February 10, 2021

PEO vs ASO vs HRO what’s the difference?

PEO vs ASO vs HRO what’s the difference?

You didn’t start your business so that you would spend all of your time managing payroll, benefits, and researching complex tax laws. At some point you’ll need to either build a team of HR experts or outsource your HR administration.

There are a few options when you want to outsource your HR. The three most common options to get help with your HR administration are:

What do they have in common?

Let’s start with what all three have in common. In general, they can all take the heavy lifting of your HR administration off of your plate. They’ll all have experts in employment regulations and best practices.

Focus on your business, not HR administration
You didn’t start your business to spend your time running payroll, finding and managing benefits, or researching complex employment regulations. All three will let you focus on your business and not worry about HR administration like running payroll, managing benefits, and staying compliant.

Compliance and tax support
Tax laws and regulations are complex, change often, and typically are different per state. This includes things like overtime rules, tax forms that need to be generated, employee garnishments, taxable wages, and many, many other compliance and tax regulations that would require a full time commitment. All three have teams dedicated to employment related compliance who stay up to date with the laws to make sure you’re staying compliant.

What is a PEO?

The PEO acronym stands for Professional Employment Organization. When you join a PEO, they become the employer of record and you enter a co-employment relationship. The PEO essentially becomes the employer for your employees. They will typically manage your:

What are the advantages of a PEO?

Because a PEO becomes your employer of record, they can combine employees from a bunch of smaller businesses, which means they typically get access to better benefits and workers’ compensation rates. These rates aren’t normally available to small businesses with only a handful of employees. So instead of your small business trying to negotiate insurance rates for a handful of employees, you’re grouped together with the other employees in the PEO so they can negotiate with a much larger group.

What are the disadvantages of a PEO?

Technically your employees are actually the PEOs employees. They are essentially leased back to you. This means you lose a lot of control over the choices that the PEO makes. For example, you don’t get to choose health benefits or brokers for things like worker’s compensation and you don’t get to pick the software your employees use for things like payroll (which is typically a relic of the 80s).

Additionally, because your employees are actually employees of the PEO along with hundreds of other employees, you’re responsible for the regulations that come along with being part of a larger organization (like the Family and Medical Leave Act and the Affordable Care Act). The PEO would most likely help guide you through this, but it’s something to keep in mind when evaluating costs.

What’s an ASO?

An ASO is very similar to a PEO. However, they do not become your employer of record. Your employees stay your employees and you’ll file taxes under your own FEIN. The acronym ASO stands for Administrative Services Organization. Just like it sounds, an ASO can handle administrative tasks for your business. They will typically handle things like:

What are the advantages of an ASO?

Similar to the PEO, you’ll be able to outsource much of your HR administration. However, you’ll be in control and the ASO is really there to help. For example, if your health benefits broker is your brother-in-law, you can minimize family drama by keeping him and let the ASO take care of just the administrative work.

What are the disadvantages of an ASO?

Unlike the PEO, your employees aren’t combined with other businesses to get better rates. And if you’re a small business, it can be tricky to negotiate good rates for health benefits and workers’ compensation. For example, if you have 5 employees, health benefit options may be limited, whereas if you have 100 employees you’ll typically be able to find better rates. This can get expensive and negatively impact your recruiting efforts. Regardless, the ASO will be able to help you through the process of finding health benefits and brokers.

What is an HRO?

The HRO acronym stands for Human Resources Organization (or Outsourcing). Just like it sounds, these organizations allow you to outsource much or all of your HR administration. Similar to the ASO, you stay the employer of record.

HROs typically focus more on human resources support. They can help with most aspects of employment strategy, compliance, and management and can be hands on in helping your business with unique HR goals and challenges.

Think of them more like an outsourced HR department. They typically handle things like:

What are the advantages and disadvantages of an HRO?

The disadvantages are similar to an ASO. However, a major advantage of an HRO is that they can extend your current HR team. For businesses that already have an in-house HR team, an HRO can be useful for offloading some of the administrative work and strategy. More importantly, they can be an expert resource when it comes to complex scenarios your existing HR team may not have encountered yet like creating strategies for fast-growth recruiting, termination policies, company handbooks, and complex multi-state tax regulations.

Wrapping it up?

At the end of the day, all three options will keep you from spending your time Googling complex tax laws or spending your week running payroll for your team. If you want to outsource your HR so that you can focus on your business, you should look into all three to see what will work best for you and your business.

Disclaimer: Any articles written on this website, including this article, are not to be taken as legal or HR advice. Employment laws are constantly changing and vary by location and industry. You should consult a lawyer or HR expert for guidance. Need HR advice? We can help!

📸 Photo by Brooke Cagle on Unsplash

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