ASO vs. PEO: Which is Right for Your Business?

Businesses face a variety of challenges when it comes to balancing their HR and admin needs against individual growth strategies, resource constraints, and evolving compliance obligations.

For example, businesses with established People Ops might be looking for assistance with specific functions (such as payroll and benefits admin). Meanwhile, organizations with smaller teams could be seeking to offload most of their regulatory and back-office tasks—or, instead, be expecting a custom approach catered to their unique pain points. International companies entering the US market also often require wide-ranging HR, admin, and compliance support, especially while getting their new entities off the ground.

Administrative Services Organization (ASO) and Professional Employer Organization (PEO) are two types of HR outsourcing models that are commonly leveraged by companies to deal with these pressures. While both services aim to reduce the in-house burden of people management, they are fundamentally different in nature, yet often confused. Understanding the difference between the two is essential for making the right decision for your organization.

This guide will help you decide which model fits your business goals and long-term strategy.

What is an Administrative Services Organization (ASO)?

ASOs allow businesses to reduce their administrative load by taking on certain HR tasks, such as payroll, tax, and compliance processes. Benefits admin is also provided as part of the offering, but this does not include providing the client with access to more comprehensive plans.

In this setup, the client retains their employer status and has full control over employee management, but also bears all legal liabilities. When handling taxes and compulsory insurances such as unemployment insurance, ASOs do so under the client’s EIN (Employer Identification Number).

What is a Professional Employer Organization (PEO)?

Unlike ASOs, a PEO service operates under a co-employment agreement with the client. This means the PEO legally employs the workers on behalf of the client and assumes shared employment and compliance liabilities.

The client remains in charge of supervising and directing the employees’ day-to-day responsibilities, including working hours, goals, duties, and performance. The PEO handles the compliance aspects of employee hiring, termination, and promotion under the client's directive.

In short, the client remains the operational manager, while the PEO is the legal employer. Because of this, having a close relationship between the client and the PEO is essential for maintaining seamless workflows.

Similarly to an ASO, a PEO handles payroll, taxes, benefits, and compliance for the client—however, this is done under the PEO's own EIN, rather than the client's.

Because they pool employees from multiple businesses, PEOs also have access to large-group rates, better deals, and more options when it comes to negotiating benefit plans with providers. As such, PEOs can give clients (especially small and medium-sized businesses) access to more comprehensive packages compared to what they'd otherwise be able to get on their own.

Find out more with our short article on How Deel is Redefining the PEO Experience.

What is the cost difference between an ASO and a PEO?

ASOs and PEOs also differ in their pricing models. In general, ASOs' pricing can be lower, billing their clients in one of the following ways:

• A fixed rate per service provided
• A flat rate per employee
• A combination of the above
• A fee per on-demand service provided

In general, clients can lower prices for an ASO service. However, companies that use ASOs also need to pay separately for benefits plans and any compliance-related costs (fees, penalties, etc.).

By contrast, PEOs are typically paid:

• A percentage of payroll (usually, 2-12%)
• A flat rate per employee (with or without an additional admin fee)

The upfront cost of PEOs is typically higher, but it could lead to long-term savings as PEOs manage your compliance in full, mitigating any unexpected expenses associated with regulatory risks. Moreover, since PEOs enable access to large-group benefits packages, this can ultimately result in cheaper benefits premiums and reduce turnover and related costs.

Deel prices PEO services per employee per month. See Deel PEO's pricing page.

Key differences between ASO and PEO

From employer responsibilities and compliance risks, to benefits and costs, knowing how ASO and PEO services differ will help you determine the best solution for your team. Here is a look at the key differences:

When to choose ASO vs PEO?

The choice between an ASO and a PEO depends primarily on your business needs and priorities.

When to choose ASO?

In general, ASOs are an advantageous solution for businesses that are looking for help with core HR and admin functions while retaining legal responsibility and control over the workforce. Here are some of the reasons why you might choose an ASO:

• You already have a well-established HR team that requires some support, but not full outsourcing
• Your business is small and has limited needs that do not warrant an all-encompassing suite of services
• You prefer to maintain full legal control over your workforce and workforce-related processes and do not want to enter into a co-employment arrangement
• You want to manage your tax and reporting operations through your own EIN
• You already have existing benefit packages that only require some administrative support
• You prefer an option with a lower upfront cost

Overall, ASOs are a less comprehensive but more flexible and cost-effective solution for already well-structured businesses that need limited support with their HR functions.

When to choose PEO?

A PEO model that incorporates more comprehensive services and mitigates compliance risks can be especially valuable for international companies entering the US market, as well as small and mid-sized domestic businesses. Some of the reasons why a PEO might be a better fit for you include the following:

• You do not have the resources to maintain a large and comprehensive HR team
• You prefer to offload employment and compliance liabilities and focus all capabilities on growth
• You are interested in obtaining more attractive benefits packages that would you to be more competitive in the talent market
• You are expanding domestically into a new and unfamiliar market, with a limited workforce and experience navigating local employment regulations
• Your international business is entering the US market with a limited workforce and experience navigating US employment regulations

A PEO's co-employment model allows international and smaller businesses to reduce risk and outsource processes that aren't directly related to growth and innovation. This can help those organizations focus on scaling their operations without being held back by complex compliance and administrative tasks.

Your checklist for choosing the right HR outsourcing service

When choosing between a PEO or ASO, making an informed decision can significantly impact your efficiency and bottom line. The checklist below walks you through core considerations and questions to ask when assessing your options, and the service that, in each of the cases, best aligns with your business needs.

Transform your HR and compliance management with Deel PEO

Businesses face different obstacles and constraints when it comes to managing HR, tax, and compliance operations. Making an informed decision about how best to navigate these challenges is essential for optimizing resources and ensuring long-term growth.

ASOs and PEOs are two effective solutions that businesses can take advantage of if they are looking to outsource their administrative and regulatory obligations. In general, ASO models are better suited for companies that require some support but prefer to retain full employee control and responsibilities.

On the other hand, PEOs provide small and mid-sized businesses, or international companies entering into the US, with a more comprehensive service offering, mitigate compliance risks for the client, and allow access to more competitive benefits packages.

Deel PEO is purpose-built to support businesses with distributed teams and complex compliance needs. Our expert team will help you streamline your operations, manage your risk, and save you valuable long-term resources, with no hidden costs.

Book a demo to speak with an expert about Deel PEO.