Payroll, ASO, and PEO: What is a Better Fit for Your Small Business?

Efficient workforce management is crucial for the success of any small business. As a small business owner, you might find yourself overwhelmed when choosing between Payroll services, Administrative Services Organizations (ASO), and Professional Employer Organizations (PEO). Each option offers unique benefits and serves different needs. This article will help you navigate through these options to determine the best fit for your small business.

There are some significant differences between each solution, and we will do our best to outline that in detail below. But, keep in mind that there are many factors to consider when choosing your best-fit option, but for this guide, we'll focus on these four:

• Number of employees

• Technology capabilities

• Employee experience

• Employment relationship

Payroll

A basic payroll-only client will typically be on the smaller side of the spectrum, typically including self-employed organizations and scaling up to a few employees. You begin to see business leaders start to implement lighter HR support, and new technology solutions as they choose to add benefits, or if they need more robust time-keeping or project management capabilities. There are many options when it comes to payroll solutions, and even easier to add on applicant tracking, time-keeping, employee handbook creation, compliance support, and light HR consultation.

The Mission customizes deliverable payroll solutions around the client and helps them develop “best practices” for onboarding, tax compliance, and processing efficiency. Our solutions build in precisely what our clients want and need to simplify and streamline for maximum efficiency.

The Mission's high-tech and high-touch approach will help your organization streamline the onboarding, online payroll, automated deductions, timekeeping, accounting integrations (Quickbooks, etc.), and benefits complexities that companies with five or more employees encounter daily.

There is no co-employment relationship with core payroll solutions. Your organization maintains complete control and liability of your employees.

The key advantages of outsourcing payroll are time savings, improved productivity, reduced expenses, no more payroll tax deduction mistakes and IRS penalties, payroll expertise, enhanced security, employee self-service, direct deposit, and technology that requires no updates. In addition to the value outlined in the payroll solution above, you can expect to see the following:

Value to Employers:

• View Invoices and Payroll Reports

• Online Access to All Employee Data

• Easily Onboard New Employees

• Track Timekeeping Data

• Online Benefit Open Enrollment

• Communicate Important Information with Employees

• Manage PTO Requests (Paid Time Off)

• Upload Employee Documents

• Upload Employee Handbooks

• Track Licenses / Certifications for Employees

• Performance Reviews

• Training Records

Value to Employees:

• Access to Payroll Stubs

• Elect and Access Benefit Information

• Update Personal Information

• Request Time-Off

When to Choose Payroll Services

Payroll services are ideal for small businesses with straightforward HR needs. If you already have an internal HR team but need assistance with payroll processing, payroll services can be a cost-effective and efficient solution.

Administrative Service Organization (ASO)

An ASO solution includes all of the same capabilities as the payroll solution outlined above, as well as the same level of customization. Still, there is a more substantial focus on human resource deliverables, support, compliance, and strategic human capital initiatives.

With an ASO solution, you can outsource many of your tactical HR tasks, while leveraging the expertise of an HR team to get strategic guidance and best practices. Dedicated HR resources are also typically included in an ASO solution to add further continuity to the relationship. This provides one primary contact for all of your HR questions, job descriptions, employee handbook creation, as well as proactive business planning around your human capital management strategy.

We've found that ASO solutions typically fit well with companies that have between 20 and 150 employees, as they do not have the time to bring HR in-house. Still, they've got enough employees and HR liabilities to justify the additional expense.

Value to Employers:

• Employee Handbooks

• Job Description Creation

• Compliance tools and resources

• Workplace safety resources

• Talent management resources

• Online HR Videos

• HR Templates & Forms

• Tactical and HR support

• HR Webinars

Value to Employees:

• Access to HR Policies

• Access to additional employee benefits

• HR Videos & Training

• Access to Corporate Documents

When to Choose ASO

ASOs are best suited for small to mid-sized businesses seeking comprehensive HR support without relinquishing control. If you want to scale your HR operations efficiently and maintain flexibility, an ASO might be the right choice.

Co-Employment (PEO)

The PEO solution is considered the most inclusive and bundled human resources solution for small and mid-sized businesses. According to NAPEO, the average client that is engaged with a PEO has around 19 employees.

One of the most significant advantages of the PEO solution is the ability to offer employers, and their employees a Fortune 500-type benefit offering that can only be accomplished by leveraging a more significant number of employees than a small business has. PEOs typically have thousands of employees and, in some cases, hundreds of thousands that they use to negotiate richer programs that are then offered to their clients in exchange for a reasonable monthly fee.

