You may have heard a lot about PEO’s and ASO’s and how they can affect the way you run your business. And while some people may be using the names interchangeably, there are significant differences. Here is an overview of what you need to know.
How A PEO Affects Your Business
In this situation, the PEO (Personal Employer Organization) enters into a joint employment or co-employment relationship with an employer. All or most of the organization’s human capital management tasks – such as benefits, payroll, workers’ compensation, recruiting, and training – are outsourced. The PEO accomplishes this by hiring the client company’s employees, incorporating the business under their tax ID.
Despite the arrangement, the company may retain complete control of operations, management of the employees’ daily activities, company culture, and brand identity. A formal agreement usually outlines the division of responsibilities between the PEO and the organization.
Benefits of a PEO
- The PEO may reduce staff headcount needed to prepare payroll and administer benefits plans.
- The PEO can provide access to human resources services that small companies may not otherwise be able to afford—such as onboarding, training, and guidance if issues arise such as wrongful termination, discrimination, or harassment.
- Since the PEO is the “Employer of Record,” if any legal issues arise, it reduces your liability since the PEO assumes most of the responsibility.
Limitations of a PEO
- If the PEO has a master healthcare plan, then you must choose from those carriers. Your options are limited since they will not customize a plan for your business.
- Since there is no HR contact on-site, employees will have to contact someone at the PEO instead of someone internally. Your employees may see this as an inconvenience.
- If the PEO has many clients they manage, they may not know enough about your business and therefore not receive the customer service you desire.
How An ASO Affects Your Business
An ASO (Administrative Services Organization )Provides similar services but without the co-employment/joint employment relationship. Employees remain solely under control of the client company. Tax and insurance filings may still be handled by the ASO, but under the client company’s Employer ID number.
Benefits of an ASO
- Like the PEO, the ASO can perform similar human capital management tasks such as benefits, payroll, and workers’ compensation.
- The ASO is typically viewed as an extension of your staff, rather than outsourced as in the PEO model. It may be used to fill in the gaps, work on a specific projects, or help maintain compliance.
- You usually have flexibility in choosing your group health insurance and worker’s compensation carriers.
Limitations of an ASO
- Since all services are not handled by a single company, you may have to pay multiple bills and keep track of multiple contacts.
- Since your company is the employer of record, you forgo the legal and liability protections the PEO provides.
PEOs and ASOs: Are They Right For Your Business?
Before entering into a PEO or ASO relationship it is important to fully understand the services both provide, and determine whether the benefits outweigh the limitations. Both situations can be beneficial to small and mid-sized businesses, but it is important to make sure you are taking advantage of all they have to offer, and not paying for services that you do not need.