What is a PEO? How is it different from an ASO?
By Lionel Valdellon of TriNet
PEOs (professional employment organizations) provide small and medium-sized
companies with outsourced human resource services including employment, payroll, benefits, safety, and risk management services.
The PEO delivers value to its customers through a shared tax ID; this model is referred to as a “co-employer” relationship. The co-employer arrangement enables a company to transfer many of its key employer responsibilities to the PEO, including aspects of employer-related risk and compliance.
A common misconception of PEOs is that employers lose control through co-employment. Companies working with PEOs retain complete control over operations, workforce management, building company culture and defining the employment brand.
ASOs (administrative services organizations), like PEOs, oversee the administrative aspects of managing a company’s human resource functions. The most important difference between an ASO and a PEO is that the service provided through an ASO does not establish a co-employment relationship with the employees.
While an ASO does not sponsor employee benefit programs or workers compensation coverage, the ASO is generally active in arranging coverage and assisting the client in securing coverage. The client company remains the sole sponsor when working with an ASO.
Which tasks does a PEO typically handle on an employer’s behalf?
Both U.S. and Canadian governments now recognize there are two employers in a co-employment situation, but for the most part, government agencies look at the PEO as being as the responsible party for the administration and HR. They consider the PEO the “employer of record” for the purposes of federal and state employment laws such as wage and hour, civil rights, and similar laws imposed on employers.
This arrangement means employees’ paychecks will carry the name of the PEO – though, to the rest of the world, they are employed by the client. And if there are any legal problems arising from the HR function, the PEO assumes some of that risk.
HR functions that are not core to the business, including payroll and workers’ compensation coverage, are handled by the PEO. The PEO also becomes the sponsor of the employee benefits programs, such as health coverage and retirement plans.