Affordable Care Act (ACA) Violations: Penalties and Excise Taxes

The Affordable Care Act (ACA) includes numerous reforms for group health plans and creates new compliance obligations for employers and health plan sponsors. The ACA, for example, requires health plans to eliminate pre-existing condition exclusions and provide coverage for preventive care services without cost-sharing. Some of the reforms for health plans apply to all health plans, while others apply only to non-grandfathered plans or to insured plans in the small group market.

Starting in 2015, the ACA requires applicable large employers (ALEs) to either provide affordable, minimum value health coverage to full-time employees or face penalties. Employers and plan sponsors must also comply with new reporting and disclosure requirements, such as the health coverage reporting requirements under Internal Revenue Code (Code) Sections 6055 and 6056. In addition, the ACA imposes several taxes and fees on health plan sponsors, such as the transitional reinsurance fee and the tax on high-cost employer plans.

Failing to comply with the ACA’s requirements can cause severe consequences for an employer. The potential consequences vary depending on the ACA requirement that is involved and the nature and extent of the violation. Employers should keep these consequences in mind as they continue to work on ACA compliance.

Group Health Plan Reforms

Code Section 4980D imposes an excise tax for a group health plan’s failure to comply with certain requirements, including the ACA’s reforms for group health plans. Failing to comply with a group health plan requirement may trigger an excise tax of $100 per day with respect to each individual to whom the failure relates.

Read the full article or contact Clark and Associates Nevada for more information.

Deadline for Submitting Reinsurance Fee Enrollment Counts Extended to Dec. 5

The Affordable Care Act (ACA) imposes a fee on health insurance issuers and self-funded group health plans in order to fund a transitional reinsurance program for the first three years of Exchange operation (2014-2016). The fees will be used to help stabilize premiums for coverage in the individual market.

Entities that must pay these fees, called “contributing entities,” are generally required to submit their annual enrollment count to the Department of Health and Human Services (HHS) by Nov. 15 of each benefit year. To do this, contributing entities must register on Pay.gov and complete a contribution form for the year.

For the 2014 benefit year, the regulatory deadline for submitting the reinsurance fee contribution form is Nov. 15, 2014. An FAQ initially extended this deadline until Monday, Nov. 17, 2014, since Nov. 15 was a Saturday. However, on Nov. 14, 2014, the Centers for Medicare & Medicaid Services (CMS) further extended the regulatory deadline for contributing entities to submit their 2014 enrollment counts until 11:59 p.m. on Dec. 5, 2014. The payment deadlines (Jan. 15, 2015, and Nov. 15, 2015) remain the same.

The contribution form that will be used to submit annual enrollment counts became available Oct. 24, 2014. HHS also provided an Annual Enrollment and Contributions Submission Form Manual and a Supporting Documentation Job Aid Manual.

Contributing Entities

A contributing entity is defined as a health insurance issuer or a third-party administrator (TPA) on behalf of a self-insured group health plan. However, certain types of coverage are excluded from paying reinsurance fees.

  • Fully-insured Group Health Plans—For insured health plans, the issuer of the health insurance policy is required to pay reinsurance fees. However, issuers will likely shift the cost of the fees to sponsors through premium increases.
  • Self-insured Group Health Plans—For self-insured group health plans, the plan sponsor is liable for paying reinsurance fees, although a TPA or an administrative-services-only (ASO) contractor may pay the fee at the plan’s direction. For a plan maintained by a single employer, the employer is the plan sponsor.

However, there is a limited exception for self-insured, self-administered plans. For 2015 and 2016, the term “contributing entity” excludes self-insured group health plans that do not use a TPA for the core administrative functions of claims processing or adjudication (including management of appeals) or plan enrollment.

Deadlines

Contributing entities are required to submit their annual enrollment count to HHS, generally by Nov. 15 of each benefit year. However, because this is the first year that this process is being implemented, CMS received requests for an extension of the deadline for contributing entities to submit their 2014 enrollment counts for reinsurance contributions.

As a result, on Nov. 14, 2014, CMS extended the deadline until 11:59 p.m. on Dec. 5, 2014. This is the second deadline extension that CMS has provided for 2014 reinsurance fee enrollment counts. Because Nov. 15, 2014, was a Saturday, CMS previously stated in FAQ 5415 that contributing entities could submit the annual enrollment count by Nov. 17, 2014.

