ASO Vs PEO: Differences, Advantages & Disadvantages

There are many different acronyms used to refer to the activities of specialist HR and employment companies — HRO (Human Resource Outsourcing), HRIS (Human Resource Information Systems) and BPO (Business Process Outsourcing), to name a few. 

Here, we take a detailed look at another acronym — ASO (Administrative Services Organization). We compare ASO with Professional Employer Organization (PEO) solutions, and look at the pros and cons of each. 

What is an ASO? 

ASO stands for ‘Administrative Services Organization’. An ASO is a professional services company that specializes in supporting business processes, and paperwork in other organizations. Also called ‘Administrative Services Outsourcing’, a business outsources their clerical or administrative tasks to this company. Commonly, an ASO carries out payroll processing, HR and compliance tasks. 

ASO also sometimes refers to ‘Administrative Services Only’. This means a company that carries out administrative tasks related to employee health plans, but does not itself sponsor or offer health insurance. 

What are the key differences between an ASO and a PEO?

A Professional Employer Organisation or PEO also supports a company with a range of payroll, HR and compliance tasks. So what exactly is the difference between an ASO and a PEO?  There are some key differences: 

• A PEO becomes the ‘Employer of Record’, an ASO doesn’t. A PEO, as part of its contracted service, becomes the legal employer of record for employment tax purposes: They withhold taxes and file documentation under their own Employer Identification Number (EIN). An ASO does not become the legal employer, and only assists companies with their HR and payroll tasks. 
• A PEO is ‘full service’, an ASO is limited service. Every PEO provides the same core services: payroll processing, HR compliance and Employer of Record. Any other offerings are in addition to those core services. By contrast, there is no standard set of services that an ASO provides. Some only support employee health insurance management (‘Administrative Services Only’), while others support most payroll, HR and compliance functions. 
• An ASO is flexible, a PEO may not be. Larger ASOs offer every employment and HR service imaginable, from recruitment to insurance and workers compensation processing, to visa assistance. Often, a client company can ‘pick and choose’ the services it needs. While there may be optional add-ons, most PEOs expect clients to sign up for the core Employer of Record solution. 

How do the pros and cons of a PEO stack up against an ASO?

PEO Advantages

The advantages of a PEO, compared to an ASO, include: 

• Compliance assurance. As the Employer of Record, a PEO becomes legally responsible, and liable under federal law, for taxes, and other employee-related obligations. An ASO does not have any legal responsibilities other than those which arise from their engagement agreement with the client company. 
• Wide recognition. PEO is a widely recognized and well-respected business model, especially for small to medium-sized businesses. This means that employees may be more comfortable dealing with a PEO, than an ASO, whose role they do not understand
• Efficiency gains. By outsourcing the compliance responsibilities relating to employment, PEO solutions allow companies to focus on revenue-generating activities. 

PEO Disadvantages

Disadvantages of PEO compared to ASO, include: 

• Price. PEO is generally more expensive than ASO.
• Perceived loss of control. By using a PEO, the client company trusts that the PEO will take care of tax and compliance matters. While this trust is backed up by a contract, the actual task is out of the compliance company’s hands
• Standardized services. A PEO often provides standardized healthcare plans and other benefits. This may prevent an employer from offering more tailored benefits. 

ASO Advantages

Advantages of ASO over PEO, include: 

• Reduced cost. Due to its smaller service offering, an ASO is almost always cheaper than a PEO solution. 
• Client company retains control. With ASO, a client company can file taxes and assign health insurance and benefits based on its own standards, and according to its own timeline. With PEO arrangements this power lies in the hands of the PEO company. 
• Ease of service change. Generally speaking, it is easy to scale up and down ASO services as the client company needs them. By contrast, as the PEO is the legal employer of the client company’s workers, it can be more complicated to end the arrangement. 

ASO Disadvantages

Disadvantages that ASO has compared to PEO include: 

• ASO leaves a compliance gap. As the client company retains ultimate responsibility for compliance, it retains significant liability risks. Sometimes this fact is overlooked as, from the outside, the ASO can ‘appear’ to be taking responsibility for payroll and other compliance tasks. 
• ASO does not send the same trust signals. Most people do not know what ASO is, making it more difficult to explain to stakeholders and employees what their exact role is. 
• ASO solutions are more difficult to compare. Every ASO has a slightly different service offering. PEO is more standardized. This means that when a company is ‘shopping around’ for an ASO, it can be difficult to compare options.