Instead of putting out fires or handling endless administrative tasks, you and your team could be focusing on long-term, strategic initiatives that drive business.
Think about that statement for a moment.
As a small business owner, what do you believe is the fundamental purpose of HR? By moving from a tactical focus to a more strategic vision, you open up tremendous possibilities. HR can help create a positive workplace culture, foster employee engagement, support business goals and more. That can’t happen if they’re endlessly working on nonstrategic HR tasks.
Whether you employ a full HR team or you’re the one-person department, many companies outsource HR so they can shift focus to growth initiatives. Learn about the differences between the two main types of HR outsourcing: PEO (professional employer organization) and ASO (administrative service organization).
What is a PEO?
A PEO is a firm that your company can partner with to manage HR responsibilities including:
- Benefits administration
- Payroll processing support
- Workers’ compensation compliance
- HR guidance on hiring, onboarding, training, terminations and compliance
Two key benefits of working with a PEO are buying power and HR expertise. As a PEO client, you’ll access more competitive pricing to diverse group insurance solutions from leading providers. With experts providing guidance in all HR areas, smaller companies have peace of mind knowing employee needs are being met. Most importantly, all HR questions can be directed to your PEO so you can stay focused on growing the company by addressing more strategic opportunities.
An important distinction from ASOs, the PEO uses a shared tax ID and becomes the “employer of record.” This co-employment model transfers much of the administrative burden of having employees to the PEO. You maintain complete decision-making authority while the PEO assumes risk for payroll taxes, penalties and compliance. A formal co-employment contract between your company and the PEO will outline responsibilities for each party.
Keep in mind, every PEO is different.
- NAPEO is the national association governing PEOs and they have a search tool to confirm which firms are in good standing
- PEOs that have undergone the rigorous process of becoming certified by the IRS are called CPEOs (certified professional employer organization). Working with a CPEO offers your company additional protections
- Some PEOs offer a la carte services while others strictly offer bundled packages. Think about which services your company needs so you can effectively target your search
What is an ASO?
An ASO is a service model that provides administration of select HR functions, but they don’t operate under a co-employment model. You outsource specific HR tasks to an ASO, and your company retains all the legal obligations as the employer of record. Payroll, tax and insurance filings are done under your company tax ID, not a shared tax ID like with PEOs. Some ASOs can provide HR guidance, but most concentrate their efforts on payroll production and related tasks. It’s a flexible option for time consuming tasks that HR can’t manage given other priorities. This is best for companies with company-sponsored benefits, workers’ compensation insurance and retirement plan already in place since most ASOs don’t sponsor those benefits.
Keep in mind, every ASO is different.
- Outsourced HR services available from an ASO will vary. Know which services are most needed and time-consuming for your team
- While both ASOs and PEOs offer HR outsourcing, there can be a different level of service. PEOs tend towards strategic partnering whereas ASOs are more focused on transactional tasks
As a top CPEO in Illinois, MidwestHR has been partnering with companies for over 20 years. We strive to be a proactive, trusted partner. We learn our clients’ business so we can best guide them and look out for their best interests. With a dedicated account manager, questions are answered, and concerns are addressed quickly so you can get back to your day. You’ll never get stuck in a frustrating phone system where you can’t seem to find the right department. Give us a call at 630-836-3000 to learn more about how we help our clients.