Payroll, ASO, and PEO. What is a Better Fit for Your Small Business?
Updated: May 17, 2022
There are plenty of options to choose from in the world of human resource and administrative outsourcing. There are also a ton of equally confusing acronyms today, and many providers in the marketplace use these without realizing they may confuse, so we've decided to provide some clarity. There are some significant differences between each solution, and we will do our best to outline that in detail below. As we go through the Payroll, ASO, and PEO solutions, it's important to point out that you will see more and more of the services being bundled into the core solution as we go along. Additionally, 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
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 our 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.
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, productivity, reduced expenses, avoided 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
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
Value to Employees:
Access to Payroll Stubs
Elect and Access Benefit Information
Update Personal Information
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:
Job Description Creation
Compliance tools and resources
Workplace safety resources
Talent management resources
Online HR Videos
HR Templates & Forms
Tactical and HR support
Value to Employees:
Access to HR Policies
Access to additional employee benefits
HR Videos & Training
Access to Corporate Documents
The PEO solution is considered the most inclusive and bundled human resources solution for Small-Medium 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. PEO's 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 100’s of other employers to lower the total cost of those benefits, while also reducing the year over year 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 technology platform typically 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 that are not wanting to make costly mistakes because they didn't know the local, state, and federal compliance landscape.
One significant difference in the PEO relationship is the share 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 employer 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
Unemployment Claims Administration
Proactive Compliance Support
Job Posting Support
Value to Employees:
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.
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.