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Updated Dec 12, 2023

PEO vs. ASO: What Should You Choose?

PEOs and ASOs offer different models under which businesses can outsource the HR services they provide to employees. Find out which one will work best for your specific needs.

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Max Freedman, Business Operations Insider and Senior Analyst
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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Human resources (HR) is an important business function responsible for managing employees and ensuring regulatory compliance. For many small businesses, it’s easier to outsource this function than conduct it in-house. The global HR outsourcing market is expected to surge to $52,941.67 million by 2031, according to a Business Insights market research report. 

Businesses who outsource their HR say they’re interested in controlling costs, increasing flexibility and providing a superior level of service to employees, according to the Society for Human Resource Management. If you’re looking to outsource your HR, you may have come across two common models ― professional employer organizations (PEOs) and administrative services organizations (ASOs). But what exactly do these abbreviations mean and what separates one from the other?

What is a PEO?

A PEO is a company that offers third-party HR services, such as payroll administration, benefits, workers’ compensation and other business insurance. If your company hires a PEO to handle your HR, you can offer employee benefits you might otherwise struggle to afford as PEOs can access lower-premium, higher-quality health insurance typically available only to large companies.

Editor’s note: Looking for the right PEO solution for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

If you contract a PEO to handle your HR, you’ll sign a co-employment agreement. In this agreement, you’ll designate your PEO as the party entirely responsible for certain HR tasks normally relegated to an employer. As a result, you’ll have fewer HR administrative tasks to handle and thus more time for actual business affairs.

Additionally, as your co-employer, your PEO will handle tax affairs under its employer identification number (EIN) instead of yours. Since your PEO may have a lower state unemployment tax rate than yours, this arrangement may prove beneficial for you come tax time.

In signing your co-employment agreement, you effectively give your PEO full power to act on your behalf in the realms designated in your contract. However, contrary to somewhat popular belief, you don’t lose full employer powers over your employees. You’ll still have full control over any employer concerns not designated to your PEO in your contract ― company culture, day-to-day affairs, shift planning, you name it.

If you’re still worried about a potential loss of control with a PEO, then look only for PEOs that the IRS or Employer Services Assurance Corporation (ESAC) has certified. These certifications indicate that the PEO has done extra work to meet rigid standards and can be trusted with your company’s affairs.

Key TakeawayKey takeaway
A PEO is a company that offers HR services, such as benefits and payroll, for your company through a co-employment agreement.

What is an ASO?

An ASO is an HR outsourcing company that does not require you to sign a co-employment agreement. As such, an ASO will not sponsor your benefits plans or remit your taxes under its EIN. Instead, an ASO will handle your day-to-day HR tasks, such as administering benefits and running payroll. Most ASOs do not provide workers’ comp.

What is the difference between a PEO and ASO?

The primary difference between a PEO and an ASO is the business model. A PEO is legally your co-employer and thus entirely oversees whatever affairs you designate to it. As such, it offers benefits to your employees as though the PEO, not you, employs them. This arrangement means PEOs have more employees and thus access to higher-quality, lower-cost insurance plans as insurers find larger companies less risky.

Additionally, only a PEO will use its own EIN to remit your company’s taxes. Since an ASO is not your co-employer, it will not remit your taxes under its own EIN or offer you higher-quality healthcare plans; it will just help you obtain benefit plans and run payroll. [Do You want to learn more about PEOs? Check out our other articles like PEO vs. EOR [Employer of Record], PEO vs. Insurance Broker or PEO vs. Payroll Provider]

Did You Know?Did you know
Although PEOs and ASOs offer roughly the same suite of HR services, only PEOs sponsor your benefits and use their EINs to remit your company’s taxes.