Despite this deadline extension, the payment deadlines remain the same. These fees may be paid in two installments—one at the beginning of the calendar year following the applicable benefit year, and then one at the end of that calendar year. Key deadlines for the 2014 benefit year are:

  • Dec. 5, 2014—For the 2014 benefit year, the Nov. 15 regulatory deadline for contributing entities to submit annual enrollment counts has been extended to 11:59 p.m. on Dec. 5, 2014.
  • Jan. 15, 2015—The first payment of $52.50 per covered life is payable by the regulatory deadline of Jan. 15, 2015. This payment will be allocated towards reinsurance payments and administrative expenses.
  • Nov. 15, 2015—The second payment of $10.50 per covered life is payable by the regulatory deadline of Nov. 15, 2015. This payment will be allocated towards payments to the U.S. Treasury.

Reinsurance Contribution Amounts

The reinsurance program’s fees are based on a national contribution rate, which HHS announces annually. For 2014, the annual contribution rate is $63 per enrollee per year, or $5.25 per month. For 2015, the annual contribution rate will be $44 per enrollee per year, or about $3.67 per month.

Several methods are available to determine the number of covered lives under a health plan:

  • The Actual Count Method;
  • The Snapshot Count Method;
  • The Snapshot Factor Method;
  • The Member Months or State Form Method; and
  • The Form 5500 Method.

The permitted counting method depends on whether the contributing entity is a health insurance issuer or a self-insured group health plan, and whether, in the case of a group health plan that is a contributing entity, the plan offers more than one coverage option.

The Collection Process

A contributing entity can complete all of the required steps (that is, registration, submission of annual enrollment count and remittance of contributions) on www.pay.gov. Using a contribution form, entities will provide basic company and contact information and the annual enrollment count for the applicable benefit year. The contribution form became available via www.pay.gov on Oct. 24, 2014.

The form will auto-calculate the contribution amounts. To complete the submission, entities will also submit payment information and schedule a payment date for the contributions. Supporting documentation must also be submitted through www.pay.gov with the contribution form.

More Information

HHS offers training for the pay.gov collection process. To receive notices from HHS regarding upcoming training and to review training resources, register on www.regtap.info.

HHS also provided an Annual Enrollment and Contributions Submission Form Manual, which provides step-by-step instructions for completing and submitting the contribution form and supporting documentation, details on key elements and business concepts, and resources to further assist the contributing entity. A Supporting Documentation Job Aid Manual is also available to help contributing entities create the supporting documentation.

Download the PDF version or contact Clark and Associates Nevada for more information.

Paying PCORI Fees: Corrections and Amendments

The Affordable Care Act (ACA) imposes fees to fund comparative effectiveness research on health insurance issuers and self-funded plan sponsors. These fees are widely known as Patient-Centered Outcomes Research Institute fees (PCORI fees), although they may also be called PCOR fees or comparative effectiveness research (CER) fees.

On Dec. 5, 2012, the Internal Revenue Service (IRS) issued final regulations on the PCORI fees. On May 28, 2013, the IRS released an updated Form 720 that includes a section where issuers and plan sponsors will report and pay the PCORI fee. The IRS also released updated instructions along with the revised form.

OVERVIEW OF THE PCORI FEES
The PCORI fees apply for plan years ending on or after Oct. 1, 2012, but do not apply for plan years ending on or after Oct. 1, 2019. For calendar year plans, the fees will be effective for the 2012 through 2018 plan years. Issuers and plan sponsors will be required to pay the PCORI fees annually on IRS Form 720 by July 31 of each year. It will generally cover plan years that end during the preceding calendar year. Thus, the deadline for filing Form 720 was July 31, 2014, for plan years ending in 2013.

For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the fee is $1 multiplied by the average number of lives covered under the plan. For plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014, the fee is $2 multiplied by the average number of covered lives. For plan years ending on or after Oct. 1, 2014, the fee amount will grow based on increases in the projected per-capita amount of National Health Expenditures.

On Sept. 18, 2014, the IRS published the adjusted PCORI fee amount for plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015, in Notice 2014-56. For plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015, the fee is $2.08 multiplied by the average number of lives covered under the plan. This amount was calculated based on the percentage increase in the projected per capita amount of the National Health Expenditures published by the U.S. Department of Health and Human Services on Sept. 3, 2014 (Table 3). In the future, the IRS intends to publish the adjusted PCORI fee amount for plan years ending on or after Oct. 1, 2015, and before Oct. 1, 2019.

