How to Start an ASO (Payroll Bureau Guide)

[00:00:00] Today we are talking about how to start an ASO. So if you've already got a payroll business, you've already got clients, you've got recurring revenue, you've got a team that shows up every month, you've got the right people in place to get the job done, but you keep getting the question from your clients and your potential clients, do you offer HR support? And so that brings a lot of people down this path and it's a question I hear from founders more and more is how can we and should we start offering HR services and what does that look like?

[00:00:27] And in the industry that's often known as an ASO or administrative services outsourcing or administrative services offering, you'll see the acronym used and defined different ways. You'll see different bullets in terms of what's included in it, what's not included in it. I'm just going to share today my experience in building an ASO over the last 12 years. It was the first product we brought to market when we originally started our payroll and HR company and it's evolved quite a good bit over the years and I'll share some of the things that we've succeeded at and failed at along the way.

[00:00:57] Everything from what's included in our offering, who should offer an ASO, how to get started and even walk through pricing models. Welcome to Payrollin'. And now here's your host, Matt Vaadi. Let's go. First, how do we define what an ASO is? I have a very simple way of doing it with a potential customer that I think will make sense here.

[00:01:27] So let's say Rebecca is a new client of ours and she goes to hire Bill and she's ready to make an offer to Bill. Well, she will reach out to our team and say, hey, I want to make an offer to Bill. He starts on this date. Here's his rate. Here's anything that's unique about the offer letter. And we will go ahead and we have already created an offer letter for our client at that point because that's part of what we do during onboarding is help them with all their HR documentation.

[00:01:53] We've loaded it into the HRAS. So we're going to send that over for signature from the new hire who wants it to prove and it comes back through. We're then going to initiate onboarding for the new hire. We're going to help them to navigate the HRAS completing their W-4, their I-9, all of their new hire documentation. And we're going to make a warm handoff typically to the benefits provider as the time permits because we'll have a checklist set up in the HRAS that helps us to manage what the entire onboarding process should look like.

[00:02:23] So now that Bill is on board, we've got him hired, we've helped him. He's seen us as the designated point of contact for HR going forward. So if he has any questions about his paycheck because we're processing their payroll, he will reach out to us and say, hey, I noticed the taxes are a little bit different than they were at my last company. If he's got a question about how to request time off, if he has a question about he forgot to clock in or clock out, we have that employee help desk side to help Bill out. Oh, things started going wrong. Bill stopped showing up to work on time.

[00:02:52] So now Rebecca has questions. What can I do? What can I do about Bill's latest attendance issues? Well, you can do this, Rebecca. You can't do that. She'll have a dedicated HR specialist who will help her with not only compliance, but documenting it, making sure it's up to date in the HRAS, making sure we have a paper trail if needed. And then it has been a persistent issue. Can we or should we move determination? Yes or no. We will advise Rebecca on that situation.

[00:03:19] And if it moves determination, we'll help to prepare her for that meeting. What should she say? What shouldn't she say? What documentation will be needed? We'll create that documentation, even down to helping with a severance agreement if the situation warrants it. And then should it move past that and there'll be a need for COBRA, we'll help them to determine if there's need for COBRA. If there's not, who's responsible for what? So we are bringing a unique combination of the technology, the HRAS, timekeeping, payroll platform to manage all that data,

[00:03:48] combined with expertise and administrative support that sits on top of that. So that's the pitch to the client and the end user. And so what does it actually take to get there? Well, first of all, everything I'm going to share today assumes you're already offering payroll. Everybody that's on this call today is already offering payroll. So the question is, should you start to offer this service to your clients? If you're not starting a payroll company already, first, spoiler alert, we're going to get to who should offer this.

[00:04:15] I would say this is not a good product to come out as one of your initial products unless you are coming out of the gate as a full scale PEO and you're offering the ASO as a downsell. To me, the gates tend to be, I would say, 100 payroll clients on the very low end. 250 plus is probably the sweet spot to when you should start to consider offering HR services because we're assuming about a 10% to 20% attachment rate of your existing client base.

