PEO vs. ASO: What Is the Difference? 

In the ever-evolving landscape of business management, choosing the right HR outsourcing model is a critical decision for many companies. The debate between using a Professional Employer Organization or an Administrative Services Organization often centers on finding the optimal balance between comprehensive HR services and maintaining control over HR functions. 

A PEO offers a more integrated HR solution, providing comprehensive services and shared employer responsibilities, which can be particularly advantageous for small to medium-sized businesses. An ASO, in contrast, offers a selection of HR services akin to a PEO, but it places greater responsibilities and risks onto the employer. 

Read on to explore a detailed comparison of PEOs and ASOs, helping you to understand which model aligns best with your business needs and how each can contribute to your company's growth and efficiency. 

What is a PEO (Professional Employer Organization)? 

A PEO is an organization that businesses partner with to outsource various human resources services.  

Services provided by a PEO can include: 

• Payroll processing 

• Employee benefits and administration 

• Employment law compliance support 

• Workers’ compensation and administration  

This relationship enables businesses to provide their employees with a wider range of benefits and HR services, often comparable to what larger corporations can offer. 

Businesses that partner with a PEO can streamline their HR processes and improve efficiency, allowing them to focus more on their core operations and growth strategies. 

For more information, check out our complete guide on “What is a PEO?” 

How Does a PEO Work? 

PEOs operate by forming a strategic relationship with businesses, wherein they take on specific HR responsibilities. The PEO typically handles the various HR-related tasks using its systems and expertise, which can offer economies of scale and access to a broader range of HR resources and benefits. 

The PEO model not only allows businesses to offload the administrative burden of HR tasks, enabling them to focus on core activities and growth, but also empowers them to offer Fortune 500 level benefits to their employees. This capability is a significant asset in attracting and retaining top talent. This relationship is particularly beneficial for small to medium-sized businesses, which may not have the resources to manage these functions in-house or offer such high-level benefits independently. 

What is an ASO (Administrative Services Organization)? 

Also referred to as Administrative Services Only, an ASO specializes in providing specific HR services such as payroll processing, benefits administration, and compliance support. Unlike the shared responsibility model used by PEOs, ASO involvement is more targeted, allowing businesses to benefit from professional HR expertise and technology while maintaining full autonomy over their HR policies and practices.  

This approach requires companies to manage their own liabilities and responsibilities, which can be vital for certain businesses. Although this model provides external HR support, companies often need additional in-house staff to effectively handle their comprehensive HR needs. 

Comparing PEO and ASO Models 

PEOs and ASOs both offer unique approaches to HR management, with PEOs providing a more comprehensive and integrated solution while ASOs offer specific services with more responsibilities and tasks left for the business. This fundamental difference in their service delivery models can significantly impact the way businesses manage their HR functions. 

To better illustrate these differences, here's a comparative table highlighting the key aspects of each model: 

Feature	PEO	ASO
HR Service	Comprehensive suite of HR services	Selected HR services based on business needs, usually billed a-la-carte.
Employer Relationship	Shared responsibilities, reducing administrative burden	Most responsibilities and liabilities remain with the employer
Employee Benefits	Access to high-quality, cost-effective benefits	Support in arranging benefits, more control over options
Payroll Management	Efficient payroll processing, including tax handling	Assists with payroll but leaves tax responsibilities to business
Compliance Support	Proactive compliance and risk management, reducing legal exposure	Employer manages responsibilities related to regulatory compliance. ASO can provide guidance.
Cost-Efficiency	Potentially higher initial cost, but can have software offset, better engagement, lower turnover, etc. All which reduce costs long term	Typically, lower cost, pay for selected services
Suitability	Ideal for SMBs looking for comprehensive HR solutions	Best for businesses wanting specific services with in-house HR resources

Cost Comparison: PEO vs. ASO 

Generally, the cost of partnering with a PEO or an ASO varies based on the range of services provided and the specific needs of the business.  

PEOs often provide a more comprehensive HR approach, which can be more cost-effective in the long run, especially for businesses looking for an all-in-one HR solution. This integrated approach can lead to efficiencies and savings, particularly in areas like employee benefits, software cost offsets, higher retention rates, less internal HR resources, and better employment law compliance. According to the National Association of Professional Employer Organizations (NAPEO), the average return on investment of using a PEO, in costs savings alone, is 27.3 percent. 