CORRECTIONS AND AMENDMENTS
The final regulations did not explicitly address whether plan sponsors may correct or amend a previously filed Form 720 if certain errors are made (for example, miscalculations related to covered lives or fee amounts due). However, they did note that the penalties related to late filing of Form 720 or late payment of the fee may be waived or abated if the issuer or plan sponsor has reasonable cause and the failure was not due to willful neglect.

In addition, plan sponsors may use Form 720X, “Amended Quarterly Federal Excise Tax Return,” to adjust liabilities reported on a previously filed Form 720, including adjustments that result in an overpayment. Form 720X and the accompanying instructions do not specifically identify or refer to the PCORI fees. However, there is space to include an explanation of adjustments, which plan sponsors can use to identify the PCORI fee.

Download the PDF version or contact Clark and Associates Nevada for more information on PCORI fees.

HHS Guidance on Same-sex Marriage and HIPAA Privacy Compliance

The guidance states that the terms, “spouse,” “marriage” and “family member” apply to individuals who are legally married, whether or not they live in a jurisdiction that recognizes their marriage

The Department of Health and Human Services (HHS) Office for Civil Rights (OCR) issued guidance in September 2014 regarding the HIPAA Privacy Rule. This guidance explains how the 2013 Supreme Court decision regarding the Defense of Marriage Act (DOMA) affects certain provisions under the HIPAA Privacy Rule.

The HIPAA Privacy Rule contains provisions that recognize the role that family members, such as spouses, can play in patients’ health care. For example, the HIPAA Privacy Rule allows covered entities to share information about patients’ care with family members in various circumstances.

In addition, the HIPAA Privacy Rule provides protections against the use of genetic information about an individual, which includes certain information about family members of the individual, for underwriting purposes.

The recent OCR guidance clarifies that, under the privacy rule, the term:

  • “Spouse” includes both same-sex and opposite-sex individuals who are legally married
  • “Marriage” includes both same-sex and opposite-sex marriages
  • “Family member” includes dependents of those marriages

The guidance states that all of these terms apply to individuals who are legally married, whether or not they live or receive services in a jurisdiction that recognizes their marriage.

Background

In United States v. Windsor, the Supreme Court held Section 3 of DOMA to be unconstitutional. Section 3 of DOMA had provided that federal law would recognize only opposite-sex marriages.

The HIPAA Privacy Rule includes the terms “spouse” and “marriage” in the definition of “family member.” Consistent with the Windsor decision, the term “spouse” includes individuals who are in a legally valid same-sex marriage sanctioned by a state, territory or foreign jurisdiction (as long as a U.S. jurisdiction would also recognize the marriage).

The term “marriage” includes both same-sex and opposite-sex marriages, and “family member” includes dependents of those marriages. All of these terms apply to individuals who are legally married, whether or not they live or receive services in a jurisdiction that recognizes their marriage.

Affected HIPAA Privacy Rule Provisions

Covered entities and business associates must consider this guidance regarding their uses and disclosures of protected health information:

Uses and disclosures for involvement in the individual’s care and notification purposes 

Under certain circumstances, covered entities are permitted to share an individual’s protected health information with a family member of the individual.

According to the OCR guidance, legally married same-sex spouses, regardless of where they live, are family members for these purposes.

Use and disclosure of genetic information for underwriting purposes

The Privacy Rule prohibits health plans, other than issuers of long-term care policies, from using or disclosing genetic information for underwriting purposes. For example, these plans may not use information regarding the genetic tests of a family member of the individual, or the manifestation of a disease or disorder in a family member of the individual, in making underwriting decisions about the individual. This includes the genetic tests of a same-sex spouse of the individual, or the manifestation of a disease or disorder in the same-sex spouse of the individual.

Future Guidance

OCR intends to issue additional clarifications through guidance or to initiate rulemaking to address same-sex spouses as personal representatives under the privacy rule.

Download the PDF version: HHS Guidance on Same-sex Marriage and HIPAA Privacy Compliance 102314

HPID Requirement Delayed Indefinitely

On Oct. 31, 2014, the Centers for Medicare & Medicaid Services announced that enforcement of the HPID requirement is delayed until further notice. The Health Plan Identifier (HPID) is a standard, unique health plan identifier required by the Health Insurance Portability & Accountability Act of 1996 (HIPAA). The initial deadline for health plans to obtain an HPID was Nov. 5, 2014.

The delay applies to:

  • The requirement that health plans obtain an HPID
  • The use of the HPID in HIPAA standard transactions

This enforcement delay means that health plan sponsors who are subject to the HPID requirement and have not yet received their HPIDs can hold off for now.

