PEO, ASO, or EOR?

What’s the difference?

There are too many acronyms in the HR space. PEO, ASO, and EOR are three acronyms that every good HR practitioner should know. For start-up CEOs, Founders, and CFO’s- here’s the reader’s digest on what you should know about these acronyms.

PEO stands for Professional Employer Organization. Without boring you on the history on why this exists, here’s the essence of it. You lease your employees to another company for a service fee. In return, they manage payroll, taxes, and sometimes even provide benefits and insurance to your team. Oftentimes referred to as a “Co-Employer.”

The concept is most often used when a business is scaling from 1 to 50 people. The PEO becomes the Employer of Record, who is responsible for taxes and compliance while you (the client) remains the who is responsible for hiring and management (common law employer.)

This gives you access to specialized expertise as you grow.

You receive access to specialized experts who can support your business through growth. This typically looks like specialists in Payroll, Benefits, Human Resources Compliance, and sometimes Safety and Worker’s Compensation. It’s a turnkey solution for many small business owners who want to focus their time and energy on their field of expertise such as construction or technology without being pulled into the weeks of day to day administration.

When does a company outgrow their PEO?

Each company is a little different. At around 50 FTE’s the relationship often starts to feel clunky but the economics often work in your favor somewhere between 100-150 employees. Wondering how you’ll know? For Five signs you’re ready, reference this article.

Costs? Average costs for a PEO are around $120 PEPM. Some PEO’s will charge a percentage of payroll while others do a per payroll fee. Pro Negotiator Tip: if you have a lot of part-time workers, a percentage fee is usually to your benefit. Likewise, if you’re mostly comprised of full-time workers with higher salaries (like a Tech company), a PEPM or per payroll fee is usually your best bet.

ASO means Administrative Service Organization. This is similar to a PEO, but the main difference is that the employee remains employed through the Employer but provides authority to the ASO to administer Payroll, Taxes, and benefits on their behalf. Think ADP, Rippling, HiBob, BambooHR. This is the next step for you once you’ve outgrown a PEO.

You’re still utlimately responsible for ensuring people get paid, including taxes, but you’re provided technology and services to support you in this relationship. They streamline and minimize the amount of administrative work required from the back-end team to perform payroll, benefits, remit taxes, etc. Sometimes they can also provide specialized support to help with compliance related items such as ACA, FMLA, etc.

The costs involved in a basic offering for this are going to vary based on which provider you choose. It’s usually a PEPM (starting around $10 - $50) + additional fees based on which platforms you choose. For example, if you want support in administering benefits or access to an ATS (Applicant Tracking System) to support recruiting, you’ll pay more for those.

EOR, or Employer of Record is similar to a PEO, but is used for workers outside of the United States. So, if you hire someone in Canada or South America, you can pay a monthly fee for someone to become the Employer of Record for this person while you remain the day to day supervisor.

Cost? For a monthly fee, they’ll provide payroll, remit taxes, assist with employment compliance related issues, and help administer benefit programs. Cost? I’ve seen it as low as $200 PEPM up to $400 PEPM.

When does it make sense to move away from an EOR?

Most global companies, utilize an EOR for a few years while they initially operate and then move to open an entity within the country when they have created a decent sized group of employees within one localized country (25+ FTE’s). Costs will vary based on the country and the amount of employees you hire.

It’s common to see a PEO arrangement combined with EOR for companies under 50 people.

Are you wondering whether or not it’s time to take the next step for your org, let us know.

#cancelyourpeo #nextlevelhr #outgrowyourPEO