More than 65% of human resource (HR) leaders feel that shoring up vital skills and competencies is their primary goal for 2021. With many HR leaders balancing between high-level priorities and mundane day-to-day operations, outsourcing becomes a valuable tool. By handing over some HR-related duties, leaders can create more time to focus. But which outsourcing option do HR executives need to call on? Keep reading for insightful analysis on ASO vs PEO services to identify the right fit for your organization.
What Is a PEO?
A Professional Employer Organisation (PEO) is a company that offers outsourcing services for HR-related needs to client organizations. Once you hire a PEO, they serve as the employer of record on your firm’s behalf regarding insurance and tax-related matters.
The PEO will lease employees to your organization, and the two of you will be co-employers. As such, your firm and the PEO will share the tax ID information. Even though the staff you’re leasing doesn’t appear in your financials, you are still in control of day-to-day functions.
While you will still oversee the day-to-day minutiae of dealing with the staff, other HR-related issues won’t fall on your plate anymore. These include:
- Worker’s compensation
- Staff benefits and payroll
- Tax compliance
- Insurance plans
- OSHA compliance
- Recruiting and outplacement
- Managing HR
When you enter a co-employer partnership with a PEO, you will need to agree on the terms of a division of responsibilities. Both you and the service provider will sign the agreement, which helps smooth out operational kinks.
What Is an ASO?
An Administrative Services Organization, on the other hand, is an HR-service outsourcing company offering employee-related services but doesn’t act as a co-employer.
Some essential HR-related services you can rely on an ASO for include:
- Tax compliance
- Worker’s compensation insurance
- Payroll processing
- Employee training and development
- Payroll and benefits
If you hire an ASO, you will still remain the sole employer of record. Consequently, your organization will be in charge of tax obligations using your Federal Employer Identification Number (FEIN).
Since there are no co-employer dynamics in play when you hire an ASO, your firm remains wholly liable for HR-related issues. All you do is outsource your HR needs to the service provider, who then fulfills these needs as per the contract.
If you need your ASO partner to handle your insurance and tax filing services, they will use your FEIN. Furthermore, the most an ASO can support your firm in compliance matters is to offer counsel. Your company will be fully responsible for imparting such guidelines.
ASO vs PEO: What Differentiates the Two?
For many companies, the overlapping nature of ASO and PEO services can be confusing. What differentiates these two services that can help you figure out which service provider suits your needs the most?
Every entrepreneur holds their business close and equates it to a baby that needs constant tending. Thus, anything that impacts the level of control an entrepreneur can exert in their organization elicits strong reactions.
A PEO comes in as a co-employer, meaning you get to share the employer of record designation. For many entrepreneurs (especially those running smaller firms), this can be worry-inducing.
Even though a PEO doesn’t interfere with your day-to-day work with the staff, many business people still won’t feel comfortable with the arrangement.
That’s why ASOs tend to be more popular since an entrepreneur doesn’t let go of control as the employer of record.
Every organization has 24 hours to think, execute, learn and iterate its operations. Thus, time becomes a scarce commodity and what drives the desire for outsourcing more routine services.
Hiring either a PEO or an ASO means you hand off particular tasks, which freezes up more of your time. However, there is a difference due to how the two operate, which can dictate who you partner with.
With a PEO, you hand off both administrative and operational tasks. ASOs only take up the operational aspect, leaving you in charge of the administrative element.
If you need to own the HR function but not deal with anything beyond essential day-to-day services, a PEO co-employment option may be your best bet. You’ll free up your time and mental focus as the operational and strategic elements of HR move to the service provider’s in-tray.
Of course, this level of focus comes at the cost of ceding some operational control.
ASOs help you cover operational tasks to free up your time and mental focus, but you’ll still be in charge of a significant portion of HR’s needs. While you free up less time, you retain complete control.
What you eventually opt for will be determined by the strategic dynamics facing your organization.
How deeply your organization desires to save on costs can determine which option you go for. Of course, that will also mean accepting the tradeoffs in play to hit the cost efficiency levels you want.
PEOs offer comprehensive benefits packages to organizations, and that can be a game-changer. If you’re a small business, A PEO can help you tap into benefits you otherwise couldn’t afford, enabling cost control and greater competitiveness.
For entrepreneurs who opt for ASOs to retain costs, the tradeoff will be taking on more costly benefits packages. And if you have to deliver benefits that exceed the package limits, you’ll have to foot the difference out-of-pocket.
Whether such a cost implication is worth retaining complete control of your organization or not entirely lies on the felt need for cost savings.
Whenever you hire a PEO, the risk factor is more manageable since the service provider takes on liability as a co-employer. An ASO doesn’t take on liability, yet their operational practices can end up exposing your enterprise.
You, therefore, need to run a cost-benefit analysis between control and liability exposure to decide which of the two your firm needs more. That will help demystify the best option for an outsourcing partner to serve your firm.
Leverage Outsourcing to Move the HR Needle
Managing high-level and ground-level HR duties is a delicate dance. To make the most strides, weigh the right fit in the ASO vs PEO issue to tap some much-needed help.
Your team needs to be on top of their game to deliver, and at National Workman’s Comp Solutions, we have 25+ years of pooled experience in helping companies run their HR function. Talk to us today for HR services that chisel your administrative function while sticking to the budget.