[00:04:41] And so it doesn't really make sense if you've got 50 clients to roll out ASO to only have five clients on it and make it a distraction from your business because it is going to take a lot of time to set it up and to service the client. So it's going to be a huge drain on your internal resources and or you're going to have to add more teammates to serve your ASO clients.

[00:05:00] So I think it's something where you want to have some level of scale and I don't know that 250 clients is scale per se, but it's enough where if I get 25 of them, that's a nice little book of business and warrants having a person sit over top of it depending on my pricing model, which we'll talk about here in just a minute. So there are two big pieces to offering an ASO in my mind and I already touched on them. You need the technology and you need the people.

[00:05:26] And so if your tech can't do things like you don't have an HRS add-on, you don't have employee onboarding add-on, I think it's going to be hard, especially, you know, one of the biggest mistakes we made early on is we were using a software called payroll relief. And we were trying to integrate all these apps with it that didn't really integrate. And so we had at one point when the whole thing finally broke and we were actually with somebody different than payroll relief at the time. I just referred to it as the dark years prior to jumping on this call.

[00:05:54] But we had a client that had eight logins. So they had swipe clock, they had multiple logins there, supervisor and employee. Then they had the scheduling tool in swipe clock and they had a supervisor and employee login there. They had a separate login for the advanced HR module in the system and then an employee login for the advanced HR module. Then they had a payroll login and on and on. Then they had an applicant tracking system login. Because the problem was that everything they asked for, we just said yes.

[00:06:20] And so that's one of the things that I first recommend is start to fill out a do and don't list before you do this. If you're going to go down this path, what are we willing to do and what aren't we willing to do? Now that becomes a very easy tool during the sales process. For your CS team, when somebody reaches out, one of the first things they're going to ask is, what do you do to help with recruiting? And that's a deep, dark hole to start to go into if you don't want to offer recruiting services. Are you going to post jobs?

[00:06:50] Are you going to screen candidates? Well, sometimes they think you are, when in reality, you're probably not going to. So make sure that you've got those FAQs, even if you don't want to make them customer facing in the short term, you have something that your CS team can look to and have a really good response when somebody asks for one of those things. And for us, that was a big one was recruiting, especially when we had applicant tracking. It became very unclear who was going to post the jobs. Were we going to screen some of those candidates? What was our role as the HR department in the recruiting process?

[00:07:18] Because, you know, you've got this challenge and conundrum like we always do in this industry and that we're going on and we're trying to sell the next client. And so we're sharing all the wonderful things we do. We're an HR department in a box. We're a turnkey HR service. Well, HR does recruiting. Okay, well, not so much in this environment, at least not for us. But that is something you could add on, which we recently did. And I'll talk more about that here in just a moment.

[00:07:42] But that scope creep is what will kill your ASO because labor is going to be the number one expense here and it should be. And your clients expect you to do a lot. But the more that they ask and request of you and you just keep saying, yes, yes, yes. Like we did a lot is, you know, customer service is number one for all of us as local or regional payroll providers. So we've got to make sure that we're putting some guardrails in place around what we do and what we want. Pricing. I'm going to come back to pricing in just a moment. I'm going to share my screen.

[00:08:11] I'm actually just going to pull up our Guru pricing page on our website because we do just put our pricing directly online. I talked earlier about whether or not you should or should not start. And, you know, the technology piece I think is important. So a lot of the people that are live on this call mentioned platforms like iSolved, Apex, UKG that they're on today. All great platforms to layer a ASO model on top of because they do have those things that I mentioned.

[00:08:38] Onboarding will be absolutely critical for both you and the client. You know, applicant tracking for me. I'm not a big applicant tracking guy. I would not offer to the client because then again, it does open up this door of what is our role in this process? When in reality, more often than not, they were posting those jobs on Indeed or LinkedIn before and they're going to post those jobs on Indeed and LinkedIn after. And they're never going to log into the applicant tracking system. It created more confusion for us than it did value. But your mileage may vary.