PEO vs. ASO comparison

Beyond the PEO and ASO business model distinction explained above, each of these outsourced HR types has its own benefits and drawbacks. These pros and cons fall into the below categories:

PEO 

ASO 

Fundamental HR services included, with the option to add many more

Employer’s choice of core HR functions, although perhaps from fewer options

Often higher cost

Often lower cost

Inflexible benefits

Flexible benefits

Some risk absorption

No-risk absorption

HR services offered

PEOs and ASOs offer many of the same HR services, such as benefits, payroll and business insurance. However, since PEOs offer lower-cost, higher-quality health insurance, you may find that working with a PEO allows your company to obtain better plans.

When starting with a PEO, you may also be able to modify your contract to designate whichever tasks you want to yourself and your PEO. For example, if you want to outsource your hiring or disciplinary practices, you can assign these responsibilities to your PEO in your co-employment agreement. ASOs typically offer a narrower selection of HR services, although these services are generally still quite beneficial for your company.

Cost

The total cost of a PEO depends on its pricing model. Some PEOs charge a percentage of your payroll per pay period alongside administrative fees that vary by employee. On top of all this, your PEO may charge you however much it spends to pay your taxes and insurance premiums.

Other PEOs may charge you a flat fee per employee each month. This setup may be easier for your accounting, but it can come with one-time setup fees that cost thousands of dollars. ASOs also typically charge a flat per-employee fee each month, but these fees are often lower than a PEO’s. PEOs often charge $150 to $200 per employee, per month, while ASOs cost closer to $50 to $100 per employee, per month.

Benefits flexibility

When you choose a PEO, you can only access your outsourced HR firm’s custom suite of employee benefits. Although these plans are often high-quality, you’ll have few other choices if you’re not satisfied with your plan. An ASO allows your company to choose from a greater variety of benefit plans, but your options may have higher premiums alongside higher deductibles, copays and out-of-pocket limits.

Risk absorption

Since a PEO will act as your co-employer, you and the PEO share equal risk. Beyond this co-employment arrangement, several PEO HR services ― workers’ comp, employee training,  regulatory compliance ― can lower your risk. By contrast, your ASO will assume none of the risk involved with your business affairs. This lack of risk absorption may be a dealbreaker for small companies afraid of potential lawsuits.

Did You Know?Did you know
Partnering with a PEO can be an effective strategy for risk management or the safeguards companies put in place to predict adverse events and minimize their consequences. Learn more about PEOs and risk management.

Should you choose a PEO or ASO?

If you prefer a personal touch to your HR and need mostly administrative support instead of a full-on HR partner, you may prefer an ASO. However, most experts say that PEOs are best for small and midsize businesses (SMBs) as they combine several necessary services under one umbrella. Despite their high costs, they can still be less expensive than hiring a full-time HR staffer and the regulatory advice they can offer may save you money in the long run. If you’re interested in learning more about PEO solutions for your business, we’ve listed five popular services below.

The best PEO providers

If you’re looking for a PEO service you can trust to manage your team, consider the following companies, which are some of our best picks in the space.

TriNet

If you’re looking for a PEO solution with an intuitive user interface, transparent pricing, customizable plans and great customer service, we recommend checking out TriNet. TriNet provides a suite of HR solutions that SMBs will find attractive, including benefits enrollment, payroll processing, recruiting, compliance, risk mitigation and industry-specific HR consulting. Because TriNet charges per employee, it’s easy to anticipate costs and budget for the service. Because TriNet is accredited by two of the major PEO accrediting agencies, the ESAC and the IRS, you’ll have peace of mind knowing that your PEO partner is up to date on industry standards. Learn more about the service’s features, perks and drawbacks at our detailed TriNet PEO review.

Deel

Founded in 2019, Deel is a relatively new PEO vendor with extensive domestic and international payroll capabilities. Deel supports hiring in more than 150 countries and boasts a large team of international payroll experts, making it easy for companies to pay international employees and contractors. Deel also offers a wide variety of other HR solutions, such as domestic tax filing, immigration support, compliance and global background checks. Deel’s background check capability is built directly into its platform, so hiring managers can request background screenings seamlessly in a variety of countries. Deel also offers 24/7 customer support via live chat and advertises that it has a five-minute response window and a 1.25-minute average response time. Learn more about the service’s features, perks and drawbacks at our detailed Deel PEO review.

