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What’s the Difference Between a PEO and an ASO — And Which Is Best for You?

13 January 2015 No Comment

owner of a small business store showing her tasty cakesIf you’re the owner of a small- to medium-sized business, you probably have questions about the best way to handle administrative, human resources, and employment regulation-compliance duties. Most small-business owners don’t have the skills or, frankly, the time to deal with these issues themselves, and hiring a human resources department is often cost-prohibitive. What’s a small-business owner to do?

Many turn to the services of a professional employer organization (PEO) or administrative services organization (ASO) to handle the aforementioned tasks. But what’s the difference between these two organizations?

In short, a PEO enters into a co-employer relationship with the small-business owner and adds that business’ employees to a much larger employee pool — this allows PEOs to secure a much broader range of benefits and services. An ASO, on the other hand, maintains a traditional employee relationship with the business owner, and provides a much more limited range of administrative services. For most small- and mid-sized businesses, it’s preferable to use a PEO for payroll and other services.

PEO vs. ASO A Comparison

Both PEOs and ASOs provide outsourced human resource services for smaller companies, but PEOs operate differently in addition to providing a wider range of benefits and services. When your business contracts with a PEO, you enter a co-employer relationship with that PEO, which means your employees become the PEO’s employees, and the PEO assumes responsibility for employee benefits, regulation compliance, and services like payroll, tax filing, risk management, hiring, firing, and safety.

Many small-business owners worry that this sort of relationship means that they have to give up control of the day-to-day running of their business to the PEO, but that’s not what happens. You still retain control of daily operations, managing your employees, marketing your business, and nurturing your company culture.

ASOs, on the other hand, do not establish a co-employer relationship — your employees remain fully yours, and you retain all legal responsibility for running your business according to current regulations. ASOs stick to managing payroll services and tax filing, using your business’s EIN. They may be able to provide access to health insurance, unemployment benefits, and workers compensation benefits, but if not, you would still be responsible for providing these in compliance with state and federal regulations. Because an ASO cannot add your employees to a larger employee pool, they are far more limited in the benefits they can provide. However, it eliminates the possibility of a rate hike as a result of claims filed by employees at other companies in the pool.

Why a PEO Might Be the Best Choice for Your Company

There are two primary reasons why a PEO is probably the best choice for your small- to mid-sized business. The first is the expanded range of benefits your employees would enjoy with a PEO. Employees value benefits like retirement plans, but a mere 16 percent of small businesses currently offer any kind of retirement plan. Nevertheless, 47 percent of employees surveyed said that their retirement plan is one of the primary reasons why they remain with their respective companies.

In addition to retirement benefits, a PEO can help you offer your employees desirable health insurance plans from major carriers, since they’re able to put employees from multiple companies together in the same pool. You’re likely to find far more health insurance options with a PEO, since they’re able to command group rates from the most popular providers. You’ll also get better rates on workers’ compensation insurance and state unemployment insurance.

Perhaps the biggest benefit of choosing a PEO over an ASO is the peace of mind that comes with knowing that the PEO will assume the liability for any regulatory compliance issues or administrative errors that may occur. An ASO may be able to offer you advice about regulatory compliance issues, but the liability — and the responsibility — remains with you. For many small-business owners, knowing that they’re protected from this liability is worth the cost, especially with the recent proliferation of new and complicated employer regulations like those included in the Affordable Care Act.

If you’re looking for the best way to handle your small business’ administrative and human resources tasks, a PEO could be the answer. With a PEO, you can outsource payroll, tax filing, and all manner of employee benefits. You’ll be relieved of the burden of liability and you’ll be able to offer your employees the benefits they crave, and all for a fraction of the cost of hiring a human resources manager.

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