You’ve probably heard the terms HRO, PEO, and ASO thrown around before. The concepts behind these organizations are not new and have been used for decades. However, with the internet and cloud-based technology, they are better equipped now to assist companies with their HR needs.
But which is the right choice for you?
What is a PEO?
A Professional Employer Organization (PEO) partners with companies to deliver staffing solutions. Instead of having an entire staffing department, companies outsource the work to a PEO, which is responsible for filling job requisitions, managing benefits, ensuring compliance, and running payroll. A PEO is an employer of record; a company enters a co-employment arrangement where they maintain certain responsibilities to staff acquired through the PEO. Simply put, a PEO is an organization that helps your company access the right people, provide them with high-level benefits, and stay compliant with current regulations. This can offload some work from your HR and Payroll teams, letting them focus on company employees.
PEOs can be a good choice for tactical staffing solutions. For example, they allow you to bring in staff without burdening your HR and Payroll departments with additional compliance, reporting, and administrative tasks.
What is an ASO?
An Administrative Services Organization (ASO) provides tactical HR solutions. Unlike a PEO, there is no co-employment arrangement; the company is the employer of record. ASOs offer an entire suite of services available to handle every aspect of human resources including:
- Talent acquisition
- Employee benefits
- Payroll
- Training
- Compliance
- Handbook creation
Outsourcing your HR needs makes scaling easier because you have a HR partner in place to handle the load. You can focus on the needs of the business while the ASO focuses on making sure you have the right team in place.
What about an HRO?
Human Resources Outsourcing (HRO) companies provide some or all of a company’s HR needs. (This may also be referred to as BPO, Business Process Outsourcing.) HROs have traditionally only been available to larger organizations; however, many outsourcers are bringing this model to the mid-market. Like an ASO, an employer remains the “employer of record” in this type of arrangement.
In an HRO model, the solution focuses on managing the entire HR business process. The provider manages the HR function by utilizing their own tools on behalf of the client. Alternatively, an HRO may also work with you to select, implement and manage your own tools.
This includes payroll processing, new hires/terms administration, and benefits administration. An Employee Call Center is inherent to the solution within an HRO offering.
In a sense, the HRO becomes your HR department, and employees communicate directly with the HRO provider as if they were internal HR. As a result, you get the best of experienced, well-seasoned HR, backed by an entire team, while paying less than hiring a full-time inhouse HR person.
The risks of using a PEO or an ASO versus the benefits of an HRO
The entire premise behind outsourcing any or all of HR is to allow an organization to spend more time on meaningful tasks that are core to the business. It is paramount to partner with the right HR services provider. This relationship is critical to experience success in the entire business today and to be better positioned for growth in the future.
When working with a PEO or an ASO, you should be aware of certain risks, especially before you sign the first contract. For example, you need to consider both your employment practices liability (EPL) and workers compensation coverage.
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.” It is vital that you review all coverages with a qualified professional before signing a co-employment agreement.
ASOs often promise to save you money, but this promise is based on events aligning properly, and certain other events not occurring at all. Check out Kenneth MacDonald’s Is ASO Worth the Risk? to find a discussion about how your savings may be impacted when using an ASO. The big takeaway from it is that even one high dollar claimant on an ASO insurance plan can negate years of savings; therefore, it will take you longer to see a return on your investment.
Consider this point also: when you hand over your HR management to an outside organization, you lose control over your HR strategy. An ASO will follow the plan you agreed upon but swift changes in direction that may benefit your company will be difficult to execute.
With PEOs, the employees in HR work for the PEO; you have no control over who they recruit and whether they are a good fit with the company culture.
Why an HRO might be right for you
Like any relationship, you want to be sure that your HR provider really understands your business and your services or products. They need to be a business person first, someone who has deep professional experience in Human Resources. This goes way beyond what PEO and ASO organizations offer who are focused on administrative transactional efficiencies above the success of your business.
In contrast, HROs are responsive strategic partners that will provide tailored solutions for your business. Instead of a one-size-fits-all approach, an HRO will work closely with you to be sure they meet your unique needs and they’ll be able to quickly implement changes that support your business strategy. Your HRO will position your business objectives and culture as paramount.
How Do You Choose?
Which choice is right for you? Ask yourself these questions, and if most of your answers are yes, you may benefit most from an HRO.
- Do you lack the funds to hire your own in-house HR team?
- Does your business direction change quickly in response to market demands?
- Do you want to take some of the burden off your HR manager?
- Are employee issues and HR management using up more of your time than it should?
- Do you have trouble staying current with federal, state, and local regulations?
- Have you had compliance issues in the past?
- Do you forget to prioritize employee engagement?
- Is it a struggle to hire, train or retain top talent?
- Do you have issues understanding the intricacies of Health Care Reform?
- Are you ready to let professionals take over managing and executing your HR strategy?
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!
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