always start with an ASO service suite and then graduate to a full-fledged PEO offering.