PEO vs ASO: Determining Which Works for Your Human Resources Outsourcing

More than 300,000 work positions are outsourced every year in the United States 

Organizations use two main models whenever they need to outsource employees. The first one is the Professional Employer Organization (PEO), and the second one is the Administrative Service Organization (ASO). 

The primary aim of these two models is two help businesses get the right talents for their work. However, they have many differentiating aspects that make them unique.

If you would like to utilize human resources outsourcing, read on to know more about PEO and ASO, and which option you should choose. 

PEO Explained

PEO is an outsourcing option for small and medium-sized businesses. The PEO Company offers its services through the co-employment model. 

By definition, a co-employment is an agreement which allows both the PEO firm and the client to share the risks and the responsibilities of the employees.

In PEO, the outsourcing firm provides a full range of human resource processes. The firm processes the payrolls and provides the employee benefits inclusive of retirement and healthcare packages. 

The PEO also takes care of the employee’s issues, manages the workers’ risks, hires and trains new workers, and so on. The outsourcing firms take almost all the responsibilities of the employees, thus, allowing the firm to grow. 

The only obligation left for the firm is to assign duties at work and to help in the decision-making process.

Businesses that choose this model enjoy better SUTA rates and shared business risks. On the downside, the businesses lose the flexibility of selecting the right employee benefits providers. 

Also, the tactic might have a less personal touch with the employees when compared to the in-house human resource model.

ASO Explained

ASO is a human resource outsourcing option that does not use the co-employment model. It is ideal for an established business with more than 100 employees. 

Unlike PEO, the ASO allows both the ASO firm and the client organization to have a certain level of responsibility to the employees. Both firms share the risks of the employees; thus, they also share the payment and management responsibility. 

The firm which provides the employees processes the payrolls and administers the task too, but the processes are done with strict regulations.

Also, the ASO firm does not provide insurance or workers compensation benefits. However, the firm can help the client’s business secure the best service providers at a small fee.

Businesses that choose the ASO model enjoy better functional control of the human resource activities, compared to the PEO option. On the downside, the ASO firm does not offer the employee benefits; thus, you must plan for them well.

PEO vs ASO Differences

To help you understand the two options well, here is a comprehensive discussion of the differences between PEO vs ASO. Read through them to make an informed decision on the ideal human resource option for your business.

Workers Compensation

PEO firms provide a comprehensive package of all the employee benefits. These benefits include insurance, health, and retirement benefits. ASO requires the client organization to have its policy regarding the payment of the workers’ compensation.

Risk Management

PEO takes care of all the employees’ needs, including all the risks which might arise. The PEO firm has well-established policies for risk and safety management. ASOs do not have a safety management program.

Employer

In PEO, the PEO firms assume all the responsibilities of the employer. This is because they provide most of the services that the employees need. In ASO, the client organization takes the position of the record employer.

Tax Liability

The PEO firm is liable for all the tax payments, which vary significantly among states. The ASO client is responsible for the payroll taxes, in line with the state’s rules.

Unemployment Issues

The PEO firm handles all the employment claims. It also deals with all issues arising from the employers. In the ASO model, both the ASO and the client may handle the unemployment issues. The party to be held responsible entirely depends on the situation.

Cost

PEO firms process monthly payments for the employees without any hidden costs. On the other hand, ASO charges its services on an hourly basis. The employees get paid only for the hours that they work.

Choosing the Best Human Resources Outsourcing Provider

From the above, it’s evident that every outsourcing option has its pros and cons. Also, each option works differently. Be keen on the choice you make to avoid causing unwanted costs or impacts on your firm.

Here are practical tips that you should follow in choosing the ideal option:

Identify Your Problem

Find out the main challenge that you are struggling to handle in your organization. The right HR firm will understand your problem and find a great solution. If you are a busy entrepreneur, the PEO would be the ideal option because it will relieve you of the most employee compensation.

Certification

Find out the credentials of the HR firm you would like to hire. The right firm, whether PEO or ASO, should be certified to help firms manage their employees. The ideal firm managers should also have a remarkable level of experience in the field.

Cost

The human resource outsourcing firms charge a specific fee amount for the services. The costs should be reasonable, and should not affect your business operation. Be ready to compare different providers to select the most affordable option.

Staff

Pay close attention to the staff that the human resource management firm offers. They will be valuable parts of your firm; thus, you should only work with the best. Carry out your evaluation to know if they meet your expectations.

Deciding Between PEO and ASO Human Resources Outsourcing Options

The choice you make entirely depends on your business structure and personal preferences. The ASO model will be the ideal option if you run a big organization. The plan would help you retain an in-house HR responsibility to manage your employees more effectively. 

The PEO option would be the best for small businesses that are still growing. The PEO plan offers a comprehensive range of services, meaning you will get enough time to contribute to the growth of your firm. 

Remember to take your time and weigh the pros and cons of the two human resources outsourcing options. Involve human resource experts too, if the decision-making process is technical to you.

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