clock September 7, 2022

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What Is the Difference Between a PEO and ASO?

Did you know that PEO services reach over 4 million workers in the United States? While various professional employer organizations help hundreds of thousands of businesses with tasks related to payroll processing, employee onboarding, and even workers’ compensation, it doesn’t mean they’re right for everyone. In fact, you’ve got options and that includes working with an administrative services organization, or ASO, instead. If you’re new to this, however, the differences between PEO and ASO can be quite confusing.

In this helpful guide, we’ll break down the basics of each so that you can make an informed decision about which is right for your business. 

What Do PEO Companies Do?

Let’s start with a quick definition of what a professional employer organization does for a business.

Otherwise known as PEOs, these companies act as co-employer with businesses, assuming certain responsibilities related to human resources and employee benefits. This, in turn, helps free up businesses to focus on their core operations. 

These services can include payroll processing, employee onboarding, training and development, and risk management along with numerous other tasks. Namely, they help with employee benefits and things like workman compensation. 

Here’s a breakdown of a couple of the overarching services you can expect to get when working with a PEO.

Payroll Processing

A PEO can help to ensure that employees are paid on time and in the correct amount. However, they can also help businesses accomplish tasks such as:

  • Withholding the correct amount of taxes from each paycheck
  • Preparing and filing all of the necessary payroll paperwork
  • Resolving any payroll issues that may arise

If you’ve ever done any of this on your own then you’ll know just how time-consuming these tasks can be. By working with a PEO, you’re able to take advantage of their expertise and experience to make payroll processing less stressful and more streamlined.

Insurance Negotiation

PEOs can help you access a standalone policy but they also offer their own specific PEO insurance policy. A PEO insurance policy is a type of business insurance that helps to protect employers from liability for their employees’ actions. 

This includes everything from worker’s compensation to unemployment insurance and all of the standard types of insurance such as health and dental insurance.

The main benefit of a PEO insurance policy is that they help to protect the employer from lawsuits arising from employees’ actions, as well as from claims for workplace injuries. 

By purchasing a PEO insurance policy, you’re ultimately protecting yourself from the potential financial risks associated with claims made by your employees. This makes PEOs a valuable support system for businesses of all sizes.

PEO and ASO: What’s the Difference?

PEOs (Professional Employer Organizations) and ASOs (Administrative Service Organizations) are both businesses that provide services to other businesses. PEOs typically provide a range of HR-related services. ASOs typically provide financial and administrative services. 

As mentioned, PEOs focus on HR-related services. This includes things such as payroll, benefits administration, and compliance with employment laws. ASOs, on the other hand, focus on financial and administrative services, such as bookkeeping, invoicing, and tax preparation. 

While PEOs and ASOs both provide valuable services to businesses, the type of service each provides is different. As a result, it’s important to choose the right type of organization for your business needs.

What is the Benefit of Hiring a PEO?

Perhaps the most important benefit of working with a PEO is that they can help reduce costs. By pooling resources and negotiating with vendors, a PEO can often get discounts on things like health insurance and workers’ compensation coverage. 

In addition, a PEO can help to save businesses money by reducing turnover and improving worker productivity. By reducing the turnover rate, a PEO can save a business the costs associated with recruiting and training new employees. 

Likewise, PEO can improve worker productivity by providing access to resources and discounts that businesses may not be able to offer on their own. This can ultimately lead to improved employee satisfaction and longer employee retention.

In some cases, a PEO can offer discounts on office supplies, gym memberships, and other products that can help workers be more productive. As a result, a PEO can be an invaluable resource for businesses looking to save money and improve worker productivity.

What is the Benefit of Hiring an ASO?

In the model managed by the ASO, the client, that is, the company, subcontracts specific human resources tasks while retaining responsibility, while the services are performed or provided by the ASO.

The ASO may perform functions such as managing tax and insurance returns, which are done with the client company’s tax identification number, not a shared tax identification number.

Ultimately, an ASO can save a company time and money by taking on some of the administrative tasks that would otherwise have to be handled by staff.

HRO vs. ASO vs. PEO: How to Choose the Right One

While the choice between an ASO and PSO is somewhat complex, there’s a third option that’s important to understand as well: HRO. This stands for human resources outsourcing, and it’s a type of arrangement where an outside company manages all of your business’s HR needs.

HRO, ASO, and PEO are all popular choices, but each has its own advantages and disadvantages. Here’s a brief overview of each option to help you decide which one is right for you.

Human Resources Outsourcing

An HRO can be a good option if you don’t have the internal resources to manage HR yourself. They’re also a good choice if you want to free up time so you can focus on other aspects of your business. 

