PEOs and AEOs Compared: What's the Difference?

The right HR partnership can completely revolutionize your business operations! The differences between these services matter for maximizing your efficiency and growth.

The right HR partner can change how your company performs. Your company should have a model that goes hand in hand with its requirements. We'll look at the differences in employer status and cost structures.

Your budget and risk tolerance matter for these HR functions. The level of control you want also plays a role. A strategic HR change could position your company for success. You just need to take the first step and find the best partner organization.

Let's get started!

Employer Status

PEOs and ASOs help you manage your workforce in completely different ways, so you need to know the differences between them.

PEOs become your co-employer through a signed agreement, which means they can share responsibility for your employees. Your PEO works with payroll, taxes, and benefits under their own tax ID number. But you control the business operations and the choice-making. When something goes wrong with payroll taxes, your PEO can take the results instead of your business.

A PEO acts as a trusted business partner and also takes on the tough HR tasks. You can get some protection from employment risks because the PEO is legally responsible for handling these duties correctly.

ASOs are service providers instead of partners. Your company remains the sole employer of your workers. The ASO mainly helps with administrative work without taking any legal responsibility. You'll also continue filing taxes under your company name.

Most businesses choose PEOs to cut back on their legal dangers. Your PEO can even give you access to health insurance and benefits packages at lower rates because they use employees from different businesses.

ASOs give you more control and responsibility over your workforce. While you'll receive help with administrative tasks and documentation, you're still on the hook for any tax mistakes or compliance problems.

The co-employment setup with PEOs might create some uncertainty in your workers about who their actual employer is. Yet most employees like the better benefits that come with PEO arrangements.

PEOs manage the HR responsibilities so you can focus on growing your business. ASOs also help to save you time but don't shoulder as much of the administrative workload.

HR Services

A business faces enough challenges without being buried in the HR paperwork. Businesses can get professional help with their HR tasks, and PEOs and ASOs are two popular options. These services work in different ways.

A PEO comes in as a co-employer of your staff – that means they share the legal responsibility for your employees. You can get help with everything from running the payroll to handling the benefits.

PEOs usually provide you with a suite of HR services. You'll receive help with handling employee benefits like health insurance and 401(k) plans. They manage your workers' comp claims and help you stay on the right side of labor laws. They pitch in with tasks like hiring and training the team members.

Your costs might run a bit higher with a PEO. But you'll get more services covered. PEOs can get better rates on insurance and benefits packages by grouping employees from multiple businesses together.

ASOs give you another alternative strategy to get HR support. Instead of becoming co-employers, they work more like outside contractors who manage the tasks you give them. An ASO lets you stay in control of your workforce.

While they'll process the payroll and help with the benefits management, you stay in charge of all employment decisions and risks. Your wallet won't take as big of a hit with an ASO because they give you fewer services. They mainly manage the administrative tasks while your company stays at the helm for decisions that matter to your HR.

A PEO would sweep the HR tasks off your desk if you're a small business owner juggling everything solo. An ASO might just help manage the payroll and let you take care of the rest. The businesses have some basic ASO services for tasks like payroll or benefits administration.

As they expand, some of them can then make the jump to a PEO for more support. These free up your time and help cut back on HR mistakes. Your choice can depend on how much support or control you want. Some businesses need full HR backup, while others like keeping more functions in-house.

Costs and Fees

You'll find some serious price differences between PEOs and ASOs. PEOs take a percentage of your total payroll – usually around 2% to 15% of what you're paying to your employees. This starts to add up once your business grows and you bring more people on board.

ASOs can make these financial facts easier to manage by charging you a flat monthly fee for every single employee you have. For most ASOs, you'll end up paying somewhere between $50 and $100 per employee each month. This easy strategy lets you plan out your budget without unexpected surprises.

Just imagine having ten employees, and each one makes $4,000 every single month. Your company's size can help determine which option ends up costing you less. A PEO taking 5% would run you $2,000 each month.

An ASO charging $75 per employee would only cost $750 for those same ten people. PEOs usually give you some extras like workers' comp and health benefits in their total cost. With ASOs, you'll need to pay for these services separately.

Make sure to include these in your calculations. Watch out for hidden costs when working with PEOs. Some might surprise you by charging setup fees that run into thousands of dollars. There could even be extra administrative charges that weren't explained first.

That's why you should take the time to review every single detail in the contract. PEOs can lock in better rates on benefits packages. Because they manage thousands of employees across different businesses they have more muscle to negotiate with insurance providers.

Your team could end up with better health coverage at lower costs. ASOs let you have control over benefit selections. You're free to use and match plans that work for your employees.

But you won't have the same bargaining power as a PEO might, so your insurance costs could be higher. Your future growth plans should lead your choice. A PEO's percentage-based fee might squeeze your budget when your payroll grows. An ASO's per-person fee could be the right choice if you plan to keep your team small and tight-knit.

Risk and Compliance

PEOs and ASOs manage the different business dangers and employee problems in completely different ways. Your PEO actually comes in as a co-employer and shares the legal responsibilities right alongside you. They tell you, "We have your back," by following the rules and staying legal.

With a PEO on your side, you have a partner who's experienced and ready to manage the situation head-on. They'll pull out the right documents and know what to say. ASOs take more of a hands-off strategy, and they'll tell you what they think you should do about employee problems.

But they won't share any of the legal dangers with you. When some problems get tough, you're the one who has to figure it all out. You won't have to manage this very nerve-wracking situation by yourself.