For example, if the PEO has a master healthcare policy (some do not), then each client can pick from a variety of plans, which take into consideration hundreds of other employers to lower the total cost of those benefits. At the same time, this also reduces the year-over-year service renewal rates. This can create immediate savings, as well as long-term predictability that smaller organizations are looking for.

Additionally, employers can choose to participate in the PEO’s workers’ compensation program. Much like the health insurance program, there is often an opportunity to decrease the workers’ compensation rates, since the PEO has better economies due to better resources to manage their workplace risk. Because of that, the savings will be passed along to the client companies as a part of the valued relationship. If your company is on the smaller side and has had some unfortunate workers’ compensation claims, using the PEO’s policy can be a significant advantage.

The PEO's platform includes all of the services that smaller organizations need to manage the entire lifecycle of the employee. It generally is all bundled together, to allow companies to lower the total cost of employment by paying less for all of the services they need in one flat fee. Federal and State Labor laws change as your company grows, so compliance becomes increasingly essential, and technology begins to become a significant aspect of compliance. This is also a huge advantage to growing employers who do not want to make costly mistakes, especially when they don't know the local, state, and federal compliance landscape.

One significant difference in the PEO relationship is the "sharing of liability" model. This is often referred to as a co-employment arrangement, where the client company becomes the worksite employer, and the PEO becomes the administrative employer. This relationship allows the PEO to extend their benefits, workers' compensation, compliance services, risk management, ACA tracking and reporting, EPLI policy, and much more to the smaller employers in a way that offloads many of the employers' liability requirements. In many cases, you will also be able to see some stabilization in your SUTA (State Unemployment) rate, but this is not always the case.

Here are a few of the top benefits of the PEO solution:

Value to Employers:

• Fortune 500 Caliber Benefits

• Workers' Compensation & Risk Program

• Claims Management

• COBRA Administration

• Garnishment Administration

• Employment Verification

• Unemployment Claims Administration

• Shared Liability

• Proactive Compliance Support

• Lawsuit Protection

• Executive Recruiting

• Job Posting Support

• All-In-One Technology

Value to Employees:

• Top-tier Benefits

• Single Source for Everything

• Better Retirement Programs

• Employee Service Center

• Employee Assistance Programs (EAP)

The advantages can be significant for many employers, but not everyone is a good fit for the PEO model. We believe it's important that you work with a professional to evaluate all of your options thoroughly before jumping into any solution.

When to Choose PEO

PEOs are ideal for small businesses looking for complete HR outsourcing and robust employee benefits administration. If you want to offer competitive benefits and focus on your core business activities, a PEO can provide the support you need.

Choosing Between Payroll, ASO, and PEO

Cost Comparison

• Payroll Services: Generally the most cost-effective option, suitable for businesses with straightforward payroll needs.

• ASO: Moderate cost, providing a balance between comprehensive HR support and cost efficiency.

• PEO: Typically more expensive due to the comprehensive nature of services and co-employment model, but offers significant benefits in terms of employee benefits and compliance support.

Service Comparison

• Payroll Services: Focused primarily on payroll processing and tax compliance.

• ASO: Offers a broad range of HR services, allowing customization based on business needs.

• PEO: Provides extensive HR services, including payroll, benefits, compliance, and shared legal responsibilities.

Control and Flexibility

• Payroll Services: High level of control, with the business retaining responsibility for most HR functions.

• ASO: Flexible, with the ability to choose specific services while maintaining control over HR decisions.

• PEO: Reduced control due to the co-employment model, but benefits from shared responsibilities and enhanced services.

Choosing the right option between Payroll, ASO, and PEO depends on your business's specific needs and goals. Payroll services offer a cost-effective solution for straightforward needs, ASOs provide flexibility and comprehensive support, while PEOs deliver extensive HR services and enhanced employee benefits through a co-employment model.

For a first-class HR experience that will help you find the best solution for your needs, let's schedule some time to talk today.

About The Mission

The Mission is a leading partner in the PEO, HR, payroll, and benefits outsourcing marketplace. We provide a valuable service for small and medium-sized organizations and government contractors, serving as a trusted partner in integrated human resource (HR) compliance, risk management, employee benefits, employment practices liability insurance (EPLI), and payroll processing.