Finding a fit with PEO, ASO, or HRO

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You don’t need a PEO or an EOR always.

Sometimes, simpler alternatives can be looked at, when solving organizational development challenges. For example, ASO (administrative services organization) and HRO (human resource outsourcing) companies can address requirements around HR and administration support. In this post, we look at how PEOs differ from ASOs and HROs.

Co-employment the key difference

The fundamental feature that distinguishes PEO and EOR from ASO/HRO is co-employment. When you engage a PEO or an EOR, your team members are on the corporate rolls of the PEO. This ensures compliance with the HR and labor laws prevalent in the geography of your operations. An ASO or an HRO will fall short on this aspect. Thus, ASO and HRO will not ensure people compliance. This will make your company vulnerable to regulatory and statutory action.

The PEO vs ASO vs HRO distinction

Co-employment is the singular difference that separates PEOs and EORs from ASO, HRO, and a plethora of other outsourcing agencies. It is to be noted that the scope of these organizations is to support non-business function activities. Business functions will never be scoped.

Revisiting PEO

A PEO, or Professional Employer Organization is a company that provides a range of HR and payroll services to small and medium-sized businesses. These services can include employee benefits, payroll, compliance with labor laws, and recruiting and training. Thus, PEO shares risk in this transaction. SMB businesses that leverage PEO for strategic growth, grow 8% more than their counterparts, have 14% less employee turnover and have a 50 % odds of survival.

PEOs work by entering into a co-employment agreement with the businesses they serve. In this arrangement, the PEO becomes the employer of record for the business’s employees, taking on responsibilities such as payroll, tax withholding, and employee benefits. The co-employment allows PEOs to drive economies of scale while negotiating employee benefits such as health insurance. The business, however, retains control over its day-to-day operations and the supervision of its employees. PEOs include companies such as ADP, Trinet, Spariti, Remofirst, Rippling, and many more.

Understanding ASO

Companies like Zenefits and Gusto are the ones that fall in the ASO category. You may be familiar with these names. At the brass tacks, an ASO, or administrative services organization, is a specialized outsourcing company to support in the operations of administrative tasks including HR. An ASO does not sign a co-employment agreement, thus not partaking the employee risk.

PEO vs ASO

From the above the primary difference between a PEO and ASO is absolutely clear. The following are some more differences between the two.

Services Scope

The services offered are similar. But the gamut of HR and administrative services offered by PEOs are not as restrictives as an ASO. Because of this, ASO provides greater flexibility in customizing scope. PEOs on the other hand function as strategic partners where the prospective buyer has better visibility of its requirements.

PEO vs ASO Cost

The pricing model is based on a flat charge per employee per month in both the cases. Upfront costs are lesser for ASO compared to PEO. But, PEOs tend to deliver better economic value to larger teams because they also share the employer risk.

Understanding HRO

Companies like Trinet, Paychex, Insperity, and even ADP fall in the HRO category. A human resource outsourcing (HRO) company is similar to an ASO but exclusively focused on HR operations. ASO also assists in non-HR services. You must be familiar with the workings of a payroll processing company. Similarly, in the case of an HRO, if you need support for payroll or say health insurance, you can take the HRO services. The services by an HRO are like a buffet. Interested companies can pick and choose from the services they need. A PEO, on the other hand, offers a comprehensive set of services, with no provisions to pick and choose. PEOs differ from HROs in a similar way to ASOs.

PEO or ASO or HRO

It depends.

Many factors would influence the decision. Size of the company, the depth of services you need, the risk premium, growth imperatives, and the operational convenience sought. Irrespective of the decision, it is recommended that companies should have team members who have previous experience in dealing with such partners (PEO/ASO/HRO). This is a must for any successful transaction.

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