When your company partners with an outside organization, you want to get the most bang for your buck. Making sure that you get the services you need without overpaying ensures your investment is worth it. When looking at the benefits of HR outsourcing, your mindset is no different - you want the best ROI you can get.
Some businesses find value by partnering with an Administrative Services Organization (ASO). Often, an ASO is appropriate for larger companies. Smaller organizations will find a higher ROI with a Professional Employer Organization (PEO). HR outsourcing can provide your company with massive benefits, but only if you choose the right option.
What is an ASO?
An ASO is a company that provides outsourced HR services to businesses like yours. The services an ASO provides can include:
- Payroll processing
- Benefits administration
- Regulatory compliance
- Other administrative HR tasks
What are the advantages of the ASO model?
Depending on your organization’s specific needs, an ASO might be the right partner for your HR outsourcing needs. An ASO provides certain advantages to companies like yours that can help you save money, allowing you the ability to reinvest in your business.
An ASO can help your company save money by finding you the best workers' comp plan. When you partner with an ASO, they will source the most cost-effective workers' compensation insurance plan for your company. An ASO takes the legwork out of getting mandatory workers' comp coverage.
Benefits administration is the process through which your HR team selects, manages, and updates the employee benefits program that your company offers. This includes selecting and managing healthcare and retirement plans as well as enrolling new employees in the plans. This requires extensive work and a keen eye for detail. With an ASO, you can get answers to complex questions and guidance on how to effectively and accurately administer your employee benefits program.
Payroll is a time drain even for small businesses. Running payroll requires an HR expert to ensure deductions are made and sent to the appropriate authorities. It also requires your HR team to be completely error-free. The last thing you want is to mess up employees' paychecks. By using an ASO, they run your payroll for you, freeing up your in-house HR team so they can focus on your core business needs.
Compliance can trip up any business. Your company must comply with all applicable federal, state, and local employment and business laws. Staying on top of these ever-changing laws is a full-time job. With an ASO, they manage responsibilities related to regulatory compliance, so you don't have to.
What are the disadvantages of the ASO model?
As with many vendor relationships, there are both pros and cons. An ASO partnership is no exception to this rule. When deciding whether an ASO is right for your company, you need to be aware of the cons to be sure you're making the right decision.
No Cost Savings Through Co-Employment
The biggest issue with an ASO partnership is that it does not allow small and mid-sized businesses to take advantage of cost savings through co-employment. A co-employment relationship makes your HR outsourcing partner the employer of record for all of your employees. This does not take away any decision-making authority from you, but it gives your company the ability to see massive cost savings. Co-employment is only available with a professional employer organization (PEO).
With co-employment, you can see savings regarding employee benefits, workers’ compensation, and unemployment claims management.
No Employee Benefits
While an ASO can provide your business with benefits administration support, an ASO cannot provide your company with cost savings on those benefits. With a PEO, your company can join the PEO's master plan, giving you access to better healthcare and lower prices than you could get on your own. Besides that, the PEO will also administer your benefits plan, not just give you support and answer your questions.
No Reduction in Workers' Compensation
An ASO will shop for your workers' compensation insurance plan. They will not provide you with a lower rate, however. A PEO, conversely, can give you access to their experience modifier rate, which might result in lower workers' compensation premiums that you could get on your own.
No Management of Unemployment Claims
An ASO can review your unemployment claims and may provide you with guidance on how to respond and what documentation to provide. But they will not handle all aspects of the unemployment claims process. A PEO will. Your PEO will not only handle the review and response to unemployment claims, but they will also represent your company at any unemployment hearings on the matter.
Finding the Right HR Outsourcing Partner for Your Business
For large companies, generally those with over 500 employees, a PEO may provide only minimal advantages over an ASO. However, for small and medium-sized businesses, the advantages of a PEO vastly outweigh those of an ASO.
A PEO is the only HR outsourcing solution that provides your business with comprehensive services. From payroll processing to tax remittance and workers' compensation cost savings to benefits administration, a PEO gives your company a full suite of HR outsourcing services. An ASO can't even come close.
If your company is looking for an HR outsourcing provider and has less than 500 employees, you will find a higher ROI with a PEO.