Did you understand the acronyms in the title of this post? Let us explain them. Before you can make a smart decision on outsourcing your human resources activities to a third party, you need to understand two different types of HR providers: professional employer organizations (PEOs) and administrative services organizations (ASOs). primarily provides ASO services, although we do offer PEO services to small and mid-sized businesses. Before explaining our ASO services, it is easier to first explain PEO services.
Professional Employer Organizations
When partnering with a PEO, your employees become their employees in an arrangement called “co-employment.” Their paychecks, benefits, W-2 forms, and everything else is linked to the PEO rather than to your company. The PEO is the “employer of record” for tax and insurance purposes. You direct the employees’ day-to-day work, but they are the PEO’s employees in all other respects. The primary benefit of this arrangement is that the PEO can offer workers’ compensation insurance at a lower rate than you can because they have more employees on record. They can also get benefits like medical insurance at lower rates for the same reason. This makes them popular for small businesses as a personnel cost reduction service.
There are some disadvantages to the PEO model as well. You may have employee loyalty issues with a PEO. Because the employees are really the PEO’s employees, they may ask to be reassigned to a different client company whenever things get tough for them. If your business faces a challenging situation that puts a lot of pressure on your employees, you may find them attempting to bail out on you. Of course, few PEO firms will actually respond to reassignment requests. After all, they are merely “leasing” your employees for tax and insurance purposes. However, the stigma in employee’s minds is what counts—their pay and benefits come from the PEO, so they feel greater loyalty to the PEO.
Administrative Services Organizations
When you partner with an ASO, your employees remain yours. While your partner handles payroll, benefits, W-2s and so forth, you remain legally responsible for them. You also retain employee loyalty because their paychecks and benefits have your company name on them. It is as if the partnering ASO is really your in-house HR department, but you benefit from much lower HR costs because you are sharing “your HR department” with several other companies. You get the knowledge and expertise of a large experienced HR staff without the full associated cost.
In addition, your company still benefits from lower insurance rates that are available through an ASO. Although it is difficult for an ASO to lower your workers’ compensation insurance due to legal requirements, it can still secure you bulk rates for medical insurance and other benefits. 401K matching is also offered through an ASO—they simply channel some of your cost savings from bulk insurance rates into your employee’s 401K. Finally, they can conduct background checks on your employees at a lower rate because of their higher volume and better connections.
When hired, we become our client’s HR department, and we interact with your employees on that basis. In most cases, you will hire us as an ASO. From their point of view, we are just “those HR guys” and not “the company we really work for,” like in a PEO. If you choose our PEO services, however, we will work hard to ensure your employees understand that they are still your employees.
As both an ASO and a PEO, we offer the full array of payroll services, including withholding and benefits administration. We also assist in recruiting, screening, hiring, discipline, and termination. We know how to be your agent and work with you to find the best employees for your needs—and we can work with your employees at any level of your organization. We not only work with your level-one and level-two employees but with your executives as well, if you desire.
An Employee’s Path Through an ASO
Let’s trace the path of an employee through your organization. Let’s say you’re hiring a Sales Specialist I—a position intended for new college grads who probably won’t stay long-term. You send us the job description and a list of qualifications. We go to work posting it online and at university job boards. We also visit a career fair or two. If you are attempting to meet a diversity quota, we also use appropriate job postings for that diversity group. Then, we start screening applicants according to their qualifications. We look for across-the-board character traits you want in any employee, and we also look at skill sets and experience.
Next, we’ll start interviewing those who pass our initial screening according to your desired qualifications. With our thorough understanding of HR law, we will keep each interview pertinent and well away from any questions or subjects that might cause you problems later. After choosing finalists from our round of interviews, we’ll forward along their resumes to you for a final review. Then, you can either leave the second interviews up to us or hold them with us in a panel setting to choose your new Sales Specialist I.
With your choice made, we will now take care of the hiring paperwork for you. If you wish, we’ll take care of the salary and benefits negotiation. Either way, we will handle the actual payroll distribution, benefits administration, tax withholding, and all related concerns. We’ll come to your office to walk your new employee through the new-hire process and explain their benefits. You will only need to train them and get them started on their first task.
Now let’s say that your new employee messes up a sale big-time—they use unethical high-pressure tactics while trying to get that commission. We come in and help you handle the discipline. While we can’t establish disciplinary policies for you or be the voice of discipline, we can:
- Provide legal counsel
- Prepare required paperwork
- Document and mediate at disciplinary meetings
With our help, you can avoid the potential pitfalls of disciplining your employees, and we can protect you. Also, we’ll do everything in our power to help you get your employee back on track.
Later on, it comes time for the employee to move on. Perhaps they kept using high-pressure tactics you didn’t like, or maybe they are simply moving on to other companies. Whether you are firing them or they are quitting, we handle all the close-out paperwork and interviews. If you are firing them, we deliver the bad news and work hard to protect you from possible litigation. We also handle the remaining loose ends that cannot be tied up immediately, such as W-2 forms and termination agreements.
You can see that the services we provide reduce your workload immensely. You can focus on your business and let us take care of the personnel issues. To get started, you simply need to contact and discuss what you want and what we can provide. We will help you set up your HR policies, select the right services for your needs, and file all appropriate paperwork. We will also explain what we can accept responsibility for and what you must legally retain responsibility for. With us as your provider of HR services, you need not worry anymore about personnel issues. You can let us take care of that work for you while you grow your company. We’ve got your back!