Professional employer organizations (PEOs) and administrative services organizations (ASOs) manage human resources (HR) so you can focus on revenue-generating tasks. The ASO model differs significantly from a PEO structure. Comparing PEO vs. ASO payroll and benefits is essential to choosing the right solution.
When considering PEO, ASO, or other options, your business size, HR capabilities, and goals are primary factors. This comparison explains the difference between PEO and ASO HR outsourcing services and discusses the pros and cons, costs, and alternatives.
Fast facts: PEO vs. ASO comparison
PEOs and ASOs are both HR outsourcing companies. The key difference is that a PEO co-employs your staff and acts as your HR team, whereas an ASO supports your existing HR employees and doesn’t co-employ your workforce.
When comparing ASO vs. PEO solutions, consider the following factors:
- Model: This is the main difference between PEO and ASO companies, with PEOs acting as co-employers, while ASOs are independent third-party vendors.
- Costs: PEOs are more expensive than ASOs, but the pricing typically includes insurance coverage and more services.
- Risks and liabilities: While PEOs share employment-related responsibilities, ASOs do not.
- HR services and support: PEO companies offer broad support, reducing the need for HR staff. ASOs focus on certain aspects to help existing HR personnel.
- Benefits: PEOs sponsor and fully manage insurance plans, including workers’ compensation, whereas ASOs assist with administration.
[Read more: How to Delegate Tasks to an Outside Vendor]
What is a PEO?
Professional employer organizations, called PEOs, are HR service providers for small and mid-sized businesses (SMBs). Unlike other outsourced HR solutions that operate independently from your company, PEOs use a co-employment model where you and the PEO co-employ your workforce. This arrangement means the PEO and business client also share certain liabilities.
While you still run the show and manage your team, the PEO processes payroll, administers benefits, and handles other HR admin tasks. Notably, the co-employment structure means the PEO files payroll taxes under its employer identification number (EIN). It also allows them to sponsor insurance plans and offer better coverage with lower premiums than most small businesses qualify for.
What is an ASO?
An administrative services organization, or ASO, is a third-party vendor that provides specific human resources services while maintaining operational independence. With ASO HR outsourcing, the provider performs tasks according to the contract but doesn’t co-employ employees or share liabilities.
Technically, ASO falls under the umbrella of human resources outsourcing (HRO), so many HRO providers offer HR ASO services. Typically, businesses pass payroll, benefits administration, and other HR tasks to ASO companies.
However, HR ASO benefits administration should not be confused with an insurance ASO or administrative services-only plan. This type of ASO is when a business self-funds its benefits package and has a third party manage it.
[Read more: The ABCs of Small Business Health Insurance Acronyms]
What is the difference between PEO and ASO?
Although the co-employment arrangement distinguishes a PEO from ASO HR outsourcing services, it isn’t the only aspect to consider. Their approach to insurance benefits and payroll tax filing also differs. To understand the value each company could bring your business, see how the following factors compare.
PEO vs. ASO model comparison
A PEO uses a co-employment structure, whereas an ASO has a standard third-party vendor agreement. Once you sign a contract with a PEO, the vendor becomes the employer of record (EOR) for administrative purposes, like payroll or sponsoring workers’ compensation or health insurance plans. The PEO doesn’t interfere with daily operations or hiring decisions.
On the other hand, as an ASO client, you retain complete control over employees for administrative and employment purposes. Your agreement allows the ASO to complete HR tasks on your behalf. When looking at the models of a PEO and ASO, meaning the contract terms, a PEO is relatively unique, whereas most consulting and vendor services use the ASO format.
[Read more: 5 Facts About Using PEOs for Your Business]
Cost differences between PEO and ASO companies
In general, businesses pay less for ASO versus PEO services. ASO companies charge per-employee rates ranging from $50 to $250 monthly. PEOs take a percentage of your payroll, ranging from 2% to 15%, or charge a flat per-employee fee.
The PEO price usually includes workers’ compensation, state unemployment insurance (SUI), and health benefits fees. Most PEO, ASO, and similar alternatives evaluate your company’s payroll and compliance complexity, the number of employees, and required services to determine pricing.
ASO vs. PEO risks and liabilities
To understand the difference between PEO and ASO companies, look at how they handle business responsibilities. Since the PEO is the EOR for payroll and benefits, it ensures accuracy, timeliness, and regulation compliance. PEO payroll information goes under the PEO EIN.
With ASO payroll, the firm handles the administrative side while your business files tax forms and payments. Payroll information goes under your company's EIN, making your business liable.
PEOs can also reduce your exposure and risk from workers' compensation and SUI issues. They negotiate workers’ comp rates, file SUI taxes, and handle claims processing. Conversely, ASOs typically don’t deal with workers’ compensation or SUI, although some agreements may allow administrative assistance.
