PEO vs ASO vs HRO - What is the difference?
The fact that you have proceeded beyond the title of this article affirms that you either have some knowledge of these three acronyms or you have just experienced a déjà vu moment recalling a recent family game night playing Scrabble. PEO, ASO and HRO, what are they? Why would a business choose one over the other? Your answers lie below.
What is a PEO?
A Professional Employer Organization (PEO) arrangement is defined as a co-employment relationship between a licensed Professional Employer Organization and a business (client). In a PEO relationship, the PEO becomes the employer of record for purposes of assuming and managing employer related responsibilities such as payroll and tax compliance, human resources, workers' compensation and employee benefits among others. The advantages of partnering with a PEO not only include obvious benefits such as transferring employer related liabilities and responsibilities but also provides an essential benefit by freeing up time for the business and key staff members to focus on core activities of the business versus employment related, non-revenue generating administrative activities.
So why would you choose the PEO option? There are many factors to consider when choosing an outsourcing solution for your business and the PEO option provides so many benefits that it would be impossible for me to highlight all of them in a single article. I can however highlight some of the key advantages of the PEO arrangement for you to consider:
- The first advantage is the co-employment relationship. Simple definition - you transfer all of the payroll processing and tax compliance responsibilities to someone else.
- The second advantage is the state unemployment tax rate. Simple definition - you are now under the PEO's SUTA rate. If you have had a high employee turnover experience in the past and have a high SUTA rate you could benefit significantly being under the PEO's lower SUTA rate.
- The third advantage is the workers' compensation. Simple definition - you are now under the PEO's master workers' compensation policy and can say goodbye to annual workers' comp audits and premium deposits.
- The fourth advantage is the expertise. Simple definition - you no longer have to be an expert at everything. Through the PEO relationship you now have access to a team of professionals and industry experts dedicated to helping you manage the risks and responsibilities related to your business and your employees.
Using a PEO will reduce the cost of doing business and free your management team from administrative work that slows productivity. Most importantly, it gives you the freedom of mind in knowing you are working with a trusted organization that will enable you to concentrate on business while we take care of your most important investment-your employees.
What is an ASO?
The ASO acronym has actually been defined using a few different terms, i.e. Administrative Services Only, Administrative Services Outsourcing or Administrative Services Organization. All of which provide an essential benefit to businesses (clients) by offering a suite of services similar to the PEO arrangement such as payroll and tax compliance, human resources and insurance administrative services including assistance with finding, implementing and managing workers' compensation and employee benefits. The significant difference between the PEO and the ASO is the co-employment relationship. Unlike the PEO arrangement, the employer retains the employer of record status with the ASO and all payroll taxes are reported and filed using the client's FEIN.
So why would you choose the ASO option? Similar to the PEO, the ASO option provides a bundled suite of services intended to help you manage your business more effectively. Although the ASO arrangement is not a co-employment arrangement it is designed to minimize your risks and liabilities through outsourcing of key employment related tasks and responsibilities to industry experts. The following are a few reasons you may consider the ASO option over the PEO option:
- The co-employment relationship. Simple definition - despite the fact that businesses do not lose control over their employees in the PEO relationship it is still a common fear for some business owners to consider this option. Under the ASO model you retain the employer of record status and gain the same level of service and access to a team of professionals and industry experts to help manage your business more effectively.
- You are happy with your current benefits and workers' compensation broker. Simple definition - under the ASO option you can retain your current relationships with insurance brokers and insurance carriers while gaining access to experts to manage the insurance administration functions on your behalf.
- I have a low SUTA rate and low employee turnover. Simple definition - under the ASO arrangement you retain your own SUTA rate but gain access to a team of professionals to assist with unemployment claims and administration as they occur.
ASO is a strategy that most businesses take. In fact, when you consider an Administrative Services Outsourcing (ASO) solution, your business can reap the benefits of easier management conveniently done for your company’s interest. The ASO solution involves a multitude of business transaction based human resources services that consist of payroll, employee data management, and benefits support.
What is an HRO?
Human Resource Outsourcing (HRO) is similar to the ASO and PEO in that it typically provides a suite of services tailored to helping employers manage risks and responsibilities related to employees. The HRO model is commonly referred to as the à la carte option since it is typically focused on specific HR related tasks based on the HRO providers experience and specialty. It is more common for larger companies to consider the HRO option versus the PEO or ASO option when they have already developed internal staff and technology to manage a majority of these tasks and responsibilities but may have a need outside of their internal expertise which could be handled more effectively by an HRO provider.
So why would you choose the HRO option? Regardless of how many employees you have, there are a myriad of employee related laws and regulations that you face as an employer everyday. Managing these employee related laws and regulations on a day-to-day basis is a complicated task—one that requires a substantial amount of energy, time, and expertise. Here are three reasons why you should consider HR outsourcing for your business:
- The first reason - hiring and developing the knowledge and expertise that is required to efficiently manage various employee management tasks on a daily basis is costly, energy sapping, and time-consuming.
- The second reason - outsourcing various human resource tasks provides your business and key staff members with more time and energy to focus on and efficiently run your business.
- The third reason - the success of any business to a large degree is dependent on how effective its human resources policies and procedures are.
With an HRO, you’re relieving your company from the responsibility of administering and handling human resources functions and issues. So whether you are a start-up or an established business HRO can greatly impact your employees and bottom line.
Each form of outsourcing is very different and has the potential to bring unique value to a company whose goal is to improve the overall efficiency of the HR function. The entire premise behind outsourcing any or all of HR is to allow an organization to spend more time on meaningful tasks that are core to the business. It is paramount to partner with the right HR services provider. This relationship is critical to experience success in the entire business today and to be better positioned for growth in the future.