Which HR Model is Right for Your Business? PEO vs ASO vs Payroll Provider
TL;DR PEO vs ASO vs Payroll Provider
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Professional Employer Organization (PEO): A PEO offers an all-in-one HR solution acting as an extension of the business and true HR partner by handling payroll, benefits administration, workplace compliance, and risk management. This model is particularly suitable for small and mid-sized businesses aiming to grow without the cost and complexity of building an in-house HR team. Legal and financial responsibility is shared, allowing businesses to focus on growth while the PEO manages the complexities.
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Administrative Services Organization (ASO): ASOs provide businesses with outsourced HR support focused on administrative tasks such as payroll processing, tax compliance, benefits administration, and regulatory guidance. This is the right fit for businesses looking for administrative support and general compliance advice to reduce the burden on their team.
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Payroll Provider: Payroll providers handle getting employees paid accurately and on time. They calculate wages based on hours worked, salaries, and deductions, while also managing tax withholdings, contributions, and direct deposits to support the payroll process. Ideal for businesses primarily concerned with pay distribution and tax obligations, while handling the broader HR strategy themselves.
Managing HR in-house can quickly become a burden, especially for growing businesses juggling compliance risks, payroll accuracy, and employee expectations with limited internal resources. To reduce the burden, many businesses turn to HR outsourcing – but not all options offer the same level of service or value.
Businesses weighing their options often find themselves choosing between three main models:
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Professional Employer Organization (PEO)
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Administrative Service Organization (ASO)
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Payroll Providers
Each model takes a different approach to HR support. Payroll providers focus exclusively on payroll processing, including wage distribution and managing tax withholdings. ASOs offer broader administrative help, specifically benefits and compliance support, while the business retains the legal and financial responsibility. PEOs leverage a co-employment model, sharing responsibilities with the client company and delivering comprehensive support for various HR functions.
Choosing the right HR partner is one of the most important decisions a business can make – impacting everything from day-to-day operations to long-term growth and risk management.
The comparison breaks down the key differences between PEOs, ASOs, and payroll providers to help you determine which options fits best with your company's unique needs and objectives.
HR Models Side-by-Side
| Features | PEO | ASO | Payroll Provider |
| HR Administration | Full support | Limited assistance | None |
| Compliance & Risk Management | Expert guidance and shared liability | Advisory role, no liability | None |
| Payroll Tax & Filing | Comprehensive services | Included | Included |
| Hiring Strategy | Strategic planning and role profiling | General guidance | Not provided |
| Employee Onboarding | Full onboarding process and compliance | Limited assistance | Not provided |
| Employee Benefits Access | Fortune 500-level benefits at small business prices | No cost savings, administrative support only | Not provided |
| Workers' Compensation Coverage | Included and discounted rates | Your business's responsibility | Your business's responsibility |
| Scalability & Business Growth | Designed for growth | Limited HR support | Not a growth partner |
| Compliance Risk Reduction | Legal support and shared liability | Advisory only | No compliance support |
Overview of Professional Employer Organization
PEOs offer businesses a comprehensive HR solution for a wide range of HR needs. Through a co-employment model, a PEO shares certain employer responsibilities and handles critical functions such as payroll, benefits administration, risk management, and worker's compensation coverage as defined in a service agreement.
Key Functions of a PEO
HR Management
PEOs support day-to-day people operations through employee handbooks, policy development, and performance management. They help establish consistent HR practices aligned with labor law and best practices.
Payroll & Taxes
They manage calculations, withholdings, and payroll tax reporting. PEOs ensure employees are paid accurately and on time while helping businesses meet both state and federal requirements.
Benefits Administration
A PEO offers access to high-quality benefits, such as health, dental, vision, retirement plans, and more. PEO's buying power allows them to offer these benefits at a lower cost than a business could secure on its own.
Risk Management
PEOs support regulatory compliance across employment laws, tax requirements, and workplace safety standards. They also provide workers' compensation coverage, manage claims, and advise on risk mitigation strategies to reduce liability exposure.
Recruitment
PEOs can assist with talent acquisition by providing job posting tools, applicant tracking, and hiring best practices. Some PEOs also offer workforce planning and onboarding support.
HR Technology
Some PEOs offer integrated platforms that combine payroll, benefits, compliance tracking, and employee records – centralizing and improving the employee experience.
How PEOs Work
PEOs operate in a co-employment structure, where there are shared responsibilities for the same employee, typically between a business and a PEO. The PEO becomes the employer of record for tax and benefits purposes, while the business continues to lead operations and direct its workforce. It allows businesses to operate with greater efficiency and compliance while reducing administrative burden.
Benefits of Using a PEO
Reduced Administrative Burden
Centralizes time-consuming HR tasks like payroll, benefits administration, and compliance reporting. Reducing this burden allows internal teams to focus on strategic work and business priorities.
Access to Better Employee Benefits
With a PEO, businesses can join a larger benefits pool, allowing clients to offer their employees Fortune 500-level benefits that aren't typically attainable on their own.