With a dual ASO-PEO provider, you could start with a company’s PEO and later become an ASO client.
PEO and ASO HR services and support
ASO companies provide back-office HR services tailored to your business needs. You can pick from a la carte administrative assistance or expert support options. In contrast, a PEO has standard, bundled packages with add-ons for recruiting, training, or performance management.
Some HR ASO services include fractional support. This solution allows small teams to outsource state payroll tax consultants, recruitment experts, HR directors, or payroll managers. PEOs also have experts managing your account, but knowledge levels and specialties vary.
When considering PEO vs. ASO payroll and benefits, a PEO takes more of a management role, whereas an ASO handles the administrative side. You'll have more daily responsibilities as an ASO client, while a PEO can, at minimum, replace your payroll person.
[Read more: How PEO Services Can Enhance Your Employee Experience and Retention]
Comparing ASO vs. PEO benefits
PEO insurance and benefits cost less and are more comprehensive than ASO benefits, yet ASOs offer more plan flexibility. Since PEOs pool employees across multiple companies, they can negotiate better terms to provide higher-quality insurance plans and retirement packages.
ASOs work with smaller employee groups, so they may not have access to Fortune 500 coverage or lower rates. Yet, the ASO model lets you tailor benefits plans to workforce demographics and company goals. You can work with carriers to customize insurance types, such as adding a high-deductible health plan paired with a health savings account to appeal to young single workers.
PEOs pre-negotiate plan types at the group level, and there may be little flexibility beyond pre-defined options, such as HMOs (health maintenance organizations) and PPOs (preferred provider organizations).
The final difference between ASO and PEO benefits concerns administration, management, and employee experience. PEOs streamline the entire process, significantly reducing responsibilities and ensuring online access for plan participants. On the other hand, ASOs provide administrative support and may offer self-service tools. Your business still manages some compliance tasks, interacts with insurance carriers, and oversees aspects of benefits administration.
Should you choose a PEO or ASO?
If you don’t have an HR person, or you, as the business owner, are handling HR tasks, consider a PEO rather than an ASO model. However, if you have an HR department or manager, an ASO can provide fractional support and administrative services to improve internal processes.
Use a PEO if your business has around five to 100 employees and wants extensive HR services with an integrated human resources information system (HRIS). PEOs are best for companies looking to reduce HR responsibilities and administrative burdens, offer competitive benefits to attract and retain talent, and offset liabilities with a co-employment arrangement.
Consider ASO HR outsourcing if your business has 25 or more employees, including one or more persons responsible for HR functions. ASOs are best for businesses wanting administrative assistance in specific areas to save time and improve efficiency while retaining control over HR processes.
[Read more: How to Leverage a PEO to Help Grow Your Small Business]
Evaluate PEO vs. ASO pros and cons
HR outsourcing can help your organization achieve its goals faster, but it comes with certain risks. Comparing ASO vs. PEO pros and cons can give you an idea of how these solutions could benefit your team while highlighting potential downsides.
Here are the main advantages and disadvantages of HR ASO and PEO services:
- Pros: PEOs mitigate risk and substantially reduce administrative burdens while providing cost-effective, high-quality benefits. Conversely, the more flexible ASO model allows small businesses to offload tedious tasks, improve internal HR workflows, and retain institutional knowledge.
- Cons: Switching to a PEO means relinquishing some control over HR processes, which can alter your company culture and impact taxes. In contrast, an ASO doesn't provide workers' compensation coverage, and companies must manage insurance vendors. Businesses have more responsibilities when using an ASO.
Understand your PEO ASO outsourcing options
An ASO is a subset of HRO (human resources outsourcing) services, and many HRO providers offer some form of ASO HR outsourcing features. The difference between an ASO vs. an HRO is that HROs might handle HR strategy and interact with your employees, whereas ASOs focus on administrative tasks.
While PEO, ASO, and HR outsourcing firms assist with benefits administration, you can also work with insurance brokers. Although brokers don’t help with HR functions, if insurance affordability and options are a reason for exploring ASO, PEO, or alternatives, consider how insurance broker and PEO solutions differ.
[Read more: Everything Your Small Business Needs to Know About Choosing a PEO]
The best PEO providers and ASO companies
When examining services offered by a PEO and ASO, meaning outsourced HR functions, consider single- and multi-solution vendors. With a dual ASO-PEO provider, you could start with a company’s PEO and later become an ASO client.
Check out the following ASO-PEO solutions:
- Paychex: Choose full-service PEO vs. ASO packages as part of a complete HR outsourcing solution.
- Insperity: Mid-sized businesses can customize PEO or HR outsourcing packages to suit their needs.
- Justworks: With PEO and payroll solutions, Justworks provides modern HR software and international support for growing companies.
- TriNet: With an HR Plus option, ASO audit services, and total PEO solution, businesses can compare several ASO vs. PEO plans.
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