If you run a business in California, you’ve probably heard of ASOs and PEOs. These acronyms pop up a lot when it comes to managing HR tasks like payroll, benefits, and workers’ comp. But what do they actually mean? And more importantly—how do you choose the right one for your business?
In this guide, we’ll break down ASO vs PEO, explore how California laws affect your choice, and give real-world examples to help you make an informed decision.
What Do ASO and PEO Stand For?
Let’s start with the basics.
- ASO stands for Administrative Services Organization.
- PEO stands for Professional Employer Organization.
Both provide HR support, but they differ in how they work with your business.
Key Difference: Who’s the Employer?
The most important difference comes down to employer responsibility.
- With an ASO, you remain the legal employer. The ASO handles administrative tasks like processing payroll, filing taxes, and keeping track of compliance paperwork—but your business holds all the responsibility for employees.
- With a PEO, there’s a co-employment arrangement. That means the PEO becomes the employer of record for tax and insurance purposes. You still run the business and manage your staff, but the PEO shares certain legal and administrative responsibilities with you.
A Quick Example:
Let’s say you own a café in Los Angeles with 10 employees.
- If you use an ASO, you’re still fully in charge of employee benefits, workers’ comp insurance, and compliance with California’s labour laws. The ASO just helps with paperwork and keeps things running smoothly.
- If you go with a PEO, they’ll legally co-employ your team, manage benefits under their larger pool, and even handle things like unemployment claims or audits.
Why This Matters in California
California has some of the strictest employment laws in the U.S.—from minimum wage increases to complex leave policies. Failing to comply, even by accident, can lead to big penalties.
- As of 2025, the statewide minimum wage is $16/hour, with cities like San Francisco and Los Angeles often requiring more.
- California’s Paid Sick Leave Law requires all employers to provide at least 24 hours of sick leave annually, though local ordinances may demand more.
- The California Consumer Privacy Act (CCPA) also adds layers of compliance for businesses handling employee data.
This is where the ASO vs PEO decision really becomes critical.
- ASOs offer flexibility and let you maintain control—great for businesses who already have HR staff or legal advisors on board.
- PEOs, on the other hand, often reduce risk by handling complex compliance issues for you, which can be a life-saver in California’s regulatory environment.
Cost Comparison: Which One is More Affordable?
Money matters—especially for small and mid-sized businesses.
- ASOs typically charge a flat fee per service or per employee. You only pay for what you use.
- PEOs usually charge a percentage of your payroll (commonly 2% to 12%), but this includes bundled services like health insurance, workers’ comp, and risk management.
Here’s an example:
- A 15-person company with a $750,000 annual payroll might pay an ASO around $15,000 to $30,000/year for basic services.
- The same company using a PEO might pay $30,000 to $90,000/year, but get full-service HR, compliance coverage, and access to better insurance plans at group rates.
When an ASO Makes Sense
Choose an ASO if:
- You want to keep full control of your workforce.
- You already have a solid HR team or legal partner.
- Your business is in a stable, low-risk industry.
When a PEO Is the Better Choice
Go for a PEO if:
- You’re growing fast and need HR help now.
- You struggle with compliance (especially in California).
- You want access to better benefits to attract talent.
In fact, a 2023 study by the National Association of Professional Employer Organizations (NAPEO) found that businesses using a PEO grow 7–9% faster and are 50% less likely to go out of business compared to those that don’t.
Conclusion: Making the Right Call for Your California Business
At the end of the day, choosing between an ASO and a PEO isn’t about which option is better—it’s about which one is better for you. If you’re confident in managing HR responsibilities and just need support behind the scenes, an ASO offers flexibility without giving up control. But if you’d rather hand off the heavy compliance lifting—especially in a regulation-heavy state like California—a PEO can be a strategic partner in your business growth.
Think about where your business is today, where you want it to go, and how much risk you’re willing to shoulder. Whether you pick an ASO or a PEO, making an informed choice now can save you headaches—and potentially big penalties—down the road.
