When comparing costs between a PEO and an ASO, the primary difference lies in the fee structure and the scope of services provided.
Professional Employer Organizations (PEOs) typically charge higher fees because they assume employer-of-record duties and handle full compliance and risk mitigation. Their fees generally range from 3% to 8% of total payroll, though some models may charge between 2% and 10%. Despite these higher service fees, PEOs can provide small businesses with significant savings of 15-25% on total HR expenses by offering access to premium employee benefits at lower group rates through economies of scale.
Administrative Services Organizations (ASOs) offer a lower-cost alternative by providing administrative support without the transfer of risk or co-employment status. ASO fees are usually service-only, often ranging from 1% to 3% of payroll. While ASOs have lower base fees and offer more flexibility, they do not provide the same level of risk sharing or benefit-pooling advantages as a PEO. Additionally, businesses using an ASO should be aware of possible variable pricing and potential hidden fees, such as implementation or termination charges.
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