As your business grows, you might find that there’s a lot that needs administrative attention: managing payroll, taking care of workers’ compensation claims, overseeing the hiring process, and so much more. The good news is there are various services to help take some of these things off your plate. Those options include getting the help of a professional employer organization (PEO), an administrative services organization (ASO), or a human resources organization (HRO). Let’s run through these options and learn what the difference between a PEO, ASO, and HRO are.
Run payroll and benefits with Gusto
How does a PEO work?
A professional employer organization is just what it sounds like—an entity that acts as an employer on your behalf.
When you join a PEO, you enter a co-employment relationship, and the PEO becomes the employer of record for your employees. That means the PEO becomes your employee’s official employer and essentially leases your workers back to you.
With this setup, many of the responsibilities involved with managing employees are transferred from your business to the PEO, including:
- Payroll processing
- Taxes and compliance
- Workers’ compensation policies and compliance
- Health insurance administration and compliance
While a PEO handles the back-office administrative work, you are still in charge of your employees’ day-to-day work and tasks like hiring.
What are the advantages and disadvantages of a PEO?
With a PEO, all of the complexity of tax law and other compliance issues are off your plate. Your PEO also shoulders the liability for any taxes and compliance issues that they’re responsible for.
Another advantage is cost savings on insurance. Because a PEO has more employees than your business on its own, they can often get better rates on workers’ compensation and health insurance plans.
There are, of course, also downsides to joining a professional employer organization.
First off, there’s a loss of control and flexibility.
Technically, your employees are actually the PEO’s employees. So you don’t get to make decisions about things like which brokers to use for health insurance or which plans to offer. You need to be willing to let the PEO decide.
And because your employees are actually part of the PEO, laws that apply to larger organizations all of a sudden matter for your business.
For example, say you have 15 employees and you join a PEO with 100 employees.
Because the PEO is the employer of record, you’ll now need to comply with regulations that apply to businesses with 50 or more employees (like the Family and Medical Leave Act and the Affordable Care Act).
Looking to switch from a PEO to Gusto? Learn more here.
Okay, so what is an ASO?
As you might imagine from the name, an administrative services organization takes on administrative tasks for your business.
An ASO can help you in a way that’s similar to a PEO. Some of the services that are often bundled with an ASO arrangement include:
- Payroll processing
- Benefits administration
- Taxes and compliance
- Employee data management
- Unemployment claims management
But unlike with a PEO, your employees are still yours when you join an ASO. And you get to make the decisions. The ASO is just here to help.
For example, if you like your benefits provider, you can keep them—and let the ASO take care of handling all the paperwork. If you want to make changes, the ASO can also take care of finding new providers and do the heavy lifting of comparing plans and balancing employee requests with business needs.
So if you want to be at the helm of your business and have more flexibility, an ASO will allow you to get help without having to hand over the reins to someone else.
How about an HRO?
An HRO is similar in structure to an ASO. You stay the employer of record, and you’re still in charge. But HROs deal mostly with the human resources aspects of employee management.
It’s like an outsourced HR department. Some of the things that an HRO can handle on your behalf include:
- Recruiting and onboarding employees
- Managing compensation structure and benefits
- Developing job descriptions
- Overseeing employee training and development
- Processing payroll
- Managing workplace compliance
- Managing employee relations
Are there any alternatives?
Knowing the difference between a PEO, ASO, and HRO can help you choose which service to use and free up time so you can focus on other important aspects of your business.
If you’re looking for help across administrative and human resources tasks but don’t want to enter a formal organization or lose any control or flexibility, there are also online services like Gusto that can help with your payroll, benefits, and HR needs.