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ASO vs PEO

HomeASO vs PEO
HomeASO vs PEO

General Difference Between ASO & PEO Services

ASO PEO

Who is the employer?

You remain the employer of your employees at all times. The ASO promotes you as great employer for providing the valuable benefits and services the ASO provides and not themselves to your employees. The PEO becomes the “Employer” of your employees and they are pooled with other employees of other PEO clients. PEOs promotes themselves to Employees as their "actual" employer. Employees must list the PEO as their employer for loans and mortgages. This “who is the Employer” discussion can and often does cause confusion, concerns and even sometimes frustration with employees.

Direction & Control

You retain the exclusive right of direction and control contractually at all times. You surrender exclusive right of direction and control to PEO contractually in order to establish co-employment by the PEO of your employees. Some PEO agreements unwisely or on purpose say you can retain this right. However, such language re-establishes you as the legally liable employer by default, increasing liability supposedly offloaded to the PEO for their higher fees.

Small Size is Better and Matters

You retain all "small employer" breaks in a wide array of employment laws for employers. For example: under 100 employees for ERISA and tax qualified plans, under 50 employees, for ACA (Obamacare) including certain tax breaks and potential subsidies, FMLA, ADEA, WARN Act and COBRA for under 20 employees. PEO is a "large employer" and must impose all relevant employment laws on you as a small employer when you would not otherwise need to comply. This places PEO in awkward position of imposing all these tougher rules and laws onto their small employer clients. PEO's often do not disclose this compliance requirement in marketing. This imposition of numerous government rules and regulations designed for large employers increases your costs as a small employer.

Employer Liabilities

Clear traditional “statutory” and "common law" employer liability applies. Legal liabilities are unclear and illusionary in most cases. Both PEO and Client are generally sued as "co-employers". Court weighs evidence on a case by case basis to determine which co-employer is most liable for incident. Client may or may not be covered for acts of others (the PEO).

Protection From Liability EPLI

For acts of Client, Client is covered with Freedomsite's ASO Group Employment Practices Liability Insurance (EPLI) Policy for $2 million aggregately. Risk is clear and insured. PEO may or may not carry EPLI coverage on themselves as "employer" and reliance is on the financial strength of PEO's assets which are usually thinly capitalized and operate on small margin. Some PEO's place liabilities back on Client contractually. Many PEO agreements limit liability altogether and even expect client to indemnify them. A careful review of the PEO agreement is necessary.

Errors & Omissions Insurance

For acts of Freedomsite’s ASO, client is covered with $1 million for HR, Payroll & Benefits advice with Errors & Omissions Insurance. Most PEO's are conducting themselves as the employer and are self-insured and do not cover client entity for their mistakes which may carry joint liability for you as the client.

Fixed Services verses Flexible

Freedomsite’s ASO program saves you about 20-40% over PEO services for the same basic services and is more flexible in regard to service options. PEO, in becoming "Employer", usually must require fixed services and benefits uniform to all clients and employees of the PEO to avoid discrimination and cover their increased costs of compliance with large employer rules and laws.

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Difference Between ASO & PEO Services In Ohio

ASO PEO

Ohio Workers’ Comp Policy

With Freedomsite’s ASO program you retain your own existing policy with Ohio Bureau of Workers’ Compensation (Ohio BWC) and your rights to any group rating or retrospective rating discounts and generous occasional state fund rebates. This also includes the onetime 2015 credit for prospective payment in first half of 2015. According to current Ohio BWC rules, PEOs must maintain policy in name of PEO if they are the federal employer. Client loses group rating or retrospective rating programs and rebates. If PEO is self-insured, Client will lose 2015 credit for switch to prospective payment.

BWC Small Employer Status on experience rating

Most beneficial, with Freedomsite’s ASO program you retain your small size and the insurance element built into the Ohio BWC system for small employers. Small employers are not as credible as large employers when it comes to claims experience. A small employer may have as little as 5% of the cost of a claim go against their experience, providing rate stability for small employers. The 95% difference is “mutualized” and spread out over all 280,000 Ohio employers. PEO is large creditable employer and your same claim will cost the PEO 100% against their experience if they are a state fund PEO or self-insured. One small claim in the PEO environment can push up your rate when PEO must pass along the cost of the claim to you as the client. You lose rate stability and predictability. Any estimated or promised savings goes away quickly if you experience even normal claims. Only the PEO’s client base can absorb claims impact as opposed to all 280,000 Ohio employers.

Self Insured verses Fully Insured

In Freedomsite’s ASO program, you are fully insured in the Ohio BWC system, retaining all rights to group rating and retrospective rating discounts and will never have unforeseen costs and liabilities. Premiums are more predictable. Intentional Tort and indirect employer liability costs are clear and insurable with private Employer’s Liability Insurance. PEO’s are usually “Self-Insured” and you should know their financial standing and ability to pay claims. Many large out of state self-insured PEO’s use privately owned off shore captives and follow no US or Ohio laws. They do not address Workers’ Comp liability for Intentional Torts or indirect employer liability. Employees usually are ask to sign forms accepting these out of state self-insured arrangements and giving up their right to Ohio Workers’ Comp benefits.

Workers’ Comp Risk Management

With Freedomsite’s ASO program, we work with a Third Party Administrator – “Comp Management”, to control costs, access discounts and will not require costly risk management services required by the PEO. While well meaning, self-insured PEOs tend to have preoccupation with controlling claims costs and often require more control over the workplace. This includes required safety inspections and risk management programs which may require expensive modifications to buildings, work environments and expensive equipment changes.