CMS has not indicated if there will be a new deadline for obtaining the HPID, or when the new deadline will be. Health plan sponsors who have already obtained HPIDs should maintain a record of their identifier.

HPID Requirement

The HPID is a standard, unique health plan identifier that is primarily intended for use in standard transactions. The HPID is intended to replace proprietary health plan identifiers that vary in lengths and formats.

The HPID requirement applies to group health plans subject to HIPAA’s administrative simplification provisions. However, health plans that have fewer than 50 participants and are administered by the employer that maintains the plan are NOT subject to the HPID requirement.

Controlling Health Plans and Sub-health Plans

For purposes of the HPID, there are two classifications of health plans—controlling health plans (CHPs) and sub-health plans (SHPs).

A CHP is a health plan that: (1) controls its own business activities, actions or policies; or (2) is controlled by an entity that is not a health plan and, if it has SHPs, exercises sufficient control over the SHPs to direct their business activities, actions or policies. All CHPs must obtain an HPID.

An SHP is a health plan whose business activities, actions or policies are directed by a CHP. An SHP is eligible, but not required, to obtain an identifier. To determine whether an SHP should get an HPID, the CHP or the SHP should consider whether the SHP needs to be identified in the standard transactions. A CHP may get an HPID for its SHP or may direct an SHP to get an HPID.

Initial HPID Deadlines

The initial deadline for health plans (except small health plans) to obtain their HPIDs was Nov. 5, 2014.

Small health plans (those with annual gross receipts of $5 million or less) were given an additional year to comply, until Nov. 5, 2015. By Nov. 7, 2016, all covered entities were to use the HPID in standard transactions involving health plans that have an identifier.

For purposes of determining whether a health plan has annual receipts of $5 million or less:

  • Fully insured group health plans should use the amount of total premiums that they paid for health insurance benefits during the plan’s last full fiscal year.
  • Self-funded plans should use the total amount paid for health care claims by the employer, plan sponsor or benefit fund, as applicable to their circumstances, on behalf of the plan during the plan’s last full fiscal year.
  • Plans that provide health benefits through a mix of fully-insured and self-funded arrangements should combine total premiums and health care claims paid to determine their annual receipts.

Indefinite Delay of the HPID Rules

The CMS Office of e-Health Standards and Services (OESS) is responsible for enforcement of compliance with the HIPAA standard transactions, code sets, unique identifiers and operating rules, including the HPID requirement.

The OESS issued a Statement of Enforcement Discretion, which provides that, effective as of Oct. 31, 2014, there is a delay, until further notice, in enforcement of the regulations pertaining to the process of obtaining an HPID and use of the HPID in HIPAA transactions.

This enforcement delay applies to all HIPAA covered entities, including healthcare providers, health plans and healthcare clearinghouses.

The OESS statement explained that the delay was prompted by a recommendation of the National Committee on Vital and Health Statistics (NCVHS), an advisory body to HHS.

On Sept. 23, 2014, the NCVHS recommended that HHS provide in rule-making that all covered entities (health plans, healthcare providers and clearinghouses, and their business associates) not use the HPID in HIPAA transactions. The NCVHS instead recommends that the standardized national payer identifier based on the National Association of Insurance Commissioners (NAIC) identifier continue to be used.

The enforcement discretion announced by OESS will allow HHS to review the NCVHS’s recommendation and consider any appropriate next steps.

Download the PDF version: CMS Announces Enforcement Delay

Corporate Wellness: Low-Cost Resources for Small Businesses

Corporate wellness programs geared toward small companies can be as beneficial as they are for large companies. In fact, small businesses have an upper hand on bigger businesses when it comes to wellness programs because they often achieve higher rates of participation and their programs are generally easier to implement. The key to developing wellness programs is to keep them simple and manageable.

Small companies need programs that are easy to use and do not require a lot of money. Use the low-cost resources identified in this article to help develop, implement and evaluate your worksite wellness program.

Resources for Developing a Worksite Wellness Program

  • To get your program off the ground, Clark & Associates of Nevada, Inc. can provide you with the following educational articles: “Workplace Wellness: An Employer’s Guide to Promoting Wellness at the Workplace” and “Workplace Wellness: Potential Legal Issues Associated with Workplace Wellness Plans.”
  • The Worksite Health section of the Partnership for Prevention website offers several valuable resources for developing a wellness program.

