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Understanding The Options Like a PEO, ASO, or HRO to Grow Your Human Resources Function

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Last Updated on November 2, 2022 / HR Strategy

Question:

As a growing employer, we are getting to the point that we need someone to take over the human resources function.  As the Controller, I have been handling payroll and benefits but as we get bigger, it is becoming more difficult to handle.  I have had a few colleagues recommend using an outsourced HR option like a PEO, ASO, or HRO .  What does that mean and how would that impact our company?

Answer:

First congratulations on your growth!  It is fabulous that you are growing but with it comes significant challenges for your human resources function.  The good news is there are lots of options and considerations as you move into this next stage.  A brief summary of the options is included below.  Regardless of the direction, be sure you do your homework – ask lots of questions and get references.  Not all PEO, ASO, or HRO agencies look / act the same – you need to make sure you know the difference and what services you are getting.

One option is a PEO – a Professional Employer Organization.  A PEO handles most of the administration of certain HR operations such as payroll processing, health insurance administration, state unemployment insurance, and worker’s compensation.  

Reasons a PEO may be a good solution for your business are:

  • If you need to offer health insurance but are either too small to get reasonable rates or have a high risk workforce.
  • If your workers compensation costs are too high and you need a group rated program to help obtain the coverage at a reasonable rate.

Issues to consider with a PEO:

  • The PEO will employ your employees and lease them back to you.
  • Your organization will need to comply with employment laws based on the size of the PEO not the size of your business (i.e. if you are under 50 employees, you may have to comply with laws required for companies over 50 such as FMLA and ACA)
  • Most PEOs are purely administrative and do not help with employee relations coaching and recruitment of key talent.

Another option is using an ASO – an Administrative Services Organization.  An ASO will handle the administrative aspects of your business.  For example, you may hire a payroll provider that will process your payroll and payroll related taxes.  You may also hire an ASO for benefits management, workers compensation, or unemployment compensation.  Things to consider with an ASO is that they are handling the administrative tasks only, you will still be responsible for “feeding the information” to the provider to get the job done which in many cases is half the work.

A third option is using an HRO – an Outsourced HR Solution to assist with the management of your human resources function to allow you to focus on the strategic initiatives of the business rather than the operations of HR. Just like any large organization with an HR Team, an outsourced HR provider should align with your strategy through the management and administration of all aspects of HR such as:

  • Recruitment
  • Onboarding
  • Training and Development
  • Employee Surveys
  • Compensation and Benefits (i.e. job descriptions, compensation structure, benefits, and workers compensation)
  • Communications (i.e. employee handbook)
  • Employee Relations
  • Recordkeeping (i.e. processing payroll in-house or with a provider)
  • Health, Safety and Security
  • Workplace Compliance

All three options: PEO, ASO, or HRO will help take some of the duties off your plate, they just do them in different ways and in varying levels.  Be sure you understand the cost and impact of all of these options before diving in.  Many become a commitment for at least a year so step lightly.

 

When you are in the infancy stage of an HR Department, oftentimes your “strategy” is to just get things up and running. There is so much to Human Resources Management that it can be difficult to know where to start while being confident you aren’t forgetting something important. Strategic HR feels your pain having helped many small companies start or grow their HR function. Let us share our years of experience getting HR “off the ground”.  Visit our website today to learn more.

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