THE OUTSOURCING of payroll functions is not an unknown concept in Slovakia as companies of various sizes in different economic sectors are using this approach to save money and improve their payroll processing. The Slovak market still offers many opportunities for firms that handle payroll services. But an expert in the field notes that a company must be very careful when selecting a payroll processing firm and should carefully determine whether this option will be effective.
“In Slovakia the term payroll outsourcing is a relatively common term,” Marian Driensky, managing director of Accace for Slovakia and the Czech Republic, told The Slovak Spectator, adding that small companies with just tens of employees, mid-sized companies and even the largest firms with thousands of employees are contracting for services from external payroll processing firms.
Driensky explained that many small firms have outsourced their payroll services in the past because it was not cost-effective for them to have an internal employee for this work. But the trend for larger companies to do so is much more recent as many of these companies had internal payroll departments that are now being replaced by external providers. Payroll outsourcing is common in other countries and Driensky expects this will be the case as well in Slovakia.
“During the next 10-15 years we expect significant growth and a [higher] level of penetration of outsourcing in central and eastern Europe, up from several percents to tens of percents and for private companies this will be near 50 percent,” Driensky stated.
Accace bases its expectations on the results of a survey on payroll and accounting outsourcing it conducted in 2011. It surveyed 62 companies based in Bratislava and Košice and the results released last November found that more Bratislava-based companies are using services from external payroll providers than those based in Košice. In Bratislava it was 68 percent of the surveyed companies, and less than 30 percent in Košice.
When is it suitable?
Outsourcing is potentially suitable for any type of a company active in any kind of business as well as for public institutions, Driensky said, noting that the size of the company may range from one employee to thousands of employees, but that any firm must properly assess whether payroll outsourcing can bring benefits and advantages.
A common advantage is the transfer of responsibility when a firm gives the tasks for quality processing of payroll matters to an outsourcer, Driensky said. Saving money can be an added value and this can come from lower labour costs as well as savings on significant investments in technology, hardware and software, and needing to update payroll systems often because of legislative changes.
The quality of the provided services can be another added value, according to Driensky.
“The [outsource] provider has a payroll department that consists of many experts,” Driensky stated, adding that it is optimal if an outsourcing company also has a tax adviser and lawyers specialising in employment law who can give advice or resolve more serious or complex problems.
Another alternative is partial outsourcing of certain responsibilities of a firm’s internal payroll department or help with an emergency situation due to the unexpected or temporary absence of staff who normally perform this work internally.
Driensky highlighted that outsourcing payroll functions usually provides a higher degree of automation and effectiveness.
Additional services that are supplied by some payroll processing firms are a hotline for employees as well as services from tax and employment law experts, Driensky noted, while adding that companies that employ foreigners can also receive services such as assistance in obtaining work permits and handling tax and payroll levy issues.
Driensky said the financial cost of outsourcing payroll processing differs from company to company and from project to project and that a reduction in costs is not always the decisive factor.
“Clients decide to outsource not only because of costs,” Driensky stated. “They want a better quality of services or they want to get rid of responsibility or they want to obtain access to the latest technology. A need for high discretion and confidentiality of information is often a reason, too.”
A real-life example
NESS Slovensko is one company that has opted for payroll outsourcing. Zuzana Jojićová, the firm’s human resources manager, explained to The Slovak Spectator that her company decided to outsource its payroll operations in 2005, when it became a subsidiary of Ness Technologies.
“Our parent company had good experiences with payroll outsourcing and, with regards to a big expected increase in our labour force in NESS Slovensko as well as our plans to open our branch Ness KDC in Košice, we decided that it would be more effective and economical for the company to outsource the payroll agenda,” Jojićová told The Slovak Spectator.
According to Jojićová, the fact that the company follows Sarbanes-Oxley requirements also played an important role when making its decision. This legislation was enacted by the US Congress in response to the high-profile Enron and WorldCom accounting scandals to protect shareholders, employees and the general public from accounting errors and fraudulent practices.
When selecting the company to which it would outsource its payroll operations, NESS Slovensko took into consideration good references, the number and experience of the outsourcing firm’s payroll accountants, and their flexibility when solving a range of non-standard requirements. NESS Slovensko also appraised the outsourcing firm’s confidentiality and professionalism when processing company documents.
Jojićová put reduction of wage costs and overhead expenses, plus savings in investments into software, as the main advantages of payroll outsourcing. She added that it has also brought an opportunity to confer about wage and employment issues with experienced consultants, and said the payroll provider also facilitates communication with state and oversight bodies on behalf of NESS Slovensko.
Outsourcing is suitable for NESS Slovensko because of its double control and also because it brings an opportunity to store employment documents externally, according to Jojićová.
“The HR department can focus more on key activities,” Jojićová stated.
One disadvantage of payroll outsourcing, according to Jojićová, can be that when NESS Slovensko realises it has made a mistake, it is necessary for the outsourcing company to re-run their calculations, bringing additional costs. Also, when NESS Slovensko needs any information which it cannot get via remote access, obtaining data can take a little longer than if it had an internal payroll accountant.
Jojićová also warned that a poor choice of outsourcing company can lead to the danger of loss of sensitive data and of trust, and that there may be problems with quality.
“Since the provider may have several clients, it cannot pay 100-percent attention to your data and that can result in a delay in calculations and imperfections,” said Jojićová, adding that there are hidden costs that can arise or legal problems that can occur if the conditions for outsourcing are not properly defined in the contract. “Fortunately, this is not the case for us.”