Business owners occasionally tell me stories about their compliance nightmares. One of my clients would wake up in the middle of the night, covered in sweat, worried sick about her HR paperwork being wrong. That's what tends to happen when everything falls on your shoulders alone - the stress builds and piles up over time.

PEOs help with safety laws and workers' comp situations as well. They'll help create safety plans and also manage the paperwork if someone gets injured while on the job. Their size means you'll probably get better insurance rates.

ASOs might give you some suggestions. But you'll need to manage most of the work on your own. Your choice comes down to how much help you want with running your business. You might love being in full control and handling everything completely by yourself. Or you might like to team up with a PEO so you can share those responsibilities.

Benefits Administration

With a PEO, you'll get full support for your employee benefits, and ASOs take a more hands-off strategy. Your PEO partner will manage these items for you, from picking the right insurance plans to handling the payroll deductions. They can even walk your employees through the confusing open enrollment process.

Your company can come out ahead when you partner with a PEO for benefits packages. PEOs build their buying power by combining employees from different businesses into one large group. Because of this, you and your employees will get access to more coverage options at lower prices than you would find on your own.

Benefits management can sometimes become stressful when you're handling it alone. You might spend hours comparing health plans and looking through endless dental coverage options. You need to keep up with the changing laws and manage the piles of paperwork. It's basically too much for most business owners to manage all by themselves.

ASOs work differently with these benefits. While they'll point you in the right direction and give advice about picking plans, they won't actually run the benefits program for you. Your team will still need to manage everything and work directly with the insurance providers.

Proper benefits management determines how satisfied your employees are. Your workers feel more protected and appreciated when their benefits are handled professionally. Businesses find employees stay longer when they're offered the right benefits packages.

It helps when you're trying to bring in talented workers in a competitive job market. PEOs give you an extra layer of protection by taking on the liability and compliance responsibilities for the benefits administration. This helps smaller businesses that may have problems with tough laws. Your PEO will manage the hard requirements, while businesses that work with ASOs have to find out the compliance facts on their own.

Insurance Handling

With these types of insurance and benefits, PEOs and ASOs work in very different ways. PEOs can use their size by combining employees from multiple businesses, and this gives them massive negotiating power with insurance providers. Better rates and coverage are usually available through a PEO because of their strong bulk buying ability.

This comes with a few different limitations. You'll need to work within the PEO's pre-selected insurance plans that are made for an average business. There's not much room to customize your coverage or choose different insurance carriers, so you'll have to take what they give you.

ASOs can give you more freedom with insurance and benefits. You get to choose and manage your own insurance plans that better match your company's needs. You'll build direct relationships with the insurance carriers and have total control over your coverage selections. The trade-off is pretty easy, though.

Your insurance costs could be higher with an ASO since you won't get to benefit from group buying power. You'll also need to manage more paperwork yourself, with employees signing and dealing with insurance claims.

A manufacturing company with strict safety requirements will find that its needs don't fit neatly into a PEO's standard workers' comp package. An ASO would let them search around for coverage that better fits their situation.

Most businesses end up weighing cost savings against flexibility. Your business could save thousands each year through a PEO's group purchasing power. However, some businesses need the ability to customize their plans or their existing insurance relationships.

Your workforce's situation usually helps point to the right choice. A small tech company might work well with a PEO's standard benefits package, while a construction company probably needs an ASO's flexibility for their high-risk coverage needs.

Business owners have concerns about a PEO's insurance system. Provider changes can affect your coverage and create disruptions. An ASO can give you more direct control to manage relationships and the ability to change carriers as needed.

Pick the Best Choice for Your Organization

Size plays a big part when you're picking between the PEO and the ASO options. Your small business will get more out of a PEO since you can receive the HR support you need. These organizations take care of everything from running payroll to handling employee benefits. They also help you sort out the tougher compliance problems.

Your PEO shares a few employer responsibilities with you and can even become the official employer for tax purposes. You'll still make the decisions about handling your team. The PEO works alongside you on things like the paperwork and other administrative tasks.

An ASO works more as an assistant than a business partner. You'll have total control over making your HR decisions and handling your employees. Your ASO just works on the assignments you give to them.

Money works differently here between these two options. Your PEO fees grow along with your payroll because they charge a percentage. That means that costs climb faster as your company expands. ASOs make their tasks easy with clear and predictable monthly charges per employee on your staff.

Risk sharing sets these two options apart. Your PEO comes in to share the employment-related risk and helps protect your business from legal or compliance problems that you should know about. With an ASO, you're more on your own. Every employee-related responsibility stays completely with your company.

Benefits packages also look quite different between these two options. Your PEO can sometimes get better deals on health insurance and other benefits. They do this by combining their clients' employees into one large group. While an ASO will help you run whatever benefits program you choose, they just don't have the same ability to negotiate better rates for you.

Businesses like to find themselves moving away from their PEO as they grow bigger. Those bundled services might feel a bit too restrictive for some bigger organizations. Some businesses might also want more control over how their HR processes work than a PEO allows, which can lead them to switch over to an ASO setup.

HR Partnership Success

Your company's situation will finally dictate which HR partnership model is best for you. You can have full control over your HR tasks or divide them with a reliable partner. That balance might change as your organization evolves over time.

A strong HR strategy can shape everything from operations to long-term success. The partner you choose can change your workload and employee satisfaction. These decisions can affect your entire organization.

Legal compliance and the options you give to your team depend on your HR setup. A clear and basic framework for workplace behavior and communication helps strengthen the company culture. These communication tools help quite a bit when working with external HR providers.

Our Business Etiquette Customizable Courseware equips your team with strong skills to build positive professional relationships. Check us out at HRDQ for professional courseware.

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