“What is the difference between PEO vs. ASO?” In the PEO industry, this question comes up frequently. The short answer (and not the most helpful one) is in the acronyms themselves:
PEO – stands for Professional Employer Organization.
ASO – stands for Administrative Services Organization.
But you’ll need more than an acronym if you want to understand the real differences between these two service models.
Both a PEO and ASO are options for businesses that need to outsource the human resource and administrative duties that come with having employees. Both help employers navigate ever-changing compliance burdens. BUT there are some key differences, which we’ve illustrated in a helpful comparison table. To make sense of those differences, it helps to get a basic understanding of each service.
What is a PEO?
A Professional Employer Organization (PEO) carries the “weight” of employment responsibilties for business owners. A PEO takes on the administrative functions of an HR department to manage employment related tasks, and helps them to stay in compliance with changing regulations.
When a business owner partners with a PEO they enter into a unique relationship which allows the PEO to assume many of the risks and responsibilities related to being an employer. In doing so, it offers some unique benefits to the employer.
Typically, a PEO can help business owners by outsourcing administrative duties related to the following areas:
- Employee Health and Welfare Benefits Administration
- Payroll and Tax Services
- Workers’ Compensation and Risk Management
- Human Resources Management
- Alternate Dispute Resolution
What is an ASO?
On the other hand, an Administrative Service Organization (ASO) is similar in that it is also an option to outsource your administrative HR tasks, process payroll, administer benefits, and help with regulatory compliance.
The key difference is that, unlike a PEO, an ASO does not fall under a Co-employment agreement.
So what is co-employment?
Co-employment is the unique partnership between a PEO and the employer. It provides employers and employees an umbrella of safety that is typically impossible for the average business (particularly “small” businesses) to attain without the partnership. This shared liability when you’re running a business can be a life saver, but some businesses find that an ASO model just makes more sense for them.
PEO vs ASO: Key Differences and Similarities
|PEO vs. ASO Comparison||ASO||PEO|
|Workers’ Compensation Coverage||Coverage provided by client’s own policy.||Coverage provided under PEO’s master policy or coordinated master polices (some states allow worksite co-employer to carry client level WC program).|
|Risk and Safety Management||No claims management. (Employers Resource does provide safety program support to all ASO clients.)||Claims management and safety programs compliance administered by PEO.|
|Who is the Employer of Record?||Client is the employer of record.||PEO is the Federal and most states’ employer of record. Certain states require client-level reporting and PEO has power of attorney to pay.|
|Human Resources Administration||Human resource responsibilities are supported by ASO, but worksite employer responsible to follow proper HR policies compliant with laws and regulations.||Human resource responsibilities are supported by PEO , but worksite employer responsible to follow proper HR policies compliant with laws and regulations.|
|Regulatory Compliance||ASO manages responsibilities related to regulatory compliance.||PEO manages responsibilities related to regulatory compliance.|
|Employee Benefits and Administration||Coverage obtained by client or obtained through ASO.||Coverage can be offered under PEO master policies or client may choose to use own policy. PEO may also administer the plans.|
|Payroll Tax Liability||The employer is liable.||The PEO is liable for federal taxes. State rules vary.|
|State Unemployment Tax (SUTA) Rate||Client’s SUTA rate is used.||The PEO’s SUTA rate is used (there are some states that require worksite employer level policies).|
|Unemployment Claims||Client or ASO manages unemployment claims.||PEO manages unemployment claims.|
PEO vs. ASO, Which Is Better for Your Business?
Both models provide administrative support and regulatory protections. As a PEO, we’re a bit biased towards our client-first approach, including an industry-leading safety and alternate dispute resolution program. But determining which service model is ultimately best suited for your business depends on a large number of variables that are unique to each business.
If you’re considering a PEO or ASO, the best way to decide is to submit a request for a proposal and find out which model your business is best suited for. We’d be happy to walk you through the advantages each model offers your business to help you decide.