When researching HR outsourcing options, you’ll quickly encounter two similar acronyms: PEO and ASO. While both can help manage your HR functions, they operate very differently. Understanding these differences is crucial to choosing the right solution for your business.
What is an ASO?
An Administrative Services Organization (ASO) provides HR services on an administrative basis without entering into a co-employment relationship. Under an ASO arrangement, you remain the sole employer of your workforce. The ASO simply acts as a vendor providing specific services you’ve contracted for.
ASOs typically offer services like payroll processing, benefits administration, HR consulting, compliance support, and technology platforms. However, you maintain all employer responsibilities and liabilities.
What is a PEO?
A Professional Employer Organization (PEO) creates a co-employment relationship where the PEO becomes the employer of record for tax and insurance purposes. This partnership allows the PEO to pool employees from multiple clients, providing access to better benefits rates and assuming certain employer liabilities.
PEOs offer comprehensive HR services including payroll, benefits, workers’ compensation, compliance, and risk management—similar to an ASO—but with fundamentally different legal and financial structures.
Key Differences Between PEO and ASO
Employment Relationship: The most significant difference is the employment structure. With a PEO, your employees technically work for both your company and the PEO (co-employment). With an ASO, you remain the sole employer, and the ASO is just a service provider.
Workers’ Compensation: PEOs typically include workers’ compensation insurance as part of their service. Your employees are covered under the PEO’s master policy, often resulting in better rates and simplified administration. ASOs may help you find workers’ comp coverage, but you purchase and maintain your own policy.
Benefits Access: PEOs can offer Fortune 500-level benefits because they pool employees from multiple companies, giving them significant purchasing power with insurance carriers. ASOs can help administer benefits, but you’re purchasing based on your company’s size alone, which usually means higher costs and fewer options.
Liability and Compliance: PEOs share certain employer liabilities, particularly around payroll taxes, benefits compliance, and workers’ compensation. This can reduce your risk exposure. With an ASO, all employer liabilities remain entirely with you.
Tax Reporting: Under a PEO, your employees receive W-2s from the PEO showing them as the employer of record. With an ASO, your company issues all W-2s and maintains full tax reporting responsibilities.
Cost Structure: PEOs typically charge a percentage of payroll (usually 3-12%) or a per-employee-per-month fee that includes most services. ASOs often use à la carte pricing where you pay separately for each service you select.
Which Option is Right for Your Business?
Consider a PEO if:
- You want access to better benefits at lower costs
- You need comprehensive HR support and risk management
- You’re expanding into multiple states and need compliance help
- You want to reduce your administrative burden significantly
- You have 5-200 employees
Consider an ASO if:
- You want to maintain complete control of the employer relationship
- You have a strong internal HR team that needs specific support
- You prefer a fully customizable service arrangement
- Your company is very large (200+ employees) and can negotiate competitive benefits independently
- You’re uncomfortable with the co-employment model
The Hybrid Option
Some companies start with an ASO and transition to a PEO as they grow. Others use a PEO during high-growth phases and switch to an ASO once they reach a size where they can negotiate competitive benefits independently.
Making the Right Choice
Both PEOs and ASOs have their place in the HR outsourcing landscape. The right choice depends on your company size, growth trajectory, risk tolerance, benefits needs, and desire for comprehensive vs. à la carte services.
However, evaluating providers and understanding which model truly serves your needs can be overwhelming. Most business owners don’t have time to research dozens of options, compare complex proposals, and negotiate contracts.
Need help determining whether a PEO or ASO is right for your business? Contact PEO Consulting Partners for a free consultation. We’ll analyze your specific situation and present the best options—whether that’s a PEO, ASO, or hybrid approach.