Assessing Your Worksite

  • Clark & Associates of Nevada, Inc. can provide you with a sample wellness program survey.
  • Healthy Workforce 2010: Essential Health Promotion Sourcebook for Employers, Large and Small (pages 58-62).

Learn more about workplace health and wellness programs, and available resources for general health education.

Annual Medicare Part D Notices Are Due by Oct. 14, 2014

Employers with group health plans that provide prescription drug coverage to individuals who are eligible for coverage under Medicare Part D must comply with certain annual disclosure requirements.

Each year, Medicare Part D requires group health plan sponsors to disclose to individuals who are eligible for Medicare Part D and to the Centers for Medicare and Medicaid Services (CMS) whether the prescription drug coverage is creditable.

The creditable coverage disclosure notice alerts individuals as to whether their plan’s prescription drug coverage is at least as good as the Medicare Part D coverage (in other words, whether their prescription drug coverage is “creditable”). Medicare beneficiaries who are not covered by creditable prescription drug coverage and who choose not to enroll in Medicare Part D before the end of their initial enrollment period will likely pay higher premiums if they enroll in Medicare Part D at a later date.

Model Notices

CMS has provided two model notices for employers to use:

These model notices are also available in Spanish on the CMS website.

Employers are not required to use the model notices from CMS. However, if the model language is not used, a plan sponsor’s notices must include certain information, including a disclosure about whether the plan’s coverage is creditable and explanations of the meaning of creditable coverage and why creditable coverage is important.

Notice Recipients

The creditable coverage disclosure notice must be provided to Medicare Part D eligible individuals who are covered by, or who apply for, the health plan’s prescription drug coverage. An individual is eligible for Medicare Part D if he or she:

  • Is entitled to Medicare Part A  or is enrolled in Medicare Part B; and
  • Lives in the service area of a Medicare Part D plan.

In general, an individual becomes entitled to Medicare Part A when he or she actually has Part A coverage, and not simply when he or she is first eligible.

Medicare Part D eligible individuals may include active employees, disabled employees, COBRA participants and retirees, as well as their covered spouses and dependents.

As a practical matter, group health plan sponsors often provide the creditable coverage disclosure notices to all plan participants.

For more information, download the full article: Annual Medicare Part D Notices Are Due By Oct. 14, 2014.

IRS Increases Percentage for Determining Affordability Under the ACA for 2014

Several key reforms under the Affordable Care Act (ACA) measure the affordability of employer-sponsored health coverage. The affordability of an employer’s plan may be assessed in the following three contexts:

  • The shared responsibility penalty for applicable large employers (also known as the pay or play rules or employer mandate);
  • An exemption from the tax penalty imposed on individuals who fail to obtain health coverage (also known as the individual mandate); and
  • The premium tax credit for low-income individuals to purchase health coverage through an Exchange.

Although all of these provisions involve an affordability determination, the test for affordability varies for each provision.

On July 24, 2014, the Internal Revenue Service (IRS) released Revenue Procedure 2014-37  (Rev. Proc. 2014-37) to index the ACA’s affordability contribution percentage for 2015.

  • For plan years beginning in 2015, employer-sponsored coverage will generally be considered affordable under both the pay or play rules and the premium tax credit eligibility rules if the employee’s required contribution for self-only coverage does not exceed 9.56 percent of the employee’s household income for the year.

However, applicable large employers using an affordability safe harbor under the pay or play rules may have to continue using a contribution percentage of 9.5 percent to measure their plan’s affordability.

  • For plan years beginning in 2015, coverage is unaffordable for purposes of the individual mandate exemption if it exceeds 8.05 percent of household income.
  • Rev. Proc. 2014-37 also updates the table for determining the amount of any premium tax credit for plan years beginning in 2015.

Affordable Employer-sponsored Coverage

Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit. This is significant because the ACA’s shared responsibility penalty for applicable large employers is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange.

To determine an employee’s eligibility for a tax credit, the ACA provides that employer-sponsored coverage is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent of the employee’s household income for the tax year. After 2014, this required contribution percentage is adjusted annually to reflect the excess of the rate of premium growth over the rate of income growth for the preceding calendar year.

For plan years beginning in 2015, Rev. Proc. 2014-37 adjusts this required contribution percentage to 9.56 percent.

Download the full Health Care Reform Bulletin by Clark and Associates Nevada for more details.

