ASO vs. PEO: Which HR Outsourcing Solution Do I Need for My Business?

The HR department is one of the pillars of a company, as it has a significant impact on how the organization will evolve in the future. To ensure company HR operations are well-managed, efficient, and cost-effective, many businesses have begun outsourcing their HR processes by hiring third parties. The most popular types of such organizations are Professional Employer Organizations (PEOs) or Administrative Service Organizations (ASOs).

Outsourcing your operations through such parties allows you to manage your workforce more efficiently than doing it in-house, as it saves you a lot of time down the road. Moreover, having a reliable third party manage processes like employee compensation and benefits frees you up to focus on running and growing your business.

Now, with the basics out of the way, let's dive deeper into ASOs and PEOs and see what they are.

» Outsourcing vs. in-house payroll software: see what's better for your business

What Is an ASO?

An Administrative Service Organization (ASO) is a third-party company offering services such as payroll, benefits administration, and compliance management. This type of organization doesn't employ the people who are part of the organization—rather, it provides support for managing them in terms of administrative tasks. Simply put, an ASO provides reliable HR solutions to companies that need help with their basic HR processes.

How Does an ASO Work?

An ASO works by providing companies with an array of HR-related services—helping with payroll, benefits administration, compliance management, and other tasks that keep the HR processes running smoothly. An ASO will also provide guidance on any changes or updates that need to be made in order to streamline these processes.

Pros and Cons of an ASO

Pros:

• Cost-Effective - An ASO is typically more cost-effective than employing an in-house HR team or a PEO, as it doesn't require the same level of investment.
• Flexible - An ASO can be easily adjusted to suit a company’s specific needs. This means companies can customize their services according to their unique business requirements.
• Scalable - An ASO can be scaled up or down quickly and easily, giving companies the ability to adjust their HR operations as needed.

Cons:

• Limited Support - An ASO can't provide the same level of support an in-house HR team or a PEO can.
• Limited Expertise - An ASO team may not be as knowledgeable in certain areas as an in-house HR team or a PEO would be.

» Should you outsource employees within a small business? Find out here

What Is a PEO?

A Professional Employer Organization (PEO) is a third-party organization that provides much more comprehensive HR services than an ASO. It functions as an employer of record and offers benefits, payroll, and compliance management services to its clients.

How Does a PEO Work?

A PEO works by handling all the administrative tasks associated with hiring and managing employees. It acts as an employer of record, meaning that it assumes responsibility for a company’s employees and their compensation and benefits. Although there are different types of PEOs, all of them will handle the payroll and compliance issues related to these employees, allowing companies to focus on running their businesses.

Pros and Cons of a PEO

Pros:

• Comprehensive Services - A PEO provides a wider range of services than an ASO, from payroll to benefits administration and compliance management.
• Improved Efficiency - Since PEOs consist of skilled professionals, they can streamline and outsource payroll services, saving companies time and money.
• Expertise - PEOs are experienced in HR management and able to provide valuable guidance and advice.

Cons:

• Cost - PEOs tend to be more expensive than other types of HR outsourcing solutions.
• Limited Control - A PEO will assume near-full responsibility for a company’s employees and their compensation and benefits, meaning companies have less control over these processes.

» Outsourcing payroll services in 2022: Learn whether HR functions still do it

3 Differences Between ASO and PEO

• Employer of Record: PEOs act as an employer of record, meaning they assume responsibility for a company’s employees and their compensation and benefits. Meanwhile, ASOs don't employ the people who are part of the organization but provide support for managing them in terms of administrative tasks, which is important when you factor in liability.
• Services Offered: PEOs provide comprehensive HR services, such as payroll, compliance management, and benefits administration. On the other hand, ASOs typically provide fewer services and are more focused on administrative tasks.
• Cost: PEOs tend to be more expensive than other types of HR outsourcing solutions, while ASOs are generally more cost-effective.

When Is It Best to Use an ASO vs. PEO?

Use an ASO When:

• You require basic HR services and don’t need the full range of benefits associated with a PEO.
• You want to save money on labor costs while still having access to assistance with administrative tasks.
• You want greater control over your HR processes, as ASOs don't act as an employer of record.

Use a PEO When:

• You need comprehensive & precise HR services, such as payroll and benefits administration.
• You want to save time and money by streamlining your HR processes with a PEO.
• You don’t have the expertise or resources to manage all of your own HR tasks.
• You’re looking for an experienced partner who can provide valuable advice and guidance.

Bottom Line: Which HR Outsourcing Solution Is Best for Your Business?

Choosing the right HR outsourcing solution for your business depends on several factors, including the size of your organization, the type of services you need, and your budget. PEOs offer comprehensive HR services and can be beneficial for companies that don’t have the expertise or resources to manage their own HR processes, while ASOs are a cost-effective option for companies that need help with administrative tasks. Ultimately, choosing the right solution will depend on what's best for your business based on your specific needs and objectives.

» Opting for in-house payroll instead? Read TBR's payroll software reviews to find a solution that fits your needs.