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Summary: Administrative Services Only (ASO) is when a third-party vendor administers an employer-funded health plan.
Administrative services only
Business leaders have a lot on their plate, especially involving people processes. Fortunately, businesses have access to a wide range of human capital services that can help save time and money while freeing them up to focus on other business operations. Administrative Services Only, also known as ASO, is one such solution.
Let’s look closer at ASO agencies, how they work, and why your organization may want to partner with an ASO. You can also learn how ASO is similar to other types of human resources (HR) outsourcing models, as well as the potential advantages and disadvantages of ASO.
Administrative services only or administrative services organization, abbreviated to ASO, is an agency that has been granted the responsibility of managing various HR administrative tasks. These tasks can be anything from supporting HR compliance and training to handling the administrative functions of payroll, taxes, and company-sponsored employee benefits. Consider the day-to-day tasks that your human resource office has to take care of, and there’s a good chance that an ASO agency can take a lot of this off your plate!
It should be noted that the majority of organizations that utilize ASO agencies do so to handle the very complex administrative tasks associated with employer-managed healthcare plans. By forming an agreement with an ASO to administer the plans, employers remove themselves from the daily responsibilities of evaluating and processing claims, troubleshooting billing errors, and more. However, the employer still pays for plan premiums and claims. It is up to employers to initiate stop-loss insurance to protect themselves from catastrophic claims.
How do administrative services only work?
Based on the 2023 Deloitte Global Outsourcing Survey, “around 82% of companies have outsourced at least one HR function.” This demonstrates that organizations are looking to streamline their HR processes and they are trusting HR outsourcing agencies to support this goal.
What makes administrative services only stand out from other types of human resource outsourcing agencies is the level of control and representation that the ASO has concerning your business. In this case, an ASO works in the background, performing administrative tasks related to your organization’s human capital functions. However, they remain “invisible” to employees and vendors because they do not interfere or communicate directly with others or on your behalf. Think of an ASO like a silent partner that remains present and available to help in any area of HR but doesn’t invite themselves to the work party.
Administrative services allow businesses of all sizes to enjoy the third-party administrative solutions normally reserved for large organizations. Since they are flexible, a company may choose from many types of administrative-focused services. In many cases, these are administrative aspects of running the most time-consuming responsibilities, including those that carry the biggest risks. For example, agreeing to handle workers’ compensation case management to maintain employee compliance and data.
Employers will either sign a contract drawn up by the ASO agency, or they will create a custom contract for the services they wish to outsource. The contract states the specific terms of this agreement, including the administrative tasks, the level of support required, confidentiality, ethical and information disclosures, and the costs and time associated with the services. An ASO doesn’t take over the entire function but rather specific tasks that are considered tedious or need more expected coverage than the company has the resources to handle. Everything still remains in control of the company.
Why do companies choose administrative services only?
Administrative services only arrangements are appealing to larger companies that are trying to control costs and reduce liabilities. However, any business can choose to partner with an ASO as there are many time-saving aspects that this relationship provides. Here are some of the reasons why companies choose ASOs.
Convenience of using an ASO
The primary reason businesses decide to connect with administrative services only is to enjoy the convenience it affords. First, HR leaders can take back some of their time. While the administrative members of the third-party service take on the tasks needed to run an effective human resource function, company leaders can focus on other more important aspects of operations and growth.
Secondly, company HR leaders can reduce costs by outsourcing administrative tasks. Even just removing one responsibility can save money because the business doesn’t have to hire a team of dedicated professionals to work for the company. Instead, the ASO gets it done and often works this cost into their service contract.
Reducing risk by partnering with an ASO
No HR practitioner can know everything about every aspect of human resources. Most spend a lot of time and effort to seek out mentors and stay up to date about changes in the industry. However, this can put a company at risk. Laws can literally change overnight, leaving a company vulnerable to compliance issues, ethical concerns, and lawsuits that stem from HR mistakes.
In a recent report from the US. Equal Employment Opportunity Commission (EEOC), there was a 50% upsurge in new employee discrimination lawsuits between 2022 to 2023. According to the Society for Human Resource Professionals (SHRM), a large number of employment laws were altered by the Supreme Court in 2023, leaving businesses scrambling to update their policies and procedures—for things like salary rules, Affirmative Action, religious accommodations, non-competes, and the Family and Medical Leave Act (FMLA). Not understanding and complying with these changes can put any organization at serious risk of an expensive error.
Administrative services only or professional employer organization (PEO)?
While there are many ways that an organization may choose to outsource all or a portion of their human resource responsibilities, the most common include administrative services only (ASO) and professional employer organization (PEO). Employers can choose the right option based on their specific needs. Here’s a quick comparison of ASO and PEO.
Contractual terms of an ASO vs. a PEO
When deciding between an ASO or a PEO to outsource HR tasks, it is important to understand the actual terms of any contract you may be asked to sign. They each have a unique business model. The PEO agreement is one of co-employer with their client, which gives it the right to share decisions and liability. The ASO contracts with its client in a relationship, but it doesn’t make decisions on behalf of nor does it assume the liability of its client.
Management of benefits by ASO or PEO
One of the clearest ways that an ASO is different from a PEO is how it operates in terms of employee benefits. The PEO is in partial control of what benefits and plan administrators it chooses for its employees, including multiple insurance carriers. The PEO has a single insurance carrier to work with, chosen by the employer, which makes it well-trained and knowledgeable about that product line. The PEO can handle insurance enrollments while the ASO directs employees to the individual insurance carriers or back to their client’s in-house benefits manager.
Risk factors of ASO vs. PEO
The ASO assumes no risk in its agreement, but it is there to guide and provide information to clients to reduce and prevent compliance issues. The PEO, as co-employer, assumes a portion of the liabilities associated with risk, making it more diligent about bringing matters up with its clients.
Choice of services for an ASO or the PEO
In an ASO arrangement, there is a wide range of HR service options to choose from, which makes things highly flexible. Since the ASO does not actually administer the benefits plans, which is the employer’s responsibility, it can support finding other benefit plans, which increases the flexibility of designing employee benefits packages.
What are the pros and cons of administrative services only?
Wrapping things up, the choice to use administrative services only is an individual one for your organization. While the ASO offers many advantages, such as flexibility in benefits and other HR services, full control over decisions made, and access to knowledgeable HR support to reduce risk; there are also a few disadvantages to consider. The ASO outsourcing model is limited in how much administration can be done without company oversight, and liability is not shared with the outsourcing agency. However, ASO does offer a significant time and cost savings which supports long-term growth. Be sure to know what your needs are as an organization before you commit to any HR outsourcing solution.
FAQ
An ASO in health benefits is an agreement whereby an organization provides self-funded benefits to employees and then hires either the plan insurer or a third-party firm to provide limited administrative services, such as customer service or claims processing.
An ASO contract is a legally binding agreement that is made between an ASO and a client. Because it is so flexible and the client retains all liability and responsibility for HR functions, but provides specific administrative services, this contract can be very customized to suit the needs of each client.
Andrew (Drew) joined the Remote People team in 2020 and is currently Director, Regulatory Affairs. For the past 13 years, he has been a trusted advisor to C-Suite executives and government ministers on international compliance and regulatory issues. Drew holds a law degree from the University of Otago, a PhD from the University of Sydney, and is an enrolled Barrister and Solicitor of the High Court of New Zealand.
