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ASOs and PEOs are both great options for small businesses looking to outsource administrative tasks — from payroll to benefits. — Getty Images/vladans

When you're running a small business, you're often juggling multiple administrative tasks at once with limited resources. It's hard to keep a consistent eye on human resources (HR) operations like payroll, benefits and employee training when more urgent business matters demand your attention.

Luckily, an entire industry exists to handle the nuts and bolts of HR operations for resource-strapped businesses. HR outsourcing is on the rise, with professional employer organizations (PEOs) and administrative services organizations (ASOs) leading the charge. Partnering with one of these organizations can help you address pressing operational needs without having to sacrifice the time you spend on making your business successful.

Before you decide whether you want to work with a PEO or ASO -- or whether HR outsourcing is right for you at all — it's important to understand how these organizations work and what they can offer your business.

Professional employer organizations (PEOs)

According to the National Association of Professional Employer Organizations (NAPEO), more than 170,000 small businesses already are working with professional employer organizations. These organizations provide small businesses with payroll processing support, benefits administration, workers' compensation compliance and human resources support. Think of a PEO as your business's personal operations specialist. Many companies have a range of plans and services, so you can pick up services and features that suit your specific needs.

What makes PEOs different from traditional human resources outsourcing is the co-employment model. When you partner with a PEO, the organization you work with will issue W-2s to all your employees. For tax and legal purposes, the PEO you're partnering with becomes the employer of record for your full- and part-time staff members, but you retain full control over your business and your employees. This co-employment model allows the PEO to shoulder much of the administrative burden of having employees, including workers’ compensation insurance and payroll tax liability.

Because they have hundreds of thousands of employees nationwide on their books, PEOs have more leverage than the average small business when negotiating with insurance and retirement plan providers. This means they can help you offer group-discounted benefits to employees at an affordable price, including health, vision and dental plans and solid 401(k) options. Joining a PEO is like joining a national small business organization or society — there's strength in numbers.

While a PEO may be able to provide a more robust offering, ASOs are flexible organizations that can meet a small business's unique needs.

Administrative services organizations (ASOs)

Administrative services organizations provide similar services to PEOs, but they don't operate under a co-employment model. Your business remains the employer of record and is responsible for all the legal obligations that come with it. The ASO is simply an outsourced vendor, like an attorney or a marketing agency.

ASOs can still provide HR administration, payroll support, regulatory compliance and benefits administration. By not offering the co-employment model, however, ASOs will provide a different level of services, especially when it comes to benefits. This model is ideal for many small businesses looking for robust HR and payroll support without the need for extensive benefits options. It's also ideal for small businesses that already have benefits, workers' compensation or retirement policies in place and are only looking for some extra HR support.

While a PEO may be able to provide a more robust offering, ASOs are flexible organizations that can meet a small business's unique needs.

Which HR outsourcing model is right for you?

When deciding which type of organization to work with, examine your business's needs and define exactly what you need. Once you have an idea of how your business could benefit from these services, reference our guide to outsourcing payroll and HR processes.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Published May 09, 2019