Four Types of HR Providers:

Astute company leaders know that their employees are the backbone of their business. Supporting them with a strong human resources department helps the organization thrive. 

However, employing a full-service HR department is not always viable for most small businesses. After all, keeping experienced HR professionals on the payroll can be expensive. According to the Society for Human Resource Management,¹ the average cost for HR man-agement and administrative tasks in house can cost close to $3,000 per employee, per year, depending on the number of employees your organization has. And these costs can quickly add up. Research suggests outsourcing HR services can help to reduce costs by approximately $450 per employee.

Outsourcing your HR administration is often more cost-effective and you have various options when it comes to selecting HR providers or outsourcing companies for your business. These HR providers offer different levels of service and specialization to help the unique needs of organizations like yours. 

When choosing an HR provider, you should carefully assess your specific HR needs, budget constraints and long-term goals. It is essential to conduct thorough research, check references and evaluate the provider’s track record to align with your requirements and values. Additionally, you should consider whether a single provider can meet your HR outsourcing needs or if multiple specialized providers are required for a comprehensive solution.

1. Best HR Outsourcing Services. (February 2024)—Forbes Advisor.

Four Types of HR Providers

The four major type of HR providers:

1. Professional Employer Organizations (PEOs)
2. Administrative Services Organizations (ASOs)
3. Specialized Human Resources Organizations (SHRO)
4. HCM SAAS 

1. PROFESSIONAL EMPLOYER ORGANIZATIONS (PEOs):

A PEO is an HR services provider that works with businesses to help manage various HR functions. In a co-employment relationship, the PEO, as the co-employer assumes certain employer-related responsibilities as described in the contract. While the client retains control over day-to-day operations and employee management, the PEO typically manages HR tasks such as payroll processing, benefits administration, payroll tax administration and risk mitigation. This arrangement allows the PEO to deliver cost-effective HR services and access to benefits, and you to gain access to HR expertise, reduced administrative burdens and greater value for your HR spend.

• Cost savings: PEOs can provide cost-effective HR solutions for your company through economies of scale. These economies of scale extend also through their ability to offer HR expertise and best practices that can help reduce HR administration costs, streamline HR processes and mitigate risk, and often providing more predictable HR administration costs.
• Access to comprehensive benefits: PEOs typically offer access to a wider range of employee benefits, including health insurance, dental and vision coverage, retirement plans, and more. You can provide your employees with access to these benefits, helping you to be more competitive in attracting and retaining talent.

Outsourcing HR functions to a PEO allows you to concentrate on your core business activities to drive greater growth.³

• Focus on core business: Outsourcing HR functions to a PEO allows you to concentrate on your core business activities to drive greater growth.³ You can delegate time-consuming HR tasks, such as payroll processing, benefits administration, and HR compliance best practice and guidance, to experts, freeing up your resources to focus on strategic growth initiatives. 
• Attracting and retaining talent: Offering access to competitive benefits and professional HR services through a PEO can help you attract and retain top talent.⁴ This is especially important in a competitive job market where employees seek comprehensive benefits and a positive work environment.
• HR expertise: Employment-related rules and requirements can be complex and change frequently. PEOs have HR professionals who provide HR expertise and can help you navigate this ever-evolving landscape. This helps to reduce the risk of costly HR errors and potential non-compliance issues.⁵
• Risk mitigation: PEOs assumes certain employer-related responsibilities as described in the contract, typically including administration of employment taxes for wages paid through the PEO platform, access to workers’ compensation insurance, and administer and manage unemployment claims. Many PEOs also provide employment practices liability insurance (EPLI) that further helps to mitigate employment-related risks. This risk mitigation can help you avoid risk, manage compliance and control costs.

3. Find a PEO—NAPEO. Your results may vary. 

4. Ibid. 

5. How PEOs Help With Risk Management—businessnewsdaily.com.

PEOs help handle administrative tasks such as payroll processing, payroll tax filings and benefits enrollment, reducing administrative burdens and helping to ensure accuracy and HR compliance

Access to HR technology: PEOs often provide access to advanced HR management software and technology. This can streamline HR processes, improve data accuracy and enhance reporting capabilities, which can be particularly beneficial if you are lacking robust HR technology infrastructure.

• Employee development and training: Some PEOs offer training and development tools for employees, which can contribute to workforce improvement and career advancement opportunities.
• Scalability: PEOs can adapt to your changing needs as they grow. Whether the business is expanding or downsizing, PEO services can scale, accordingly, providing flexibility and scalability without the need for extensive internal HR resources.
• Administrative simplification: PEOs help handle administrative tasks such as payroll processing, payroll tax filings and benefits enrollment, reducing administrative burdens and helping to ensure accuracy and HR compliance.
• Employee relations support: PEOs can help guide you through complex employee relations questions so you can maintain a harmonious work environment.

It is important for you to carefully evaluate PEO providers to ensure they align with your company’s specific needs and objectives. Each PEO may offer different services, have varying levels of expertise as well as different cost structures, so conducting due diligence and considering the long-term benefits and value is essential before deciding. 

2. ADMINISTRATIVE SERVICES ORGANIZATIONS (ASOs):

ASOs are a type of HR outsourcing provider that offer a range of administrative HR services to businesses helping with payroll processing, benefits administration, HR compliance, and more. ASOs can assist organizations in managing their HR functions more efficiently and effectively.

Although similar on the surface, there are some specific differences distinguishing ASOs from PEOs. For example, ASOs do not become employer of record for tax purposes6 and that can impact what types of services they provide. (See sidebar Choosing Between a PEO and ASO.)

Here is an overview of services ASOs typically provide:

• HR administrative support: ASOs provide a wide array of administrative HR services,7 including payroll processing, benefits administration, payroll tax compliance support, time and attendance tracking, and HR recordkeeping. Like PEOs, they help handle the administrative tasks that can be time-consuming for businesses.
• Customized solutions: ASOs may offer flexibility and customization of its solutions, allowing businesses to choose the specific HR services for which they need outsourced help. This tailored approach can enable organizations to address their unique HR challenges and align services with their budget.
• HR compliance support: ASOs often specialize in compliance support, helping businesses navigate complex employment-related rules and requirements. They assist with payroll tax filings, payroll compliance and other requirements, helping reduce the risk of costly compliance errors.
• Scalability: ASOs can adapt their services to accom-modate a company’s growth or changing HR needs. 
• Cost efficiency: By outsourcing HR administrative tasks to ASOs, businesses can often reduce their internal HR staffing costs and improve efficiency. ASOs leverage their expertise and technology to help streamline processes and minimize errors.
• Enhanced focus: Outsourcing administrative HR functions to ASOs allows organizations to focus on their core business activities and strategic objectives.
• Access to technology: Many ASOs provide advanced HR technology solutions, including payroll processing software, time tracking systems and employee self-service portals.
• Employee self-service: ASOs often offer self-service tools that empower employees to manage certain HR-related tasks independently, such as updating personal information, accessing paycheck stubs and requesting time off.

ASOs offer you a solution for streamlining HR administrative tasks, providing HR compliance support and optimizing HR processes. Their flexibility, cost-efficiency and expertise may make them a good choice for businesses looking to enhance their HR operations while maintaining control over their workforce.