ASO versus PEO: Which one is right for your business?

As your business grows, so too does the complexity of managing HR, payroll, benefits, and compliance — which is where outsourced HR solutions come into play. But choosing the right model can be overwhelming.

Two common solutions are administrative services organizations (ASOs), and professional employer organizations (PEOs). These two models often appear similar on the surface, but the differences between them can significantly impact how you manage your workforce. Whether you're scaling rapidly or just starting to outsource HR functions, understanding the differences between PEOs and ASOs is crucial.

In this guide, we'll explore the key differences, similarities, pros and cons, and how to choose the right solution for your business. So let’s jump straight in.

What is an ASO?

As mentioned, ASO stands for administrative services organization. It’s a type of third-party provider that helps your business manage HR tasks, without becoming a co-employer (more on that below).

What services does an ASO provide?

ASOs typically offer:

• Payroll processing and tax filing
• HR administration and compliance assistance
• Benefits administration
• Risk management support
• Employee handbooks and HR policies
• Workers’ compensation administration

It’s important to note that, with an ASO, you retain full legal responsibility for your employees. The ASO provides support — not shared liability.

Pros of an ASO

• Full control over employment practices
• Flexible support for in-house HR teams
• No shared employer responsibilities
• Easier to scale or transition from
  
  

Cons of an ASO

• No access to large-group benefits
• You bear all the compliance and legal risk
• Less comprehensive support than a PEO

What is a PEO?

PEO stands for professional employer organization, and is also a type of third-party HR services provider. However, unlike ASOs, PEOs operate on a co-employment relationship with your business, meaning it shares certain legal responsibilities for your employees.

Learn more: What is a PEO and what does it do?

What services does a PEO provide?

PEOs typically offer:

• Everything an ASO does (payroll, compliance, benefits, etc.)
• Co-employment and shared legal responsibility
• Access to large-group employee benefits (depending on the PEO)
• Help with hiring, onboarding, and even termination
• Support with employment-related risk and liability

It’s important to note that PEOs are not the same as an employer of record (EOR). A PEO never becomes the sole legal employer of your workforce, nor can it hire employees on your behalf in other countries. We will discuss this in more detail further in the article.

Pros of a PEO

• Access to better benefits
• Shared compliance and legal risk
• Streamlined HR support
• Useful for small teams without HR infrastructure

Cons of a PEO

• Less control over employment decisions
• The co-employment model may not suit all industries
• Transitioning out can be complex

PEO vs ASO: The key differences

PEO vs ASO: Which one should you choose?

When choosing whether to work with a PEO or an ASO, there are several factors you need to consider, such as your company size, your internal resources, your risk tolerance, and your growth plans.

When to use a PEO

A PEO may be a better fit if:

• You’re a small or mid-size business without a dedicated HR team
• You want to offer competitive benefits to attract talent
• You’re concerned about compliance and want to share risk
• You need help managing employee relations, onboarding, and terminations

When to use an ASO

Alternatively, an ASO may be more suitable if:

• You have an internal HR team and just need support, not co-employment
• You want to retain control over tax filings under your own tax ID
• You prefer not to share legal responsibility for employees
• You already have benefit plans in place and don’t need access to larger pools
  
  

A real-world scenario: Startup vs scaling SMB

Let’s say that your business is a 20-person startup with no HR department. Based in the US, you’re planning to expand into multiple states, and need immediate help with compliance, benefits, and hiring. In this scenario, a PEO likely makes more sense, as you get a co-employment partner to manage the expansion risk and offer robust benefits from day one.

Conversely, imagine that you’re a 120-person company with two HR managers. These managers want help with payroll and compliance audits, but they don’t want to hand over employer responsibilities. An ASO gives them that flexibility.

What about EORs?

Another potential option is to use an employer of record (EOR). EORs are often confused with PEOs, but there are some key differences and they typically suit different scenarios.

The biggest difference is that EORs legally hire your team member(s) on your behalf — there is no co-employment arrangement. This means that the EOR assumes full legal responsibility for your team member(s).

See also: What is an EOR, and how does it work?

The biggest benefit of this is, if you’re hiring (or planning to hire) abroad, you don’t need to set up a legal entity in those locations. You hire them through the EOR’s entity, which can save you significant amounts of time and money.

Like PEOs, EORs handle:

• Compliance with local labor laws
• Payroll and tax withholding
• Benefits administration
• Contracts and onboarding
• Termination and offboarding

It’s usually more advisable to use an EOR if:

• You want to hire team members in a new country quickly and compliantly
• You don’t have a local entity in that country, and want to avoid the cost and complexity of setting one up
• You need a flexible and fast way to expand internationally

Learn more: Does your business need a PEO or an EOR?

What’s best for your business?

Understanding the difference between PEO, ASO, and EOR models is essential when deciding how to scale your HR operations. There’s no one-size-fits-all answer — but making the right choice depends on:

• How much control and liability you want to retain
• Whether you need access to large-group benefits
• The size and maturity of your internal HR function
• Your growth plans, both domestic and international

Whatever your needs, Remote has you covered. We provide a fully-fledged PEO service in the US, as well as dedicated payroll and HR management services around the globe. We also offer full entity-owned EOR services in 80+ countries, enabling you to focus on expansion without worrying about costly, time-consuming administration and compliance issues.

If you’re unsure which approach is the right one for your business and you want to learn more — including how Remote can help — speak to one of our friendly experts today.