PEO or ASO: Professional Employer Organizations vs Administrative Service Organizations
As an entrepreneur, you may often find yourself doing things that you never wanted to do. You want to focus on your business, however, "employee business" keeps getting in the way. Most companies find that by offloading some of this busy work it allows them far more time to spend on increasing revenue allowing their business to fare better in the long run. Unlike outsourced payroll, both PEOs and ASOs offer additional services to relieve you from administrative work, however deciding which way to go can be a challenging process.
The ASO provides administrative services for your organization such as processing payroll, performing direct deposits, and filing payroll taxes. Like outsourced payroll, the filing is under you federal employer's ID number (FEIN). However, unlike outsourced payroll, the ASO will provide assistance with questions concerning compliance and legal concerns, access to insurance, worker's comp, and medical and dental benefits. These offerings and costs are based on your employee base and employment risks associated with them remaining in your organization. The ASO provides the small business employer, "employment related" relief for businesses with 50 or more employees.
The PEO offers similar services to the ASO, however, the offering is actually more comprehensive. Unlike ASOs, PEOs take on a level of shared risk with your business. Because of this risk, PEO companies will assume responsibility for employment, government compliance regarding issues such as new hire state reporting, filing and paying taxes to the proper entities, unemployment claims administration, and worker's comp issues. PEO's also provide access to pooled employee medical, dental, and other related healthcare plans. This pooling ideally provides smaller future cost increases to your business. As you know, one significant claim can considerably increase your fees; the PEO can absorb these costs against a larger company base. Traditionally, the PEO contract states that all services are accomplished and performed by the PEO using their FEIN, a key difference from the ASO. Small business owners may believe they are giving up control to the PEO, however, after reviewing the PEO agreement, the responsibilities of the employer and that of the PEO can easily be defined. For example, the small business owner will continue to make hire, fire, and salary decisions yet can take advantage of risk transferrence on to the PEO.
PEOs are excellent for companies having 1 - 50 employees or for those groups that have many small pockets of employees across the United States. That being said, there are still many companies that have much larger employee counts that derive and enjoy great benefits from PEO's.
Deciding whether to go with a PEO or an ASO from an outsourced payroll model is truly up to the individual employer. A rule of thumb is to take into effect employee count when making your decision. The bottom line is that you are in control no matter which direction you pursue. First, identify which features would free up your time the most, the PEO Services Selection Tool by PEOcompare.com is a great place to start. Second, contact fellow small business owners and ask for feedback on their opinion on PEO's vs ASO's. Either way you decide to go, this type of service will almost always benefit your company in the long run.