[00:09:07] But the other things that you're definitely going to need, you're going to need the core HRAS. It's going to be able to need to track employee documentation, track all your information and actually becomes a really nice. The payroll and HRAS piece, you'll get the question a lot of, hey, I'd really love for you to do all this without payroll. Can you do that? We've tried that over the years and we've stopped offering any sort of HR consulting, HR outsourcing without payroll because all this stuff comes back to payroll at the end of the day.

[00:09:37] It's some payroll system. And it's a total pain to try to train your staff on 10, 15, 20 different payroll systems. So that's our model. Again, not for everybody. I talk to founders in the payroll, HR and accounting industry every single day. They all tell me they need more of one thing. It's not more money. It's not more AI tools. It's more time. How do I get more time?

[00:10:04] Well, I hired a virtual assistant through outsourcetherscale.com. That helps me manage my inbox, manage my calendar, handles administrative tasks for me, helps support my marketing efforts and much, much more. The cool thing about outsourcetherscale is that they actually train the virtual assistants on the latest and greatest AI tools to make sure that they can't only do that administrative work for you that you need to get off your plate, but they're doing it in the most efficient and effective ways possible.

[00:10:31] I've been so happy with my assistant from outsourcetherscale that I've actually added multiple other teammates to our other companies through them. Their pricing starts at only $7.99 a month and they make it super easy to get a new teammate onboarded and part of your team very quickly. Check them out today at outsourcetherscale.com.

[00:10:50] Now, one thing I am adamant that I would not offer inside of the ASO service unless it is a larger company and unless somebody is going to own it from the client side and maybe even the broker side is Ben Admin. So, for us, we only offer Ben Admin as the part of the software typically inside of the PEO model.

[00:11:16] The reason being is because as soon as you turn on Ben Admin, the broker is going to start to push a lot more work to you as the payroll bureau and a lot more expectation in terms of assisting the agency side than what you're used to. You're going to get into EDI feeds. You're going to get into all these complexities that were probably already fixed or already being taken care of. Most brokers have their benefits admin system of choice that they roll off with a client. It's part of what they get paid commission for.

[00:11:42] In my opinion, what you tend to do when you roll out Ben Admin is invite more work onto your team for less cost. And, you know, some people would say, well, we could become the agent of record. We could AOR or BOR those accounts. Yes, you could. But what I found, again, is people are not as anxious to assign that AOR record as you would like, right? They really like Craig or they really like whoever their benefits guy is. They're not just going to sign an AOR to come work with you just because you have the software in place. They're going to keep that relationship.

[00:12:13] So you're going to do a lot more work, again, for not getting that piece of the pie. I like to just form a nice relationship. How are we going to get files back and forth? Can we use a middleware to send it from my system to your system and vice versa? A lot of great tools out there to do that, especially in the era of AI. And, yeah, we went so far as initially we were we did start an agency and we only got a handful of accounts thinking that a bunch of our clients were going to, you know, because we were an ASO long before we were a PEO.

[00:12:43] We figured, I mean, benefits, they're going to love this. We'll just we'll become a licensed agency and then the floodgates will open. Well, it was crickets. It actually turned out to be a huge pain in the butt as time went on because we had to get those customers years later off of our books and to other brokers. And people on our team didn't know how to serve them because they were expecting something different than what the rest of our model was. All right. So that's the technology side. You're going to need that core HR stuff. You're going to want it to be as integrated as tightly as possible.

[00:13:09] And then you're going to want to make sure you've got a plan for how you're going to interact with other systems, whether it's been admin, retirement, et cetera. Now, the people side. So let's say, again, you had 250 clients. You turn on an ASO. Now you've got 25 ASO clients. Well, you're going to need dedicated HR support at that time. So one of the keys, you know, that's kind of obvious. But there are a couple of things I would say that really helped us along the way when it came to dedicated HR support. You're going to want to use a mineral mitratech, whatever their name is this year.

[00:13:37] Someone similar to that that acts as sort of a backbone of your HR department where your HR person can call on behalf of a client if they have question. So, again, if that question came in that Rebecca had about an employment issue with Bill, you've got some chops behind your team rather than reliant solely on one individual. And, again, a lot of them will do document customization on behalf of the client.

