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When managing HR tasks, businesses often turn to external services to streamline operations and ensure compliance. Two popular options are a Professional Employer Organization (PEO) and an Administrative Services Organization (ASO). While both can provide support, they differ in their approaches and services. Here’s a look at the key differences, advantages, and drawbacks to help you determine which is best for your business.
What is a PEO?
A Professional Employer Organization (PEO) is a firm that provides HR services to small and medium-sized businesses through a co-employment arrangement. This means that the PEO becomes a co-employer of your employees, sharing certain legal responsibilities and liabilities.
Pros of a PEO
HR Services
PEOs offer a full suite of HR services, including payroll processing, benefits administration, compliance management, and risk management.
Access to Benefits
Small businesses can often access health insurance plans and other employee benefits typically available to larger companies through a PEO.
Compliance Support
PEOs stay up-to-date with changing employment laws and regulations, reducing the risk of non-compliance for your business.
Risk Mitigation
The co-employment model helps distribute certain liabilities, such as workers’ compensation and unemployment claims, between the business and the PEO.
Cons of a PEO
Cost
PEO services can be expensive. They typically charge a percentage of your payroll or a flat fee per employee. It’s difficult to itemize the true cost of PEO because all insurance and benefits are bundled together.
Loss of Control
Some business owners may feel uneasy about sharing employer responsibilities and decision-making authority with a third party. Companies lose management control over their workers since the PEO officially employs them.
Complexity
The co-employment arrangement can be complex, and some business owners may find it challenging to understand and manage. Employees may be confused by who truly is their employer; the PEO or the company they report to daily. Employees may not know who to turn to when they have concerns regarding compensation, benefits, and other aspects of their job.
