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ASO vs PEO: Differences, Pros, And Cons of Each HR Solution

Key Takeaways

1. There are several outsourcing models available for companies of all sizes and types who require some degree of external support with their HR, payroll and related functions.

2. ASO arrangements leave employment risk and liability with the client business, while PEO arrangements shift it to the PEO along with relevant responsibilities. 

3. An ASO approach may work better for cases where business leaders are uncomfortable with administering HR, payroll etc.. entirely via an intermediary organization, or wish to retain their existing HR department. 

4. Global PEOs can be an excellent way for international companies to expand rapidly, move into new markets, or operate in unclear or changeable regulatory environments while retaining full legal compliance. 

ASO and PEO are both common outsourcing arrangements for companies of all shapes and sizes. There are advantages and disadvantages to both models and cases where one would be more appropriate than the other. Global PEO arrangements may be of great benefit to companies operating overseas in some circumstances.

Without these kinds of outsourcing arrangement, business leaders can spend roughly a quarter of their time on employment paperwork, as well as a significant amount of time and expense on employment compliance. It’s therefore unsurprising to learn that businesses that used PEOs for at least one year were 50% more likely to remain in business, while employee turnover was reduced by 10-14% annually.

Whether an ASO or PEO arrangement would work better for your business depends on factors including shape and size, expansion plans and internal expertise on key markets etc… You should always make sure you understand the implications and risks before outsourcing business functions, as well as doing due diligence on any third-party organizations you consider as partners for an ASO or PEO arrangement.

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What is the definition of an ASO?

An Administrative Services Organization (ASO) is a type of outsourcing company which can provide selective HR support and related services to client companies. Expert services offered often include processing and administration of payroll, HR functions and staff benefits. 

While an ASO is able to give clients guidance around compliance and related legal and tax issues, client companies will still require their own internal staff resource to implement and manage any HR recommendations or alterations in policy. 

What does PEO mean? And what are Global PEOs?

PEO stands for Professional Employer Organization, a model first developed in the USA in which the PEO entity acts as the legal employer of a client company’s workforce, providing full employee management as well as administrative assistance. This means that the PEO takes over responsibilities around compliance, tax and payroll, but the workers still operate under the direction of the client organization on a daily business basis.

PEOs are principally employment solutions for companies hiring staff either overseas or across domestic states and territories with differing legal or regulatory environments. Global PEOs focused wholly on international expansion. 

Specific services provided by a PEO often include payroll management, recruitment and onboarding of staff, HR functions and management of staff benefits.  Many different types and sizes of company choose to engage PEOs, from large multinationals, through small to medium-sized enterprises (SMEs), to start-ups and others.

While not all PEOs operate internationally, the PEO model can be particularly helpful where overseas business support is required. A global PEO can enable companies to operate seamlessly even in places where language, law and culture may be unfamiliar (e.g. US or European companies with Chinese business interests) or where the regulatory environment is changeable or unclear (e.g. UK companies with business interests in Europe post-Brexit).   

Global PEOs provide the range of standard PEO solutions detailed above for businesses who hire staff internationally.  Alongside these, they may offer further international services such as designing a recruitment strategy for target markets, supporting visa and immigration processes, or setting up a legal entity in cases where a company footprint is needed in a specific country. 

Sometimes the term Global Employment Organization (GEO) is used synonymously with Global PEO. In fact, while a GEO does provide PEO services, it is more than simply a PEO. It provides Global PEO services to the fullest extent possible, eliminating any need for the client organization to manage administrative functions, set up foreign bank accounts, or worry about compliance.

Why use a PEO or ASO arrangement for your business?

Some potential benefits are common to both PEO and ASO arrangements:

  • Increased focus on core business
  • Outsourcing time-consuming and tedious recruitment and other HR, payroll etc.. frees employee time and energy which would otherwise be spent on staff functions. 
  • More efficient administration of outsourced functions
  • Expert outsourcing means that functions like payroll and HR should be handled more rapidly, more accurately and more cost-efficiently than the client company could manage alone.
  • Lower corporate risks
  • Outsourcing employment-linked functions and tasks to industry experts minimizes corporate and legal risks and liabilities. NB This is far more true for PEOs who also take on much of the employment risk and liability from the client company. With an ASO arrangement, risks and liabilities remain with the clients, who are still the employers of record for their full workforce. 