ASOs, meanwhile, tend to offer a lower cost structure, due to the fact that fewer services and support are provided. This model may work for some companies that are willing to gain lower upfront costs, but the client company maintains the liability of HR compliance, tax compliance, payroll, benefits & benefits administration .  

• PEO Cost Considerations: 

  • Typically involves a per employee, per year pricing model covering a wide range of HR services. 

  • May lead to long-term savings through efficiencies and economies of scale in areas such as benefits, software cost offsets, internal resources, and lower risk with better employment law compliance. 

• ASO Cost Considerations: 

  • Offers a flexible pricing model, with businesses paying for selected services. 

  • Can be a solution for companies requiring specific HR support but must still manage additional liabilities and tasks internally. 

While specific cost figures vary and are subject to change, understanding these general cost structures can help businesses make an informed decision about which HR outsourcing model is more aligned with their strategic financial and operational goals. 

For more information, check out our complete guide on “How Much Does it Cost to Use a PEO?” 

Benefits and Risk Management 

PEOs typically provide more comprehensive management of employee benefits and risk, while ASOs offer support but leave the primary responsibility with the business. This difference can significantly influence a company's HR strategy and its ability to manage risks and offer competitive benefits. 

• PEO Approach to Benefits and Risk Management: 

  • Offers access to high-quality employee benefits, often at more competitive rates due to pooled resources. 

  • Shared risk management, with the PEO taking on some of the employer liabilities and compliance responsibilities. 

  • Proactive support in maintaining compliance with employment laws, reducing the risk of legal issues. 

• ASO Approach to Benefits and Risk Management: 

  • Fee based HR support and guidance, but worksite employer is responsible to follow proper HR policies & laws compliant with state and federal regulations. 

  • Employer obtains coverage and has responsibility for all benefit offerings & compliance. 

  • Employer manages responsibilities related to regulatory compliance. 

In summary, PEOs offer a more integrated solution for managing benefits and risks, appealing to businesses that prefer a comprehensive approach. ASOs, conversely, are suited for companies that want specific support while maintaining full liability for risk management and benefits administration. 

Which Businesses are Best Suited for Each Model? 

The suitability of a PEO or an ASO for a business hinges on the company's size, the complexity of its HR needs, and its desire for responsibility over HR functions. 

• Ideal Candidates for PEOs: 

  • Small to medium-sized businesses (10-500+ employees) seeking comprehensive HR services, including advanced HRIS (Human Resources Information System) technology for streamlined operations. 

  • Companies in need of integrated solutions for payroll, benefits, compliance, and access to sophisticated HR technology. 

  • Businesses aiming to offer competitive, high-quality benefits to attract and retain top talent. 

  • Organizations looking to significantly reduce their HR administrative burden while sharing some responsibilities and liabilities. 

• Ideal Candidates for ASOs: 

  • Businesses of any size that require specific HR services, but is best suited somewhere between 25-500+ employees. 

  • Companies desiring to maintain a degree of responsibility and liability over certain HR functions. 

  • Organizations with an existing internal HR department needing support in particular areas. 

  • Companies looking for a partial HR outsourcing solution, instead of a comprehensive option. 

PEOs, while providing a comprehensive HR solution, do not eliminate all responsibilities or liabilities for businesses. They are generally best suited for those looking for a robust HR partnership that can offer cost-effective benefits and alleviate a significant portion of administrative tasks. As noted by the International Foundation of Employee Benefit Plans, many employers find PEOs beneficial, particularly in managing rising health care costs, disability management complexities, and compliance with benefit laws and regulations. 

ASOs are the preferred choice for businesses that need targeted HR support, allowing them to retain more control and responsibility over their HR operations. 

An Employer of Record (EOR) is another resource that businesses utilize for employment and HR support. To learn more, check out our guide PEO vs EOR. 

Need Help Figuring Out Which is Best for Your Business? 

Deciding between a Professional Employer Organization (PEO) and an Administrative Services Organization (ASO) can significantly impact the efficiency and growth of your business. Making the right choice can streamline your HR processes, enhance employee satisfaction, and ultimately contribute to the success of your organization. 

LandrumHR offers expert guidance and support in navigating this crucial decision. With our extensive experience and tailored solutions, we can help you assess your business's unique needs and guide you towards the most suitable HR outsourcing model. 

Reach out to our team to explore how our services can transform your HR operations and propel your business forward. Whether it’s through a PEO or ASO, we’ll find the perfect fit for your HR needs and business goals.