TipTip
International PEOs can assist with payroll, tax, insurance and risk management processes specific to international markets. Learn more about how partnering with an international PEO can be an effective strategy for companies that are expanding internationally.

Justworks

Justworks is a PEO designed to support small businesses ― its customers have an average of 20 employees, but larger companies will benefit from this service as well. Justworks’ HR solutions include employee self-service onboarding, document storage, payroll processing, payroll tax filing and HR compliance assistance. Justworks offers two scalable plans. However, customers should note its lower-tiered basic plan does not offer employee benefits, such as health insurance. Its pricing is transparent and available online, with no requirement for prospective customers to ask for a quote. One great feature of Justworks is that it offers a dedicated account manager to provide customers with personalized support. Account managers have an average customer response time of two hours. Learn more about the service’s features, perks and drawbacks at our detailed Justworks PEO review.

ADP TotalSource

Like other PEOs, ADP TotalSource offers SMB employees robust benefit plans from top providers that may otherwise only be available to larger companies. ADP’s benefits include medical, vision and dental insurance; an employee assistance program, 401(k) plans and more. Employees can compare plans easily on an intuitive self-service platform and can also access their benefits information via the ADP mobile app. Beyond employee benefits administration, the ADP TotalSource suite of HR solutions also includes recruiting, payroll, compliance and workplace safety. ADP TotalSource also offers businesses a team of dedicated HR specialists for ongoing support. Prospective customers should note there is a five-employee minimum and that they will need to contact ADP directly for pricing information and quotes. Learn more about the service’s features, perks and drawbacks at our detailed ADP TotalSource PEO review.

Paychex Flex

If you’re looking for a PEO that offers your employees a seamless, mobile-friendly onboarding experience, we recommend checking out Paychex Flex. Paychex Flex also offers benefits administration, personalized payroll, HR administration and employee training and development solutions suited for businesses of any size. With 680,000 customers, Paychex Flex is one of the most widely used HR software platforms on the market. Like other PEOs, Paychex Flex offers a bundle of HR solutions under several plans but customers can also mix and match additional services to meet their company’s unique needs. Paychex Flex also boasts a user-friendly tech platform and a team of HR experts for customer support needs. Prospective customers should note Paychex Flex has a five-employee minimum. Learn more about the service’s features, perks and drawbacks at our detailed Paychex Flex PEO review.

Weighing PEO cost, risk, benefits and flexibility

In general, PEOs can offer higher-quality, lower-cost insurance plans for your employees and can shoulder some of your legal risk as your co-employer. However, PEOs usually offer bundled service plans that are less customizable and more expensive overall. ASOs offer a la carte HR services to businesses with specific outsourcing needs. While ASOs are less expensive and more flexible, they don’t function as a co-employer, so you’ll retain all of the legal risk associated with offering HR services. Generally, ASOs provide less robust and more expensive benefits plans to your employees. 

Ultimately, you should consider your business’s specific needs and goals to determine which model is the best fit. If you’re convinced that PEOs are right for you, consult our reviews of the best PEOs to find the best provider for your company. We’ve recommended the best PEOs for small businesses, startups, specific industries and more. Whatever your needs are, somewhere out there is a PEO capable of meeting them.

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Max Freedman, Business Operations Insider and Senior Analyst
Max Freedman has spent nearly a decade providing entrepreneurs and business operators with actionable advice they can use to launch and grow their businesses. Max has direct experience helping run a small business, performs hands-on reviews and has real-world experience with the categories he covers, such as accounting software and digital payroll solutions, as well as leading small business lenders and employee retirement providers. Max has written hundreds of articles for Business News Daily on a range of valuable topics, including small business funding, time and attendance, marketing and human resources.
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