PEO versus an ASO Which is a better solution for your company: PEO or ASO?

PEO or ASO – Which one is best for your company?

As a client advocate in the PEO industry, I often get asked the question, “What is the difference between a PEO and an ASO, and what makes sense for my company?”

First of all, to understand this, we must take a look at the acronyms.

PEO stands for Professional Employer Organization, and ASO stands for Administrative Services Only.

Basically, a PEO is a comprehensive vendor that will handle the four core aspects of outsourcing: Human Resources, Benefits Administration, Payroll Administration and Workers Compensation. In a true PEO or “co-employment” arrangement, there is a transfer of liability. Your employees actually move to the FEIN number of the PEO.

An ASO is closer to a payroll processing company where the traditional employer responsibilities stay with your company. Instead of being transferred to the PEO’s FEIN number, all of your wages and taxes are reported under YOUR FEIN number. Here, there isn’t any relationship between the ASO and your employees. Additionally, there is no transfer of liability and you remain the employer of record. Below are two examples that may illustrate the differences in the vendor relationship:

So, what’s the real difference? Simply put, the determining factor of your relationship with an outsourcing vendor relies on the Client Services Agreement (CSA). Click the link for a sample of a PEO agreement.

Sample Client Services Agreement

Check out these examples:

1) An attorney’s office that has 5 employees, has been in business for 30 years and has virtually no turnover. In this example, where is the benefit of the economies of scale or the transfer of liability? There really isn’t any, especially from a Workers Comp or Unemployment Insurance view. An ASO could be the most logical option here. While still outsourcing these areas to a professional vendor, keeping everything under the clients FEIN number would be most beneficial.

2) A new franchised restaurant that has just opened. Consider Unemployment Insurance in this example. A restaurant typically has very high turnover, especially if it’s located geographically where seasonality fluctuates. It would be more beneficial to use the PEO’s larger pool of employees and staff that will fight those claims. Or, what about Workers Comp? Any workers comp claims would go on the PEO policy and are again absorbed by a larger group. Additionally, you eliminate the year-end audit from your agent.

This brief description is not intended to illustrate the pros or cons of either relationship, but merely point out the major differences between each. For a complete consultation, simply contact Chris Dodson.