Perhaps you’re wondering, “What is a PEO or ASO?” We’ve got your answers and an easy test to know whether they are right for you. You’ve probably heard the terms PEO and ASO thrown around before. The concepts behind these organizations are not new, and have been used for decades. With internet and cloud-based technology, PEOs and ASOs are better equipped now to assist companies with their HR needs.
What is a PEO?
PEO stands for Professional Employer Organization. PEOs partner with companies to deliver human resource (HR) solutions offsite. Instead of keeping an entire department of HR professionals, companies outsource the work to a PEO who manages benefits, compliance, and payroll. Through the PEO program, companies enter a co-employment arrangement that means there are certain responsibilities the company maintains.
What is an ASO?
ASO stands for Administrative Services Organization. ASOs mix automated technology and personnel to provide tailored HR solutions. Unlike a PEO, there is no co-employment arrangement with an ASO, so the company reduces HR head count. Similar to PEOs, ASOs assist with the employment life cycle—everything from recruitment to benefits to payroll to compliance.
The function of PEOs and ASOs
The purpose of PEOs and ASOs is simple: to help you manage your employee resources with a stellar program. How they achieve that goal differs, though.
PEOs use co-employment agreements. These contracts mean the PEO will be the “employer of record.” In other words, they are responsible for payroll, benefits, and tax filings—they keep the records. The company maintains accountability for employee management and operations, so you do the hiring, firing, and engagement encouraging. So, what is a PEO? It’s an organization that helps your company access high-level benefits and stay compliant.
ASOs alter from the PEO model because they are not co-employment agreements. Instead, they offer a broad range of HR solutions including:
- Talent acquisition
- Employee benefits
- Handbook creation
So, in place of sharing the human resources responsibility, you have an entire suite of services available to handle every aspect of it. Further, outsourcing your HR needs makes scalability easier in your company because you have a strong HR in place as talent is brought on. You can focus on the moving and the shaking while the ASO focuses on getting you a support team.
PEO and ASO risks
When working with a PEO or an ASO, there are certain risks to be wary of, especially before you sign the first contract. For example, you need to consider your insurance coverages, both employment practices liability (EPL) and workers comp.
According to Daniel Brettler in his article Why PEOs Don’t Take the Headaches Away, “Many PEOs are quick to say that EPL and workers comp coverage is “taken care of ” as part of the relationship. But a closer review of your PEO’s insurance policies may reveal crucial gaps that can implicate your PEO’s worksite employees and anyone else who does work for you during the policy period.” So, it is vital that you review all coverages with a qualified professional before making a co-employment agreement.
ASOs promise to save you money, but this promise is based on certain events aligning properly, and certain other events not occurring at all. Check out Kenneth MacDonald’s Is ASO Worth the Risk? to find a strong discussion on how your savings when using an ASO can be affected. The big takeaway from it is that even one high dollar claimant on an ASO insurance plan can negate years of savings, meaning it will take you longer to see a bottom line that is worth your time.
These are specific risks associated with PEOs and ASOs, but there are opportunity risks as well, especially with ASOs. When you hand over your HR management to an outside organization, you lose control over your HR strategy. They follow the plan you agreed upon, and swift direction changes that may benefit your company are not available. Plus, in PEOs, the employees in HR don’t work for you, they work for the PEO, and you have no control over who they send over and whether they are a good fit with the company culture.
Should you use a PEO or ASO?
Many small businesses realize the benefits of a PEO or ASO and take on the agreements despite the risks. But should you? Now that you’ve answered the question “What is a PEO and ASO,” it is time to determine whether it will help or harm your business. Ask yourself these questions, and if most of your answers are yes, you may benefit from a PEO or ASO. But, if most of your answers are no, you may want to steer clear, so you don’t harm your business.
- Do you lack the funds to hire your own in-house HR team?
- Have you had compliance issues in the past?
- Do you forget to prioritize employee engagement?
- Could you use help in managing your employee resources?
- Is HR management using up more of your time than it should?
- Have you had trouble remembering federal and state regulations regarding employees?
- Is it a struggle to hire and train top talent?
- Do you have issues understanding the intricacies of Health Care Reform?
- Are you ready to let professionals in HR take over your HR strategy?
- Do you want to take some of the burden off your HR manager?
For more help regarding HR Outsourcing, Employee Engagement, Performance Management, Employee Relations, Leadership and Executive Coaching and Development, and all things “HR,” The Pendolino Group is here to support you and your team. Contact us today!