An Administrative Services Organization (ASO) is a third-party provider that handles administrative functions like payroll, benefits management, and human resources for businesses, without taking on employment risks. Companies use ASOs to streamline operations while retaining control over their employees.
What is an administrative services organization?
An ASO—which usually stands for “administrative services organization” but is sometimes written as “administrative services only” or “administrative services offering”—oversees the administration of day-to-day HR tasks. For instance, it can help with local payroll tax account creation and administration, claims support, and state-mandated trainings. In addition to a suite of HR services, ASOs also offer guidance on employment laws, assist with employee relations, and help ensure companies remain in compliance with federal, state, and local laws.
ASOs also often help businesses arrange workers’ compensation and employee benefits coverage, but it’s important to note that they don’t actually sponsor these plans. The health benefits, life insurance, and other employee benefits offered will still be sponsored by the client company itself.
Administrative services organizations have a wide variety of advantages for business owners, including peace of mind that they are following the proper rules and regulations and thus mitigating risks. They can also help save on costs—it’s frequently less expensive to hire an ASO than it is to build an internal HR team to perform the same functions.
You can optimize your company’s workflow by outsourcing your critical administrative tasks to the team at Rippling.
ASO vs. PEO: What’s the difference?
So now, you might be saying to yourself, “ASOs sound a lot like PEOs.” And while both administrative services organizations and professional employer organizations (PEOs) offer HR outsourcing services, there’s a major distinction between the two. Unlike ASOs, when you work with a PEO, the firm becomes a co-employer of your team. But what exactly does this mean?
Under a co-employment model, two companies make a contractual arrangement in which they share some of the responsibilities and obligations that come with being an employer. The PEO takes on administrative functions, such as securing large group health plans and other employee benefits—and even remits taxes for you under its own federal EIN. In a co-employment relationship, the business owner remains the “worksite” employer and continues to oversee the day-to-day operations of your company, manage the work of employees, decide who to hire or terminate, and handle marketing, sales, product development, and the business’s strategy and operations.
Whether you select an ASO or PEO depends entirely on your budget and business needs. An ASO arrangement might be right for you if you’re seeking help creating and managing local payroll tax accounts and want human resources support with a personal touch, but don’t want to take on a co-employer. Seeking benefits and HR support from an organization that will absorb some of the risk that goes along with operating a company? A PEO may be a better choice.
Below, you’ll find a table that compares ASO plans with PEO plans. And, in the next section, we’ll go over some more factors you should consider when deciding if a PEO or an ASO is right for your business.
ASO
PEO
Employment model
No co-employment. Your business remains the sole employer.
A PEO becomes a co-employer with your business, sharing many employment responsibilities with you.
Industry restrictions
ASOs do not have any industry restrictions.
PEOs have industry-specific restrictions.
Eligibility requirements
There are no minimum eligibility requirements.
You’ll need a minimum number of employees to contract with a PEO. The exact number of employees and the number who will need to enroll in the health benefits offered by the PEO or a third-party vendor they contract with may differ.
Access to benefits
An ASO does not provide access to benefits but rather works with your existing benefits setup—which most companies secure through a broker.
A PEO chooses, arranges access to, and sponsors health benefit plans and other employee benefit plans.
Workers’ compensation
ASOs do not offer workers’ compensation, but they may help arrange access to it.
PEOs do provide workers’ compensation benefits.
Payroll tax account management
All local and state payroll tax accounts are created and managed by the ASO.
All state and local tax accounts are created and managed by the PEO.
Employment practices liability insurance (EPLI)
ASOs provide EPLI.
PEOs provide EPLI.
Live HR support
ASOs offer live HR support services.
PEOs offer live HR support services.
Claims support
ASOs provide unemployment and employment practices liability (EPL) claims support services, but you’ll have to contact the insurance company you purchase workers’ comp from to process claims and receive support.
PEOs offer EPL, workers’ compensation, and unemployment claims support.
Compliance support
ASOs provide support with regulatory compliance.
PEOs provide support with regulatory compliance.
When to use an ASO vs. PEO
Now that you know some of the differences between PEO and ASO plans, it’s time to determine if an ASO arrangement could be the right fit for your business. Before you make a decision, you need to consider factors like the HR services you require, risk absorption, your company’s budget, and the employee benefits you’re looking for. We’ll go over each of these factors in more detail below.
Benefits
While some ASOs can facilitate introductions with brokers, your company will ultimately need to secure your insurance plans. ASOs don’t sponsor any benefits: the financial responsibility for the benefits package belongs to the business.
A PEO, on the other hand, offers benefits—however, you’re limited to the benefits choices the firm provides. In terms of benefits, PEOs come with two big upsides: they will provide and sponsor the benefits package for you, and they tend to provide cheaper insurance premiums and access to more attractive health group plans.
HR services
Both PEOs and ASOs provide HR services, but these differ in scope. Both run payroll, ensure regulatory compliance, manage state and local taxes, and so on, but ASOs are more limited in that their main function is to oversee the day-to-day administrative aspects of a company’s human resources functions. PEOs offer a broader suite of services, such as paying taxes for you under their own EIN and sponsoring health insurance and other employee benefits.
Budget
Overall, ASO plans tend to be less expensive than PEOs. Usually, ASO offerings charge a flat fee per employee, whereas the pricing model a PEO uses can either be a flat or a variable fee that’s a percentage of your payroll. If you're looking for some HR admin assistance on a budget, an ASO might be a good compromise.
Risk
As a co-employer, a PEO will assume some of the risk you incur in the course of running a business. This can be great news for small business owners in particular, who may be concerned about the amount of risk they’re taking on and nervous about the possibilities of high legal fees and costly claims. On the other hand, since ASOs don’t operate under the co-employment model, they don’t take on any risk when they work with you.
The big takeaway: small businesses that are conscious of costs and don’t need sponsored benefits packages find ASO plans to be the better option, while businesses that want a full suite of HR services and benefits—and a partner to absorb some risk—are often happier with a PEO.
Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.