Employer Shared Responsibility: Look-Back Measurement Method Examples

Pay or Play Penalties

The Affordable Care Act (ACA) imposes a penalty on applicable large employers (ALEs) that do not offer health insurance coverage to substantially all full-time employees and dependents. Penalties may also be imposed if coverage is offered, but is unaffordable or does not provide minimum value. The ACA’s employer penalty rules are often referred to as “employer shared responsibility” or “pay or play” rules.

On Feb. 12, 2014, the IRS published final regulations on the ACA’s employer shared responsibility rules. The final regulations provide an optional safe harbor method that employers can use for determining full-time status, called the look-back measurement method. The look-back measurement method involves a measurement period for counting hours of service, a stability period when coverage may need to be provided, depending on an employee’s average hours of service during the measurement period, and an administrative period that allows time for enrollment and disenrollment.

This Legislative Brief provides examples of potential measurement, administrative and stability periods for plan years beginning in each month throughout the 2015 and 2016 calendar years. These examples assume that the employer will be using a 12-month standard measurement period, a two-month administrative period and a 12-month stability period.

It also provides examples of optional transition measurement periods in 2015, if allowed for the plan year. The final regulations allow employers to use shorter measurement periods for stability periods starting in 2015 under the look-back measurement method. For 2015, employers can determine full-time status by reference to a transition measurement period in 2014 that:

  • Is shorter than 12 consecutive months, but not less than six consecutive months long; and
  • Begins no later than July 1, 2014, and ends no earlier than 90 days before the first day of the first plan year beginning on or after Jan. 1, 2015.

If permitted under the employer shared responsibility rules with respect to their plan years, employers can choose to use either the standard measurement period or the transition measurement period for stability periods beginning in 2015.

Download the Health Care Reform Legislative Brief for more details on Plan Year Selection and Calendar-Year Plans. You can also contact Clark and Associates of Nevada for more information on the employer shared responsibility rules.

Administrative Service Organizations (ASO) | HR Insights

For some companies, outsourcing various administrative and human resources tasks may be more efficient than handling them in-house, or may even be necessary due to lack of time, resources, or expertise. Consider the advantages of an administrative service organization (ASO) if you want to outsource employment-related tasks.

What is an ASO?

An ASO is an organization that provides administrative and human resources services for its clients. This is a simple way to outsource tasks that can be more efficiently handled outside the company. ASOs can provide a variety of services for your company, including the following:

  • Payroll – direct deposit, W-2 processing, tax filing, reports, 401(k) administration and other tasks
  •  Human resources – employee newsletters, help desk, handbooks, file maintenance, employee surveys, background checks, recruiting and other service options
  •  Employee benefits – benefits enrollment, payment and premiums, COBRA administration and more

ASOs Versus PEOs

ASOs differ from professional employer organizations (PEOs), which provide a more comprehensive package of services and include a co-employment arrangement. The co-employment arrangement in a PEO contract means that the PEO becomes the employer of record and the PEO assumes some or all of the risks and liabilities related to employment.

PEOs began as early as the 1940s and became more popular in the 1970s and ‘80s. ASOs emerged in the late 1990s as an alternative to PEOs that does not involve co-employment. The services offered by an ASO depend on the vendor, ranging from a few services such as payroll to many of the same services offered in a PEO model. ASOs typically offer more flexibility in what services are outsourced and allow the employer to retain all employment responsibility.

Aside from the issue of co-employment, another major difference between ASOs and PEOs is the fee amounts and how they are calculated. For PEOs, fees are typically a single amount for a comprehensive set of services that are bundled together, and fees are usually 2 to 6 percent of employees’ gross wages. With ASOs, fees are usually charged either per transaction or per employee, and you only pay for the services you want to use—no bundled services and accompanying fees.

ASOs can provide expertise and efficiency that can’t be obtained in-house, while still giving you more flexibility than a PEO. ASOs can cost as much as 50% less than PEOs, because you can pick and choose the services you want, and because your company retains all employment risks and liabilities.

Is an ASO Right for Your Company?

Whether or not an ASO is right for your company depends on several factors. First, you need to consider whether you want or need to outsource administrative and HR tasks. If so, do you need a full-service contract or just a few tasks handled for you? If you’re looking for a complete package of services and are willing to enter a co-employment agreement, a PEO may be a better choice. ASOs might be the favored option if you want to keep more employment control and need to choose only a few services to outsource.

Download the PDF version. For more information on Administrative Service Organizations (ASO) or Professional Employer Organizations (PEO), contact Clark and Associates of Nevada today.