In the modern world, there are more abbreviations than we know what do with! BBB, ACA, ERISA, FICA, FUTA, and all the rest, get incredibly confusing at times. Unfortunately, all those abbreviations can make it tough to discern the differences between two incredibly beneficial human resources outsourcing (HRO) strategies: PEO & ASO.
Within this article, we will provide a thorough definition of both PEO and ASO, describe the major differences, and finally discuss how you can determine which is right for your company.
A PEO is a professional employer organization. PEOs provide outsourcing solutions to their clients. These outsourcing solutions typically concern Human Resources Management, Payroll, Compliance, Workers’ Compensation, Safety & Benefits. PEOs provide reductions in liability as well as reductions in net labor costs and the time spent dealing with non-revenue generating HR. This culminates in the client achieving maximum productivity and increased profitability. The secret ingredient that allows for PEO arrangements to yield such fantastic results is Co-employment.
Co-employment is a legal construct that involves the sharing of employer responsibilities between a PEO and client. Through co-employment, workers are technically employed by two separate entities, you the business owner, and a PEO. Under a PEO arrangement, the client company remains the common law employer, but the PEO becomes the employer of tax record. Thus, with some exceptions, wages are reported under the PEO’s Federal Employer Identification Number (FEIN). The co-employees may be eligible for certain benefits offered by the PEO.
Administrative service organizations (ASOs) provide a similar service to that of a PEO, with a key difference. That being, under an ASO arrangement co-employment does not exist. The employees of the client company remain legally employed by the client company, not only as the employer of record, but also for tax purposes.
Outside of this, PEOs and ASOs typically offer many of the same services. An ASO may manage payroll, provide compliance guidance, govern workers’ compensation claims, etc. Ultimately, this will yield many of the same benefits (time savings, accurate payroll management, etc.)
ASO arrangements can be incredibly beneficial to business owners and the model is very attractive, especially to those businesses which already feature a dedicated HR professional(s). In these situations the ASO can operate in addition to incumbent HR staff and provide targeted assistance towards a specific need.
The absence of coemployment under the ASO model prevents the PEO from becoming the employer of record for your workforce. Co-employment allows for the amalgamation of businesses into large buying groups which, in turn, deliver economies-of-scale derived cost savings in the realms of Workers’ Compensation & Benefits. Without co-employment, the potential ROI from an ASO will almost always be less than that of a PEO.
Liability & Risk Apportion
Under an ASO framework, employer liability falls solely on the business owner/common-law employer.Alternatively, under the PEO model, some forms of liability are shared between both parties. This is a very attractive feature of the PEO model that results in a fiduciary relationship between the PEO and employer.
À la carte
The ASO model allows for the construction of customized service offerings on a case-by-case basis. Whilst this often results in a more convoluted billing process and reductions in clarity, the freedom to pick and choose which services your business harnesses exists. Alternatively, under a PEO model, for the sake of simplicity a single, all-inclusive, service package is offered. This can create a situation in which you pay for services that you do not utilize. However, an innovative business owner will recognize the value in these services.
Ultimately, this choice is a simple one. As a business owner, you must consider how much of the PEO model you intend to utilize and evaluate their value. Should you intend to harness the PEO’s expertise across most of the following: HR, Payroll, WC & Benefits, a PEO is probably the right choice for you. Alternatively, should you only see yourself wanting to capitalize on their expertise for select services, then, an ASO might be worth exploring.
With that said, you are in luck: Simploy possesses both a PEO and ASO offering. Reach out to us HERE and a member of our executive team will consult with you to determine your best fit.
Interested in learning more about the PEO concept? – visit our PEO 101 Hub for additional insights.
On the other hand, if you have seen enough and want to get in touch with a member of the Simploy team, submit a contact request and a Simploy associate will reach out to you shortly.