ASO and PEO: What's Best for Your Company?

There's no shortage of acronyms in the HR space.

The Professional Employer Organization, commonly known as a PEO, is a trusted model that's been around for 30+ years.

Around the same time the ASO, Administrative Services Organization, popped up and is becoming a very popular option for small businesses.

They're often thought of as cousins due of their similarities, but there are some nuanced differences that we're here to distill.

Employer of Record

ASO: Client maintains their EOR and does not enter into co-employment relationship with the PEO.

PEO: Enters into Co-Employment relationship with Client.

Payroll Tax Liability

ASO- Taxes are filed under client company's EIN

PEO- PEO is liable for remittance and quarterly tax filings for client company. PEO sets up SUI accounts and manages on behalf of client

Workers’ comp

ASO- Client owns claims, management of policy, deductibles, and completes EOY audit. Premiums are billed up front as an estimate for the year

PEO- PEO manages, responds to claims, and completes EOY audit. Premiums billed on a pay-as-you-go basis through the PEO's payroll system

State Unemployment Insurance (SUI) and State Registration

ASO- Client is generally responsible for registering unemployment accounts and responding to claims. Client must register in each state (or often use a 3rd party service provided by the ASO)where they hire employees and manage new hire reporting

PEO- New hire reporting and taxes are reported under PEO’s EIN. Client company does not register, manage, or respond to SUI claims in PEO reporting states

Health Insurance

ASO- Client company does not access PEO master policy plans. They provide a payroll integration to manage small group health insurance plans

PEO- Client company accesses PEO master health insurance policy and rates. Many PEO's also have a payroll integration for a client small group insurance plans for clients who wish to stick with outside insurance plans

When to use an ASO vs.PEO

ASO's tend to be 10% more cost-effective given their scope of services. If a company has straightforward operations, so employees are in one state, not offering health insurance or has low participation, then an ASO is likely the best fit.

Companies choose to partner with a PEO for a variety of reasons. It may be to mitigate health insurance spend by leveraging a PEO's master policy plan. A company that has a dispersed workforce will enjoy the immediate benefit of having multi-state compliance covered under the PEO. A client that wants to "set it and forget it", may want to consider a PEO.

Still have questions?

Contact us below to learn more