Compliance Expertise
PEOs bring deep knowledge of employment laws and regulations, reducing the risk of costly errors related to tax filings, labor laws, and workplace policies.
Cost Savings
PEOs consolidate a business's HR function under one provider, improve benefits pricing, and help prevent compliance-related penalties. All of which contribute to long-term savings.
Overview of Administrative Services Organization
Administrative Services Organization (ASO) supports businesses with outsourced HR support without entering a co-employment relationship. They focus on administrative tasks like payroll processing, tax compliance, benefits administration, and regulatory compliance.
ASOs are often a fit for businesses that want administrative support and general compliance advice, but prefer to take on the legal and financial responsibility of HR management.
Key Functions of an ASO
Payroll Processing
ASOs calculate employee wages, process tax withholdings, and ensure timely payroll delivery. This leaves final review and responsibility with the business.
Benefits Administration
An ASO manages the administrative side of employee benefits, including enrollment, carrier coordination, and ongoing employee communication.
Compliance Support
ASOs assist with maintaining proper documentation and staying up to date with changing regulations, but don't assume liability.
What ASOs Don't Do
Co-Employment
ASOs don't engage in a co-employment relationship, like a PEO. The business retains full responsibility for employees, including hiring, firing, and compliance decisions.
Employee Benefit Plans
ASOs don't sponsor employee benefits, which means businesses must source their plans and bear the cost and compliance responsibilities that come with them.
Assume Legal Liability
While ASOs can advise on compliance, they don't assume any legal or financial liability. This responsibility remains solely with the business.
Overview of Payroll Providers
Payroll providers offer businesses a solution exclusively for managing employee pay. They handle the calculations, processing, and delivery of payroll, ensuring employees are paid correctly and on time.
Unlike PEOs or ASOs, payroll providers typically do not support broader HR functions or offer compliance guidance. The business remains fully responsible for HR strategy and legal risk, including compliance with employment laws and tax regulations.
This model is often the right fit for businesses that are primarily looking for wage distribution and tax obligations but prefer to manage HR and compliance responsibilities internally.
Key Functions of Payroll Providers
Payroll Processing and Administration
Payroll providers manage the end-to-end process of paying employees, including calculating gross wages based on hours worked or salaries, applying deductions, and issuing payments.
Tax Withholding and Contributions
They calculate and withhold required payroll taxes (federal, state, and local), along with deductions for Social Security, Medicare, and employee benefits contributions.
Payroll Reporting
They provide regular summaries, year-end tax documents, and employee earnings statements.
Additional Services
Some payroll providers can integrate with accounting software or HR systems, as well as provide automated tax filing or basic compliance support.
What Payroll Providers Don't Do
Benefits Administration
Beyond payroll deductions, payroll providers do not manage employee benefits administration.
HR Support and Strategy
Payroll providers focus solely on payroll, meaning they do not handle broader HR functions or provide strategy.
Compliance Ownership
While payroll providers assist with calculations and withholdings, legal liability for tax filings errors and employment law violations stay with the business.
Risk Management
Payroll providers don't advise on workplace risk, employment law changes, or provide legal support for HR-related issues.
Every Business Has Different Needs. What's Yours?
Finding the right HR model isn't a checkbox. It's a strategic decision that affects your people, your operations, and your bottom line. Whether you're seeking full-scale HR support, a simple way to run payroll, or help navigating compliance, understanding how each model operates can simplify your next move.
Our downloadable guide goes deeper with side-by-side comparisons, decision-making insights, and key stats to help you evaluate your options confidently.
What is the difference between a PEO, ASO, and payroll provider?
Each model supports HR and payroll functions, but the level of involvement differs. PEOs operate under a co-employment model and take on a wide range of HR responsibilities. ASOs offer administrative support but leave legal and strategic HR decisions to the business. Payroll providers focus specifically on processing and distributing wages, with little to no involvement in broader HR.
PEO, ASO, Payroll: which is best for my business?
How do PEOs and ASOs differ in HR services?
For a complete look at how PEO and ASO services compare, download our comparison guide.
Can my business use a PEO if I already have an in-house HR team?
How does an ASO differ from a traditional HR department?
An ASO supports your internal HR team. While traditional HR department manages strategy and daily operations in-house, an ASO provides administrative services to lighten the load. The business retains all decision-making authority and legal responsibility.
What size businesses benefit most from each HR model?
PEOs are often a fit for small to mid-size businesses that want full-scale HR support. ASOs are a good match for companies with internal HR capabilities that need extra administrative bandwidth. Payroll providers work well for businesses of all sizes that simply need efficient, accurate payroll processing.
Can PEOs assist with recruitment and onboarding?
Can businesses customize HR policies when working with a PEO or ASO?
Which HR outsourcing model is best for small businesses?
**The information provided on this website is for general informational purposes only and does not constitute legal advice. While we strive to ensure the accuracy and completeness of the information, we make no guarantees about its correctness, completeness, or applicability to your specific circumstances. Laws and regulations are subject to change, and you should consult a qualified legal professional before making any decisions based on the information provided here.