PEO vs ASO vs HRO for Employers

Human resources is a crucial aspect of running a business. But for small business owners, finding the time to address HR needs can be difficult. That’s why many entrepreneurs outsource certain HR tasks — think payroll, tax filings, benefits admin, and compliance. The key is finding the right type of HR partner to support your business.

Among the options are Professional Employer Organizations (PEOs), Administrative Services Organizations (ASOs), and Human Resource Outsourcing (HRO). Here, we’ll dig into each of these options and how they can benefit small businesses. 

What is a PEO?

First up is the Professional Employer Organization, or PEO. A PEO works with small businesses to help manage payroll, access to benefits, certain human resource tasks, and other employer-related administrative functions related to running a business. Outsourcing these things to a PEO allows you to spend your time on what matters most: growing your business.

In order to outsource these tasks, small businesses enter into a co-employment agreement with a PEO. This agreement allows the PEO to become the employer of record for tax and insurance purposes. Business owners still maintain control of their employees and the management of day-to-day operations.  

The Benefits of a PEO

For small businesses, the benefits of a PEO can make a big difference in time and energy spent on the nitty gritty. These benefits include:

• Streamlined HR Services: PEOs typically provide a full suite of HR tools and services, including payroll software, employee benefits administration, anti-harassment training, and more.

• Compliance Support: PEOs help small business owners keep up with the latest employment-related regulations so your business remains compliant.

• Benefits Cost Savings: PEOs are employers of record. When it comes to health insurance and other benefits, all employees under the co-employment agreement are grouped together. This allows PEOs to negotiate better rates, which lead to cost savings for small businesses.

• More Time Back: Outsourcing tasks to a PEO gives you time back to spend on your core business activities and growth strategies.

What is an ASO?

Next up is the Administrative Services Organization, or ASO. An ASO is much like a PEO in that it offers small businesses support for many HR-related tasks like running payroll and handling tax filings. The big difference between PEOs and ASOs is the co-employment status. PEOs are considered co-employers — ASOs are not. This means an ASO doesn’t directly provide these services to your business so it doesn’t share legal responsibilities and liabilities pertaining to your employees. 

The Benefits of ASOs

For a small business, the benefits of an ASO include:

• Flexibility: With ASOs, businesses can customize the services they receive. 

• Access to Expertise: ASOs, much like PEOs, provide small businesses access to HR professionals. These experts can offer guidance on labor laws and best practices to help business owners maintain compliance.

What is an HRO?

Lastly, we’ve got Human Resource Outsourcing, or HRO. HROs are similar to PEOs and ASOs in that they provide HR support. The big difference with HROs is the level of support — their role as a third-party provider best serves to supplement an existing HR team. An HRO is not a co-employer, does not become the employer of record for certain responsibilities.

The Benefits of HROs

HROs can provide several benefits to small businesses, including:

• Scalability: With HROs, employers scale the HR services they receive based on the needs of the business. This makes HROs suitable for companies of all sizes.

• Time Back: Outsourcing HR tasks enables small business owners to concentrate on their core business activities while the HRO supports.

PEO vs ASO vs HRO: The Key Differences

When choosing between a PEO, ASO, and HRO for your small business, it's essential to understand their key differences. These differences include:

• Co-employment: PEOs enter into a co-employment agreement with small business owners, while ASOs and HROs don’t. With a PEO, the responsibility for certain HR tasks is shared. With ASOs and HROs, the employer retains full responsibility.

• Scope of Services: PEOs typically offer a comprehensive suite of HR services. ASOs and HROs generally provide more singular options.

• Cost Structure: The cost structure of each option varies. PEOs often charge a fixed fee, where ASOs and HROs often have flexible pricing options depending on the level of support and services.

Choosing the Right Small Business HR Model

Choosing the right HR model for your small business depends on your company's specific needs and goals. Here are some factors you should consider when making your choice.

Budget Considerations

Cost is an important factor in choosing HR support for your small business. Make sure to evaluate your budget and the cost structures of each option. When it comes to accessing health insurance and other benefits, PEOs do this while providing cost savings through better benefits rates. Cost savings from ASOs and HROs usually come in the form of a la carte options.

Compliance and Risk Management

Managing risk and compliance is a tough but necessary aspect of running a business. When looking at HR partners, consider your company's compliance needs and the level of risk you’re willing to assume. PEOs typically offer more robust compliance support and risk management services than ASOs and HROs. This can be particularly advantageous for companies operating in highly regulated industries like biotech and healthcare.

Types of Support

When you’re starting and running a business, a lot of questions come up. That’s why it’s important to understand the types of customer support available through each type of provider. Some providers offer around-the-clock phone support. Others can be reached easily via text or email. Methods aside, some providers like Justworks also offer access to HR Consultants and other experienced professionals who can help you tackle specific employer challenges. As you choose your HR model, consider what types of support would be most helpful to you.

Choosing between a PEO, ASO, and HRO requires careful consideration of your business's needs, goals, and budget. By understanding the differences and benefits of each option, you can make an informed decision that aligns with your company's goals and helps your business grow. 

Scale Your Business with Justworks PEO

The daily admin of running a small business can make it hard to address your HR needs properly. But that’s the value of a PEO — you can get your HR needs covered. Justworks PEO provides human support, payroll software, and access to benefits. Our modern, simple HR platform includes intuitive HR tools that make training, benefits administration, time-off policies, and employer compliance easier than ever. Join Koio, Mamava, and other businesses like yours grow with confidence. Get started with Justworks today!