PEO vs ASO: which one should run your HR?

PEO vs ASO at a glance

Co-employment vs administrative services only

A PEO splits the employer role with you. The IRS describes PEOs as organizations that handle payroll administration and tax reporting for clients, usually for a fee based on payroll costs. For a certified PEO, the tax code (26 USC 7705(e)(2)) describes a contract where the PEO pays wages and employment taxes, shares responsibility for recruiting, hiring and firing with you, and keeps the employee records. You still run the business and direct the work.

An ASO works for you, not alongside you. It runs payroll, benefits administration and HR services, but your company stays the only employer of record. You keep your EIN, your state accounts, your health plan and your workers' comp policy. The term "ASO" is not defined in the Internal Revenue Code or on the IRS pages we read, so what an ASO includes depends entirely on the contract.

In practice, the closest priced alternative to an ASO for a small business is payroll software with HR tools or advisors, which also leaves you the sole employer. Our HR outsourcing guide compares all four routes, and PEO vs payroll service runs the cost at 5, 15 and 40 employees.

Who is liable for payroll taxes

This is the biggest legal difference, and it depends on whether the PEO is IRS-certified.

• Certified PEO (CPEO). Under 26 USC 3511(a), for wages a CPEO pays to a worksite employee, the CPEO "shall be treated as the employer (and no other person shall be treated as the employer)" for federal employment taxes.
• PEO that is not certified. You generally stay liable for your employment taxes, even though the PEO files and pays them.
• ASO. You are liable, the same as with any payroll service.

Other CPEO rules worth knowing:

• Wage bases carry over. The CPEO is treated as a successor employer, so Social Security and FUTA wage bases do not restart when you join or leave a CPEO mid-year (3511(b)).
• Tax credits stay with you. The research credit, work opportunity credit and small employer health insurance credit remain yours (3511(d)).
• The 85% rule. At least 85% of the people working for you at a work site must be covered by the CPEO contract (7705(e)(3)).
• A bond backs it. A CPEO posts a bond of the greater of 5% of prior-year employment tax liability (capped at $1,000,000) or $50,000 (7705(c)).

Check a PEO's legal entity name on our IRS certified PEO list. Justworks, TriNet, Insperity, ADP TotalSource and Paychex all have entities on the IRS active list (report date August 7, 2026).

Benefits buying power: does a PEO get you a better health plan?

The usual reason to pick a PEO over an ASO is access to large-group health plans. The evidence from buyers points both ways:

• A founder on Hacker News said TriNet plans were about 30% cheaper than Zenefits quotes for the same carrier (HN, an older comment, more than a year old).
• An ADP TotalSource client found a better policy at about 75% of the cost by shopping on her own (Capterra, May 24, 2024, more than a year old).
• Another ADP TotalSource reviewer said the plans were "limited to just Aetna health plans that increase every year" (Capterra, March 31, 2025, more than a year old).
• Renewals rise. ADP TotalSource reviewers on Capterra reported +8% in 2025 (April 2025 review) and +18% in a second year (May 2024 review), both more than a year old, and a 2026 market summary cites increases of 20% or more on about 10% of small group filings (Nayya, citing KFF).

An ASO cannot give you pooled plans; you keep whatever your broker can get for your group. If you already have a plan your staff like at a price you can live with, that is the strongest case for an ASO. If you have no plan, or a small group with poor quotes, get a PEO quote and a broker quote for the same plan design and compare the employer share line by line.

What each costs: PEO and ASO pricing models

PEOs charge one of two ways. ADP describes them as a fee "calculated as a percentage of total payroll" or "set as a dollar amount per employee," and puts the industry range at "2% to 12% of total payroll or about $40 to $160 per employee per month." Here is what that means for 10 employees earning $60,000 each ($600,000 of payroll):

The fee is not the whole bill. With a PEO, health premiums and workers' comp flow through the PEO invoice; with an ASO, you pay them directly to your carriers. Compare totals, not fees. Our PEO cost breakdown adds taxes and premiums for the same 10-person team, and the employee cost calculator does it for one hire in your state.

PEOs and ASO providers compared

Scores come from our published criteria, mostly price transparency, contract terms and documented complaints, not hands-on testing. See our scoring method.

The full ranking is in the best PEO companies.

PEO or ASO: which fits your business

Switching between a PEO and an ASO

Moving from a PEO to an ASO means taking back everything the PEO held in its name. Plan it around your health plan year so deductibles do not reset mid-year.

• Benefits: set up your own health plan through a broker before the PEO plan ends.
• 401(k): the PEO plan has to be moved to your own plan. Reviewers describe missed employer contributions in PEO 401(k) migrations (TrustRadius, August 23, 2026).
• Workers' comp: buy your own policy so coverage does not lapse on day one.
• Wage bases: leaving a CPEO mid-year does not restart Social Security and FUTA wage bases.
• Exit fees: no PEO in our research publishes its exit terms. A Gusto guide (a competitor source, August 2, 2026) says Paychex PEO contracts carry a transition fee and an early termination fee based on headcount and days left. Deel's 2026 PEO promotion needs a minimum two-year term, with full list price owed on early exit.

Common PEO vs ASO mistakes

• Assuming every PEO takes on your tax liability. Only a certified PEO does, and only for federal employment taxes on wages it pays.
• Comparing the admin fee and ignoring premiums. Health premiums usually cost far more than the fee.
• Signing for year-one pricing. Ask what the renewal cap is in writing.
• Calling an ASO a PEO, or the reverse. The contract decides who is the employer, not the sales label.
• Leaving mid-plan-year and making employees restart deductibles.
• Skipping the payroll-only option. If you mainly want payroll and HR help, see payroll software with HR tools and in-house vs outsourced payroll.