Administrative Services Outsourcing (ASO) vs. Professional Employer Organization (PEO) Cost Comparison
One significant challenge with the Professional Employer Organization (PEO) arrangement can be understanding your costs. Typically, a PEO will present their pricing in one of two formats, a bundled rate including employer portion of payroll taxes (SUTA, FUTA and FICA), workers' compensation, and admininistrative fees, or a flat fee per employee for administrative fees plus a bundled rate including the employer portion of payroll taxes and workers' compensation.
Most businesses in a PEO relationship today admit they do not have a clear understanding of the costs charged by their PEO. Typically, this is due to the rate being bundled and although the customer may know the total overall cost charged by the PEO, they do not know what they are paying for payroll taxes, workers' compensation, or in most cases administrative fees specifically.
Professional Employer Organization (PEO) Administrative Fees
In the PEO arrangement, administrative fees can range from to 2% to 6% of gross wages and the rate may vary based on the services you use and what industry you are in; industries with lower wage employees may pay a higher percentage of gross wages. PEO's also have to factor in their workers' compensation costs that can range from less than 1% and up to 15% of gross wages for each employee based on their individual workers' compensation classification; office/clerical employees are typically at the low end with manufacturing or construction classifications being much higher. Typically, administrative fees charged by PEO's range from $1500 to $2500 per employee per year on average but can vary based on the negotiated services included within the PEO arrangement.
Administrative Services Organization (ASO) Administrative Fees
In the ASO arrangement, fees are typically charged as a per transaction or per employee flat rate and you pay only for services purchased. Unlike the PEO arrangement where the bundled rate includes the employer portion of all payroll taxes, the ASO arrangement allows you to retain your own SUTA rate and although the ASO may manage these payments for you, you typically know what your exact costs are at all times. Similarly, workers' compensation is retained by you and although the ASO may manage these costs for you, you know what your exact costs are at all times. Typically, administrative fees charged by ASO's range from $600 to $1800 per employee per year on average but like the PEO, these fees can vary based on the services included within the ASO arrangement.
ASO vs. PEO - "Apples to Apples" Cost Comparison
Although the ASO and PEO can be similar in services offered, the cost difference can be significant depending upon the services included. Typically, the ASO can cost less than the PEO for similar services but keep in mind that you will retain all liabilities and repsonsibilities for compliance. One advantage the PEO arrangement presents over the ASO is the assumed "transfer of liability" created in the PEO arrangement. When comparing the ASO to PEO, each business will need to decide whether the "transfer of liability" is real and beneficial based on their individual circumstances among many other factors.
Why Solid Business Solutions?
At Solid Business Solutions, we realize every business is unique and offer both a PEO Solution and an ASO Solution accommodating our clients need to cost-effectively outsource administration of payroll, human resources, employee benefits, and workers' compensation to us as a single point of contact and manage employer related risks and responsibilities on their behalf.
To learn more about Solid Business Solutions or to speak with a representative, contact us today at (888) 762-2075.
See also: PEO vs ASO Comparison