There will always be that guy or girl who doesn’t understand some of the most basic concepts of a business. Don’t be "that guy"! Business professionals need to know the 3 major types of HR outsourcing services.
In the modern age of growing regulations and responsibilities, virtually every company has outsourced some portion of their HR. The mode of the outsourced HR service has a huge impact on the business operations of the client company. While there are no guarantees, knowing the three major types of HR outsourcing services can help business professionals to not look like an idiot in front of colleagues and business partners.
The first and largest category is the HRO, which stands for “Human Resources Outsourcing”. This is the largest category because the title encompasses any third party that that performs any HR related service on behalf of another company. This type of human resource outsourcing service is characterized by being more able to contract for some or all portions of HR operations.
HRO’s are more likely to specialize in one very specific function, such as employee W2 administration, or pre-employment screening. However, HRO services can include a complete outsourcing of HR services, such as: payroll, benefits administration, training, risk management, recruitment, etc.
Another type of HR outsourcing service is the PEO, which stands for “Professional Employer Organization”. While a PEO is a form of an HRO, it is differentiated by the co-employment relationship. PEO’s enter into a co-employment relationship with their clients, where they become the “employer of record” for all business functions.
This enables the clients to pay for state and federal taxes through the FEIN of the PEO. It also enables their clients employee’s to be covered under their master insurance policies. Compared to the other titles for HR outsourcing services, PEO’s are characterized by assuming all liabilities and legal responsibilities are the employer for the client’s workforce.
The last major type of HR outsourcing service is the ASO, which stands for “Applications Service Organization”. The ASO is similar to the PEO, however they do not enter into the “co-employer” relationship. The ASO provides the same complete HR outsourcing service as the PEO.
However, rather than clients falling under their master insurance policies, clients retain their own insurance policies that are administered and managed by the ASO. Because of this there is less (Or no) sharing of employer responsibilities & liabilities. Since there is no co-employment relationship, clients are able to retain their own SUTA rates, which is an advantage of course if the clients SUTA rate is lower than rate of the HR outsourcing service.
Congratulations on no longer being “that guy”. As employer responsibilities and liabilities continue to increase, so will the need for HR outsourcing services. To reduce business operations expenses, be sure to take a look at HR outsourcing services! In doing so, remember these three different types! For now, knowing the difference between a PEO, ASO, and HRO is a huge step in the right direction.