While HRO can offer many benefits, there are also some potential downsides to consider. 

One risk is that HRO can lead to a loss of control over the HR function. When an outside company is responsible for HR, it can be difficult for managers to maintain visibility into employee performance and compliance with company policies. 

Additionally, HROs can create communication challenges. For example, if employees have questions or concerns about their benefits or job satisfaction, they may not feel comfortable communicating with an outside vendor. 

To help choose the right HRO, make sure the provider has experience in your industry. They should understand the unique challenges that your company faces and be able to provide tailored solutions.

Then, find out what kind of support the HRO provider offers. Will they be available to answer your questions and help you troubleshoot problems? What kind of training do they offer? What kind of technology do they use?

This will make it easier for your employees to use their services. It will also help ensure that your data is safe and secure.

Finally, HRO arrangements can sometimes be complex and difficult to change. This is why it’s important to carefully consider all potential risks and benefits before entering into an HRO agreement.

Administrative Services Organizations

An ASO is similar to HRO in that an outside company manages all of your business’s administrative needs. This is helpful for smaller startups and growing businesses that don’t have the internal resources or manpower to hire full-time HR staff.

Similar to HRO, however, there are obviously downsides to consider before working with an ASO. While ASOs can offer a wide range of services, including payroll processing and human resources management, they can also be expensive to work with. 

In addition, ASOs may not always be familiar with the specific needs of your business, which can lead to errors or delays in service. 

Think about what services the ASO provides. Make sure the ASO you choose offers the services you need, such as payroll processing, benefits administration, and human resources.

Then, consider the size of the ASO. Smaller ASOs may be more flexible and responsive to your needs, while larger ones may have more resources and expertise. Choose an ASO that is the right size for your business.

It’s also helpful to compare pricing at this point. Compare prices between different ASOs to find one that fits your budget. Don’t sacrifice quality for cost, but make sure you’re getting a good value for the services you need.

Finally, if you have a problem with an ASO, it can be difficult to get a resolution, as you will be dealing with a company that is not directly accountable to you. Overall, it’s important to carefully consider the costs and benefits before deciding whether to use an ASO.

Professional Employer Organization

And finally, we have the PEO. When compared to an ASO, they’re quite similar. However, an ASO is a type of business that provides similar services but on a much smaller scale. This makes PEOs better suited for larger or rapidly expanding businesses.

When it comes down to it, PEOs tend to have more experience and resources. They typically work with hundreds or even thousands of clients, which gives them the ability to invest in state-of-the-art technology and develop best practices. 

ASOs, on the other hand, usually only work with a few dozen clients and may not have the same level of resources.

This naturally means that PEOs can provide a higher level of service. They typically have larger teams of experts who can provide comprehensive support on all aspects of HR, from benefits and compliance to recruiting and retention. 

Additionally, PEOs can help you reduce risk. They can conduct extensive background checks on new hires and help you comply with employment laws. This can reduce your exposure to costly lawsuits or government penalties. 

ASOs may not have the same capabilities when it comes to these types of tasks.

Ultimately, the decision of whether to use a PEO or an ASO depends on the specific needs of your business. However, if you are looking for comprehensive HR services and support, a PEO may be the best choice for you.

Does Your Business Need a PEO?

Depending on the size and structure of your business, you may or may not need a PEO. This means that if you have a small business with just a few employees, you may not need a PEO. However, if you have a large business with many employees, you may need a PEO to help manage your HR and benefits. 

How do you know if a PEO is right for you? If you need help with the following:

  • Reducing workers’ compensation rates
  • Negotiating lower rates with insurance carries
  • Identifying and reducing risk factors within your company
  • Comprehensive HR and administrative solutions

Basically, when you partner with a PEO, your company becomes part of a larger entity. This has two key benefits when it comes to workers’ compensation. 

First, the PEO is able to negotiate lower rates with insurance carriers. This is because they’re insuring a large pool of businesses. Second, the PEO can help to identify and reduce risk factors within your company that could lead to accidents and injuries. 

As a result, partnering with a PEO can have a significant impact on your workers’ compensation and insurance rates. 

Ultimately, if you’re not sure if your business needs a PEO, you can talk to an HR consultant or your accountant. They will be able to assess your needs and recommend the best course of action for your business.

Or, if you’re looking for a standalone policy, you have other options…

Get a Workman’s Compensation Quote

At National Workman’s Comp Solutions (NWCS) we have over 25+ years of combined experience in implementing strategies geared towards reducing the administrative workload and cost for small businesses.

If you’re not in need of PEO and ASO services but do need help with workers’ compensation then get in touch. Click here to get a free instant quote for your organization.

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