[00:13:59] So what we've done is we've established a relationship where our HR VPs actually communicate on behalf of every client with minerals so that the client never interacts with them, never engages with them. And I know that they have established that similar relationship with others. So we want our HR person to be the sole point of contact, almost acting like a project manager, the HR business partner, which is probably the most important thing I'll say if you're going to roll this out right now,

[00:14:25] is you need to have a very tight onboarding process in terms of what your audit and diagnosis is going to look like on the front end. We've got a spreadsheet filled with about 60 different HR questions. Everything from, you know, how do you store your I-9s and where do you store them to, you know, when it comes time to hire, what does that process look like and everything in between. And then we take all that information. We look at it after the fact that we say, hey, here's some stuff that is working fine. We're not going to touch it.

[00:14:52] Here are some things that are some real big potential liability issues laying out there. And then we put a plan in place to address whatever their desires and wants are, along with potential compliance issues. And we roll that out over the coming months. And it is important to have a nice structure and onboarding and then a monthly reporting and or meeting cadence where your HR person gets together with the client and establishes the progress related to the plan.

[00:15:17] Now, some clients will not show up for those, which is totally fine as long as you continue to provide value. The one thing that I always remind our team of as it relates to the ASO model is they're stroking a pretty decent sized check every month and it's for this service. So if they're not getting a higher level of service than they would get with payroll, it's not a PEO, so they're not getting benefits. So there's no established value there. We need to make sure we're earning that check every single month. So that's a big piece.

[00:15:47] And, you know, for me, those are some of the biggest things. And then obviously, you know, the question becomes on your side as a bureau, like what other liability do you take on? I mean, you're giving HR guidance. If you go to your insurance carrier and you talk about expanding your E&O policy to account for that additional potential liability of giving HR guidance. Some people, I don't think you can put an EPLI policy in place without co-employment. I'm not 100% sure on that. We do not for the ASO model.

[00:16:13] But it's really not that complicated when it comes to a business setup standpoint. Your biggest things are going to be getting the right people in place to serve the accounts and understanding what that lift is going to look like, identifying what you will and won't do, and then having the technology that can make it as easy as humanly possible for you and your team. And last thing I'll touch on here and I'll share my screen briefly is the pricing piece. A lot of different models out there for pricing. For me, I mean, you can find this at guru.co, probably forward slash pricing.

[00:16:43] But you'll see for us, you know, we charge a per employee per month fee. It does go down as they go up in headcount, which is not listed on our website. So once they cross 25, it goes down to 69. Once they cross 50, it goes down to 59, et cetera, et cetera. And so that does allow scalability, which works for both parties, right? So it doesn't get harder to serve an account as they grow their headcount. It gets easier. We also are of the mindset we don't do price increases.

[00:17:12] Our pricing philosophies are very different than most. But, you know, the one thing I will say is that we recently raised our monthly minimum from 500 to 1,000 because we really found that anybody who is paying less than $1,000 a month were our biggest sap on internal resources related to labor, related to asking a lot of questions, you know, complaining, all the things.

[00:17:32] So we have lifted that floor in an effort to help to thin the herd a little bit in some of the smaller accounts that maybe don't need HR support or expect more than they have. And if you come out here and check out the website, you'll see a lot of what's included in there. Some of these things like eVerify is something I 100% a client is going to expect in this environment beyond just your standard new hire state reporting. But there's a ton of stuff out here, and I'm happy to provide any other resources in terms of presentations, things like that as we move forward.

[00:18:01] So hopefully that helped y'all to think about whether or not it makes sense to offer an ASO. And what do you think about it? Leave a comment below. Excited to hear everybody's feedback and takeaways from this. Thanks. If you enjoyed that episode, please share it with someone else you know who might enjoy it and learn from this. And also, please rate us five stars on your favorite podcast player. We really appreciate you taking the time to listen.

[00:18:30] And also, don't hesitate to reach out with other topics you'd like to hear more about. Thanks so much.