When you consider outsourcing HR functions at your company, there are two common options: a professional employer organization (PEO) or an administrative service organization (ASO). These are not just two more acronyms of the many that continue to crop up in the world of talent management. There’s a time and a place for each of them. It’s important to understand the difference between the two, as you make the best strategic decision for your growing business.
The difference is co-employment.
ASOs provide outsourced HR and administrative services for their clients – as do PEOs. The major difference between a PEO relationship and an ASO relationship can be summed up in a single word: co-employment.
- In an ASO relationship, the client outsources administrative tasks, but retains all employment-related risks and liabilities and remains the employer of choice for tax purposes. Taxes and insurance filings may be managed by the ASO, but they are filed under the client’s federal employer identification number (FEIN), not the ASO’s.
- In a PEO relationship, the PEO must be an employer for a client’s employees, for the client company to take advantage of the PEO’s workers’ compensation, benefits plans, and shared liability. In this co-employer relationship, the client is the common-law employer and the PEO is the statutory employer. In an ASO relationship, there is no co-employment.
The term ASO was actually coined by the PEO industry in the late 1990s because there was so much industry confusion around the subject.
Make the distinction.
It’s important to distinguish between the full-scale, comprehensive services offered by PEOs and the a la carte support services provided by ASOs.
There are some instances where an ASO model makes more sense, such as government municipalities and non-profit organizations that need managed services, but are prohibited from using a PEO because of the co-employment designation.
The National Association of Professional Employer Organizations (NAPEO), as well as We Are HR, can provide a wealth of additional information on the details around PEO partnerships. Or, you can contact the professionals at Lyons HR directly to have your questions answered or set up an informational meeting. We are proud to be Employer Services Assurance Corporation (ESAC) accredited, a distinction earned by only a small percentage of PEOs nationwide. And, we were the first PEO certified b y the Internal Revenue Service (IRS) – ensuring our clients not only the highest level of service, but also unparalleled financial security. We look forward to meeting you!