The difference between a professional employer organization and an administrative services organization, how each handles payroll, taxes, benefits and workers’ comp, what each costs and how to choose between them.
With a PEO, your business and the PEO share certain employer responsibilities through a written co-employment agreement. Your employees appear on the PEO’s payroll for tax purposes, and they can enroll in the PEO’s benefit plans. With an ASO, there is no co-employment. The ASO is a service provider working for you, like an outsourced HR and payroll department. You remain the only employer of record, and everything runs under your name and tax ID.
See how EZTime works for your industry, from time tracking to shift scheduling.
| Area | PEO | ASO |
|---|---|---|
| Employment relationship | Co-employment | You are the sole employer |
| Payroll tax filings | Usually under the PEO’s tax ID | Under your own tax ID, prepared by the ASO |
| Health and other benefits | Employees usually join the PEO’s plans | You keep or buy your own plans; the ASO may help administer them |
| Workers’ compensation | Often through the PEO’s program | Your own policy |
| Federal employment tax liability | Shared or, with a certified PEO under a qualifying contract, generally shifted to the PEO | Stays with you |
| Pricing | Per-employee fee or percentage of payroll, plus benefits | Usually a per-employee fee for services |
| Ease of leaving | Harder: benefits, workers’ comp and tax accounts change | Easier: plans and accounts are already yours |
For more on tax liability with a certified PEO, see our certified PEO guide.
Our PEO decision guide goes into more detail.
With either model, you still direct the work, set schedules, supervise employees and make hiring and firing decisions. You remain responsible for many workplace laws, including paying non-exempt employees correctly for all hours worked, following break rules where your state requires them, and keeping a safe workplace. Both providers pay employees from the data you send. If the hours are wrong, the pay and the tax filings will be wrong too.
Businesses often move between models as they grow. A company might join a PEO at 15 employees to get benefits, then move to an ASO at 150 when it can buy competitive plans on its own and wants more control. Moving from a PEO to an ASO usually means setting up or reactivating your own federal and state tax accounts, buying your own health plan and workers’ comp policy and moving employees to them, ideally at the start of a quarter or plan year to keep tax filings and deductibles simple. Moving from an ASO to a PEO runs the other way. Either change takes planning, so start several months ahead and ask both providers for a written transition timeline.
Our PEO cost calculator can help frame the PEO side.
Two businesses each have about 120 employees. A restaurant group has no health plan and staff turnover is high; it chooses a PEO to offer group benefits quickly and bundle workers’ comp. A manufacturing company already has a well-liked health plan and a good workers’ comp rate; it chooses an ASO to take over payroll and HR administration while keeping its plans and its own tax ID. Both keep their own time tracking and send approved hours each pay period.
EZTime is neither a PEO nor an ASO and does not process payroll. It provides the accurate, approved hours either provider needs: mobile, web, kiosk and NFC clock-in, break tracking, labor rule alerts, timecard corrections with an audit trail, PTO balances and reports in PDF and Excel.
A PEO uses co-employment and usually provides its own benefits and workers’ comp programs. An ASO provides services while you remain the sole employer.
Service fees can be lower, but you pay separately for your own benefits and insurance. Compare total cost.
Yes, but ASOs often suit businesses that already have benefits and insurance in place.
The ASO typically prepares filings, but they are made under your own tax ID and liability stays with you.
Usually, because your benefits, insurance and tax accounts are already in your name.
Yes. Both pay employees based on the hours you report.
Approved hours leave EZTime as payroll-ready Excel or PDF reports for whoever runs your payroll. For a team of 15, EZTime starts at about $30 a month ($2 per employee).