PEOs, ASOs and Payroll, oh my!

This article is part of Benefits Broker Confessional, where we talk shop with the leading minds in HR and break down the latest in benefits.

How to be strategic with outsourcing to achieve HR Excellence in 2024

The HR outsourcing industry can feel as unfamiliar as the land of Oz. Navigating its intricate pathways can seem as difficult as Dorothy’s journey along the Yellow Brick Road. Much like the Tin Man, who sought a heart, and the Scarecrow, who was looking for a brain, individuals may find themselves in search of clarity amid the complexities associated with this industry.

Professional employer organizations (PEOs), administrative service offerings (ASOs) and payroll providers are all types of outsourcing solutions that businesses can use to manage various aspects of their human resources and payroll functions. Each has its own set of features, advantages and considerations.

In this space, acronyms are as abundant as flying monkeys in Oz. It's logical to seek out guidance from the Wizard to demystify its intricacies. Here's a roadmap to guide you through your HR outsourcing journey:

What’s a PEO?

Professional Employer Organizations (PEOs) are comprehensive HR outsourcing firms that provide a range of services and solutions including payroll, benefits, tax administration, HR compliance and more. In a PEO arrangement, a small or medium-sized business (SMB) enters a co-employment relationship with the PEO, allowing the PEO to share and manage many employer-related responsibilities and liabilities.

The PEO becomes the employer of record for tax and insurance purposes, while the SMB retains control over day-to-day operations and employee management.

Learn more about what it takes to start a PEO.

PEO benefits

Hiring a PEO allows an SMB to pass tactical HR tasks off to the PEO, so they can focus on growing their business, instead of having to worry about payroll, compliance and other HR-related issues. In addition, PEOs can offer access to more affordable health insurance plans and other benefits. They can also help with risk management and performance management as well.

The average industry size of an SMB using a PEO is 19 worksite employees (WSEs). Source: NAPEO

What Is HRIS software?

PEOs use Human Resource Information Systems (HRIS) software to service their SMBs and the WSEs within them. Without this technology, all HR-related work would be manual and tedious.

PEOs resell and rebrand HRIS platforms, like the PrismHR platform, and provide their own services, operating PrismHR on behalf of the SMB. Learn more about choosing the right PEO software.

What’s an ASO?

Administrative Services Organizations (ASOs) are similar to PEOs, except that they don’t establish a co-employment relationship with SMBs. Instead, ASOs provide a menu of HR services that businesses can choose from, allowing more flexibility in tailoring services to specific needs.

In an ASO arrangement, the SMB retains employer responsibilities. Specific HR functions, such as payroll processing, benefits administration and other HR-related tasks, are outsourced to the ASO.

ASOs offer flexibility and customization. Businesses can select the specific services they need, allowing for a more tailored approach to outsourcing.

Some PEOs also offer ASO. They offer Human Capital Management (HCM) software to the SMB but also provide some services to go along with the software. The new PrismHCM is PrismHR’s software for PEOs with an ASO line of business.  

What’s a Payroll Provider?

Payroll providers focus specifically on payroll processing. They handle tasks such as calculating and distributing employee salaries, tax withholding and generating payroll reports.
Businesses that use payroll providers typically retain full control over HR functions other than payroll. The payroll provider ensures accurate and timely payroll processing and may offer additional services like tax filings.

Payroll providers are specialized in payroll processing, making them a cost-effective option for businesses that primarily need help with payroll-related tasks. They may also integrate with other HR systems.

What About MSP and BPO?

There are other HR outsourcing models out there. Some vendors are Managed Service Providers (MSPs) who run HR functions for you. They usually focus on temporary worker recruitment.

Some HRO vendors provide Business Process Outsourcing (BPO), i.e., subcontracting services with contingent workers. However, when they talk about BPO, they often mean providing back-office workers for HR functions.

Finding your path forward

Just as Dorothy, the Tin Man and the Scarecrow discovered their own paths, each business must carefully consider its unique requirements, priorities and preferences before choosing between a PEO, ASO or payroll provider. It's essential for businesses to carefully evaluate the services offered, costs and contractual terms before making a decision.

Click those ruby slippers wisely, evaluate diligently and embark on your own Wizard of Oz adventure in the world of HR outsourcing.

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About PrismHR

PrismHR’s mission is to fuel the growth of small and medium-sized businesses (SMBs) across the U.S. Our HR software, combined with our ecosystem of HR service providers, enables SMBs to manage payroll, benefits and HR, levelling the playing field with large enterprises. Today, PrismHR delivers world-class HR services to thousands of organizations and continues to invest heavily in technology as the HR innovation frontrunner. A Vensure Employer Solutions company, PrismHR is located in Hopkinton, Massachusetts. For more information, visit www.prismhr.com.