An Administrative Services Organization (ASO) and a Professional Employer Organization (PEO) are both types of entities that provide outsourced HR and administrative services to businesses, but they differ in number of important ways.
An administrative service offering (ASO) is used to outsource administrative functions, including employee benefits, payroll, HR management, workers compensation, and safety programs. With an ASO, a small business has a single partner that manages the vendors your business selects to work with.
A professional employer organization (PEO) allows a business to outsource many of its human resource functions, share employment liability, or create economies of scale to improve benefits package to employees. A PEO is an extension of a business and engages with the management team to address complex employee-related matters.
Key Differences between ASOs and PEOs
- Employer of Record Status
One of the main differences is in the employer relationship. In a PEO arrangement, the PEO becomes the co-employer of the client’s employees, taking on responsibilities such as payroll processing, benefits administration, and HR management. This means that the PEO shares certain employer liabilities and responsibilities with the client. In contrast, an ASO does not typically become the employer of record but instead provides administrative support services such as payroll, benefits administration, and HR consulting on behalf of the client. The client remains the sole employer of its employees.
- Risk and Liability
Because a PEO shares employer responsibilities, it also shares some of the risks and liabilities associated with employment, including compliance with labor laws, workers’ compensation, and employment-related lawsuits. In contrast, an ASO does not assume these risks as it does not become the employer of record.
- Employee Benefits
PEOs often offer a co-employment model where they can provide access to a broader range of employee benefits such as health insurance, retirement plans, and other perks, leveraging their larger pool of employees to negotiate better rates. ASOs may also offer benefits administration services, but they typically do not offer the same level of access to a wide range of benefits as PEOs.
- Control over HR Policies
With a PEO, the client may have less control over certain HR policies and practices since the PEO shares employer responsibilities. The PEO may have standardized HR procedures that the client must adhere to. In contrast, with an ASO, the client retains more control over its HR policies and practices since it remains the sole employer of its employees.
In summary, while both ASOs and PEOs provide outsourced HR and administrative services, PEOs involve a co-employment relationship where the PEO assumes some employer responsibilities and liabilities, whereas ASOs offer administrative support without becoming the employer of record, allowing the client to retain more control over HR policies and practices.