Ohio State Unemployment Tax

With Freedomsite’s ASO program, Client is considered the employer for state unemployment tax (SUTA) as with PEO. However, Federal Unemployment Tax (FUTA) and SUTA will match and you are assured of the FUTA state credit. While FUTA is paid by the PEO, under their Federal ID #, Ohio State Law requires that the PEO report SUTA under Client’s ID#. In some states such as Michigan, Georgia and others, PEO’s may be charged a higher FUTA rate if state unemployment divisions of the state will not certify SUTA paid by client against the PEOs FUTA losing a 5.4% credit for the PEO. This causes the full 6% FUTA tax rate to be charged to the PEO who then passes it along to the client instead of only .6%.

Group Health Insurance Policies

With Freedomsite’s ASO program, Client maintains own plan and retains any rights to tax breaks and subsidies with ACA (Obamacare) for employers with fewer than 50 employees. Freedomsite’s licensed insurance agency shops all available plans in the marketplace for each Client without preexisting conditions and health questions. Client has additional options to both use alternative individual plans and no longer provide group sponsored health insurance or an array of partially self-insured options and HSA, HRA and High Deductible plans with FSA. The PEO is large employer and subject to 50 plus employee rules, including complicated discrimination testing and required benefits. Unless they are self-insured, they must impose these rules on their small employer clients with less than 50 employees. However, PEOs domiciled in Ohio must maintain group health insurance policies in client’s name due to the Ohio Department of Insurance rules requiring compliance with Ohio’s Small Group Reform Act. This Act mainly protects small businesses from large rate increases by insurance carriers. Unlike pooled fixed rates under Obamacare and ACA, self-insured PEOs have no choice but to pass along large rate increases to their clients who experience bad claims experience. There is no rate protection of the Ohio Small Group Reform Act for clients of self-insured PEOs.

Group Health Insurance Fully Insured or Self Insured

With Freedomsite’s ASO program your individual or group health insurance products in your name are fully insured or partially self-insured if requested. PEOs are attractive to large (over 50 employers) because they are both required to comply with the over 50 employee rules of ACA-Obamacare. To avoid this complicated compliance they create self-insured health plans. It is very important to understand the financial stability of the PEO to manage and maintain these plans. Because they are outside of the jurisdiction of the State of Ohio Department of Insurance, there is no oversight of these plans if something goes wrong. There is no limit on the amount of increase that can be given to a small client due to claims without the Small Group Reform Act protection. In most cases, clients of PEOs are forced to provide COBRA, even if under 20 employees.

ERISA Compliance

Employee Retirement and Income Security Act as amended (ERISA) now requires all employers to provide employees with Summary Plan Descriptions (SPDs) for all benefit plans and provided Modified Plan Descriptions (MPDs) with any changes or face fines and penalties of up to $100.00 per day per employee and lose exemption from filing 5500 tax returns for each plan if they have less than 100 employees. Freedomsite’s ASO program provides full compliance with ERISA with a product called “ERISA Edge” provided by a third party partner “TASC”. They provide $1 million of coverage for any issues with ERISA compliance due to any errors or omissions. PEO’s should provide ERISA required SPDs and MPDs. However, there is no protection if they do not. Because the PEO is an over 100 employee employer, they must file annual 5500 tax returns for all their benefit plans and conduct expensive annual audits of the plans adding costs to their services. PEOs pass along the costs in higher fees. ASOs avoid this cost altogether for their clients with less than 100 employees.

Ancillary Benefits

Freedomsite’s ASO program provides generous access to large corporation style group Life, Disability, Dental, Vision, Accident and Critical illness insurance coverage. The rates are usually much lower than you can obtain on your own as a small employer because these benefits are provided on a large group association plan. The group buying power holds down the premium costs. Freedomsite’s Group Ancillary Benefits provider is “Guardian Life Insurance Company”. Like with ASO, PEOs offer the same large group style ancillary benefits with group buying power.

401K Retirement Plan

The 401k Plan with Freedomsite’s ASO program is a Multiple Employer Plan (MEP) and clients relieve themselves of ”Trustee” responsibility and insurance requirements. Because of the large size of the MEP (over $8 million in assets in Freedomsite’s MEP), clients and employees can save as much as 50-80% on the loads and fees charged for deposits. Clients save on shared cost of administration of the MEP. Each client can pick and choose the level of matching contributions they wish to make including none. Freedomsite's MEP is provided by “Transamerica” which is the second largest 401k provider in the US. PEO’s who provide 401k plans to your employees are required to provide Multiple Employer Plans (MEPs) if they are the sponsor and so it is the same for ASO and PEO. However, some PEOs choose to ignore the obvious cost savings and benefits of an MEP 401k plan for their clients and opt instead to place clients in their own Single Employer Plan (SEP) 401k in client’s name. The problem here is that this requires the Client to be the legally liable “Trustee” of the SEP 401k, maintain insurance and bonding coverage, file annual IRS form 5500 tax returns, and if over 100 employees perform expensive audits. And of course pay higher administration fees for the plan than is necessary. PEO’s who do this are usually attempting to collect higher PEO fees and earn larger commissions paid by 401k providers. This SEP approach can increase your costs as much as 400% over the MEP approach.