When you started a business, your goals were probably focused around the launch of the product, getting social media followers, and generating revenue. It’s likely that administrative tasks such as processing payroll were at the bottom of your to-do list. That’s where an administrative services organization (ASO) can help. An ASO is a third-party company that manages different administrative elements of a business, allowing the employer to focus on customer service, their go-to-market plan, marketing—or anything else on which they feel their time can be better spent.
Types of administrative outsourcing companies
There are three main types of administrative and organizational outsourcing companies that employers might hire when they need to scale their businesses without breaking the budget.
- Professional employer organization (PEO). This is a co-employment business arrangement where the PEO becomes the employer of record and undertakes human resource management, employee benefits administration, payroll, workers’ compensation, and safety and risk tasks so business owners can focus on building their bottom line. The primary difference between a PEO and ASO is “co-employment.” Co-employment, as part of a PEO, means sharing the employee relationship management. This co-employment relationship is not offered under an ASO.
- Administrative services organization (ASO). An employer would hire an ASO to administer specific employee benefits—rather than provide the actual benefits itself. For example, a flower shop owner may hire an insurance company to process health plan claims but maintain the process of paying the claims.
- Human resource outsourcing (HRO). A business may outsource administrative and operational HR tasks, such as managing benefits and payroll, to an HRO. Many HROs offer product and service bundles that are extremely helpful for a small business looking to scale quickly. The HRO’s involvement can be basic or much more in-depth, depending on the type and level of services required by the employer.
ASO health insurance
ASO health insurance plans are typically geared toward businesses with generally healthy employees to provide coverage for standard healthcare needs, such as doctor visits, prescription medicines, and hospitalizations. Some ASO plans also include dental, short-term disability, and long-term disability coverage.
Common ASO services may include:
- Overseeing health benefits (e.g., COBRA) administration and enrollment
- Managing claims and reporting
- Developing plan summaries
ASO is an alternative benefit option for employers who self-fund employee health benefits instead of offering group health plans. Self-funded health plans allow the employer to assume the financial responsibility for employee costs and claims through the ASO relationship. ASOs alleviate the need of employers to have dedicated staff managing employee benefits, allowing employers to also save money. If the actual health plan claim costs exceed the budget, the employer will be responsible for funding the deficit. However, if the costs come in below budget, the employer sees these funds as a direct surplus.
ASO vs. fully insured
For a self-insured plan under an ASO arrangement, annual funding amounts are based on annual paid claims. If there are fewer claims than anticipated, employers may utilize and redistribute the remaining funds. On the other hand, a fully insured plan requires the insurer to cover any deficits or reduce the premium. Additional factors such as inflation, credibility, administration, weighting, and industry trends often provide employers a lack of transparency as to why plan premiums increase.
ASO risks and requirements
ASO plans present considerable financial risk to employers. Under this arrangement, employers are responsible for all legal and financial responsibilities for all covered claims. Often times, employers in ASO arrangements also invest in stop-loss insurance, in which an insurance company undertakes the responsibility of paying claims that exceed a predetermined amount.
Smaller organizations interested in an ASO arrangement ought to set their stop-loss limit as low as $1,000 per employee, as this is likely much more affordable. In comparison, larger organizations often set their limits to around $10,000 per employee. Because employers would be responsible for any shortages if claims exceed budgeted amounts, catastrophic or unexpected events could be disastrous for employers that do not have stop-loss insurance.
Most ASO providers do not offer life insurance options because of the extensive coverage amounts, or extended healthcare benefits (e.g., retirement savings, critical illness, ancillary benefits). It is in the employer’s best interest to weigh the benefits and risks of each option before making a final decision.
By law, employers are required to provide employees the following benefits:
- Social Security, Medicare, and Federal Insurance Contributions Act (FICA)
- Unemployment insurance
- Workers’ compensation insurance
- Health insurance (for companies with 50 or more full-time employees, including full-time-equivalent employees)
- Family and medical leave
However, some states and local jurisdictions vary and may require expanded coverage and/or benefits to eligible employees, such as paid family and medical leave.
Developing an ASO relationship
Once you decide you are ready to engage with an ASO, there are a few things you will need to get into place first.
- Timeline. Determine when to transition from your current plan, or PEO relationship, and when to roll this out to employees.
- The right team. Get the right people assigned as stakeholders for this project. It will be imperative to have at least one person assigned to manage the healthcare coverage in conjunction with the ASO relationship. Additionally, we recommend having an accountant available, in addition to someone who is familiar with federal and state healthcare regulations.
- Stop-loss insurance. With assistance from your on-staff accountant, determine the stop-loss coverage maximum level per employee.
- Roll out the program. Informing employees is the last step. For many employees, it will be unnecessary to share the ASO relationship details with them, as they will likely only be concerned with the quality and level of health insurance changes and any differences in their regular premiums.
A company that’s looking for administrative help with specific HR needs might find an ASO to be an excellent partner. These employers will enjoy the ability to focus on HR needs rather than getting sidetracked with retirement or improving workers’ compensation coverage rates. Whether it’s payroll processing or regulatory compliance that your business is lacking, VensureHR can be the Business Solutions expert you need. WeWork members get exclusive access to these solutions and more, including a free business wellness consultation and proactive plan developed in partnership with VensureHR.
Julie Dower is a marketing and communications manager at Vensure Employer Services, living in Chandler, Arizona. A mother of twin girls, she holds a master of science in technical communications from Arizona State University and a master of arts in English from Northern Arizona University.
Lizz Morse is a marketing and communications supervisor at Vensure Employer Services. She holds a master of science in psychology from Grand Canyon University and has been published in Attorney at Law Magazine, Real Estate Agent Magazine, and The Good Men Project, among others. Morse has also ghostwritten a number of articles focused on small business administration and operations, appearing in publications such as Thrive Global and Small Biz Daily.