What are the advantages of an ASO over a PEO (i.e., ASO vs PEO)?

The ASO vs PEO model has a few advantages.

Firstly, for example, there is no need for an ASO client business to disband their HR, payroll and linked functions as these will still be needed to implement the recommendations and guidance of the ASO in order to ensure compliance.

Secondly, client companies remain more obviously in direct control of their workforce, HR and finance processes with an ASO. An ASO can therefore work well where business leaders are uncomfortable or nervous about administering HR, payroll etc.. entirely via an external partner.

Thirdly, a company might be entirely happy with their existing systems of benefits and workers’ compensation as arranged via insurance companies or brokers. With ASO arrangements, you can retain any current relationships with insurance companies etc.. while still accessing industry expertise in the areas you need.

Fourthly, there might be very good business reasons for wanting to establish and maintain a substantial and fully-branded workforce in a particular country, something which is more easily accomplished with an ASO than PEO approach. In a key market, having a large number of directly employed staff could raise your business profile, boost your sales, or enable you to work more effectively with local suppliers and partners.

When should you choose a PEO over an ASO (i.e., PEO vs ASO)?

PEO will be the favored option in several cases.

1. If you don’t want to retain legal liability around compliance for the functions you are outsourcing. Under a PEO arrangement legal liability and responsibility for compliance passes to the PEO as employer of record.  Under an ASO arrangement, the client organization retains liability for all employment-linked risk, while under a PEO arrangement many responsibilities pass to the PEO as employer of record.

2. Depending on jurisdiction, you want your external partner to handle tax filings directly with a shared tax ID. An ASO will only deal with tax and insurance filings under the client company’s ID number.

3. You see outsourcing to a PEO more as a liberation than a loss of control. While businesses do not really lose control over their employees in a PEO relationship, this remains a common fear for business owners and leaders. When you use a global PEO, they become the employer of record for your workforce and changes are simply made via the PEO.

4. If your company is moving into new or unpredictable markets, or just growing rapidly in several countries, a Global PEO can make doing business faster, simpler and more cost effective with the assurance of full legal compliance. In this case there are very clear advantages of a PEO vs ASO arrangement.

5. If your business is expanding rapidly in a new country but this is likely to be temporary or naturally limited in nature, then look at the PEO option in order to accomplish international goals quickly and cleanly. If you don’t need the profile-raising boost of a directly employed and fully-branded workforce, then a Global PEO could make an expansion happen rapidly, smoothly and compliantly on your behalf. 

Horizons ASO and PEO Solutions 

The ASO vs PEO question is one which depends on the circumstances and plans of the business in question. Whether ASO, Global PEO or other outsourcing arrangements, many global businesses could benefit from expert support with corporate functions at some stage of business development or expansion.

Operating successfully in over 150 countries, Horizons has the expertise and capacity to to provide a full Global PEO service or other outsourcing solutions to meet your business needs quickly and in compliance with local laws and regulations. Get in touch today to discuss your options and obtain a tailored quote.

Frequently Asked Questions (FAQ)

The main differences between these two outsourcing models are around risk and liability, and perceived control. With an ASO the client organization remains the employer of its full workforce, carrying all employment related risks and liabilities.

In contrast, a PEO arrangement allows companies to completely outsource their HR and payroll functions, transferring many of the associated risks and liabilities along with the administrative responsibilities. PEO client companies retain control of their workforce but make changes to HR or payroll policy and administration etc.. via the PEO rather than directly. 

This choice depends on the position and needs of your particular business.

The ASO model can work well where companies wish to retain internal HR staff. It may also be the preferred option for organizations who want the advantage of outsourcing mundane and time-consuming HR admin tasks, but still want to retain a greater sense of control and flexibility in providing employee benefits. Where a directly employed and branded workforce is good for business, ASO might be the right outsourcing solution.

PEOs can work better for companies who want to outsource all HR, payroll and related functions and not worry about compliance. International companies can benefit greatly from Global PEOs to help them navigate the complexities of overseas hiring and compliance, ensuring compliant contracts for new staff etc…

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