Last Updated: February 08, 2023

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PEO Service Overview

PEOs, or Professional Employer Organizations, allow small and mid-size businesses to outsource human resources services such as staffing, payroll, benefits and worker's compensation. The PEO completely takes over those tasks, allowing your company to focus on developing and growing its core business. Often, a PEO even works from your location.

PEOs are similar to ASOs, but they're more comprehensive. All of your employee benefits, including health insurance, are handled by the PEO, under the PEOs name. Your company loses its federal Employer Identification Number (EIN) and assumes the PEO's EIN. The PEO assumes all legal responsibility and liability for tax documents, regulatory compliance, worker's compensation and the like.

How Much Does PEO Service Cost?

Pricing varies from one PEO to another and from one geographic location to another. The price is also impacted by your industry and the size of your company. Generally, PEO administrative fees range from 2 percent to 6 percent of your gross wages.

On top of administrative fees, a PEO will charge you for employer-paid taxes such as Social Security, Medicare, unemployment and worker's compensation because the company pays the taxes out of their own accounts. However, those are costs you would pay with or without a PEO, not additional charges.

PEOs offer either bundled plans, in which you're quoted a single price for all services, or unbundled plans, where each component of the price is revealed.

PEO Pros

  • Less risk - PEOs assume all legal responsibility for your human resources tasks, including tax preparation, regulatory compliance and worker's compensation. If the PEO makes a mistake, they're liable for the damages.
  • Cheaper insurance - Health and worker's compensation plans offered by PEOs tend to be more affordable than individual plans for small and mid-sized businesses. You benefit from the fact that your insurance plans are pooled with those of all the other companies that are clients of the PEO. In some cases, you end up with rates similar to those of large corporations.

PEO Service

PEO Cons

  • Loss of control - When you hire a PEO, you're giving up some control of your employees. The PEO is technically the employer of record, even though you're still in charge of all business functions outside of human resources.
  • Less flexibility - With a PEO, there is far less flexibility to choose insurance plans. You have to choose among the plans offered by the PEO, even if none is ideal.

ASO Services Overview

ASOs, or Administrative Service Organizations, perform most of the same services, but they don't assume any liability. The ASO handles day-to-day human resources tasks such as payroll and tax filing; however, responsibility for insurance coverage, regulatory compliance and safety remains with your company.

Unlike PEOs, all payroll and tax documents are filed under your company's EIN, not that of the ASO. In addition, ASOs do not sponsor health insurance or worker's compensation plans, but they can assist you in finding appropriate coverage.

How Much Does an ASO Service Cost?

With ASOs, you typically pay a flat rate or per-transaction fee for services rendered. Often, you can purchase only the services your need on an a la carte basis. In most cases, administrative fees total $600 to $1,200 per employee, per year.

ASO Pros

  • More control - ASOs don't require you to give up any control of your employees. You are still the employer of record.
  • More flexibility - With an ASO, go out into the market and choose any insurance plan you like. You're not limited to just a few options.

ASO Cons

  • More risk - With an ASO, you retain responsibility for regulatory compliance, legal issues and safety. For small companies with little experience in these areas, that can be a lot of risk to assume.
  • More expensive insurance - ASOs do not sponsor health care plans, so you won't benefit from lower rates as you would with a PEO.

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