OUTSOURCING of accounting, payroll agenda and tax consultancy was introduced in Slovakia primarily by foreign companies, but providers of outsourcing services report a growing interest among local companies as well. The Slovak Spectator spoke with Branislav Ďurajka, partner at KPMG in Slovakia; Matúš Jurových, assistant manager at PwC in Slovakia; Janka Farkašová, manager at the tax department at Deloitte in Slovakia; Bart Waterloos, partner of VGD - AVOS Bratislava; and Jiří Majer, CEO of Accace, about the latest outsourcing trends and more.
The Slovak Spectator (TSS): How would you assess the interest of companies in Slovakia in outsourcing accounting, payroll and tax consultancy? How has this interest changed over the last two or three years?
Branislav Ďurajka (BD): There are quite a number of companies who outsource these services. In our experience the demand for these services is to a large extent dependent on the economic cycle. After the 2008-9 financial crises we saw some downturn in this area but since the situation stabilised later, the demand has been growing again, yet not at such rates as before.
Matúš Jurových (MJ): Outsourcing has undoubtedly been a trend in recent years. The results of our latest survey among CEOs in Slovakia show this. In the survey, 38 percent of companies confirmed that they outsourced a business process or a function in connection with restructuring changes in 2012, and almost one quarter of companies plan to continue this trend in 2013. Based on our experiences, accounting, payroll, tax advisory and IT are being outsourced the most.
Janka Farkašová (JF): The main advantage of outsourcing is the possibility to focus on the company’s core business and not to lose time and energy on auxiliary activities, among which accounting, payroll agenda and preparation of tax returns undoubtedly rank. When outsourcing these activities to an external supplier the company also outsources related risks. When outsourcing the payroll agenda, an advantage is also security of the confidential information with which wage accountants work. When the payroll agenda is administered internally confidential information about employees’ wages can sometimes leak out. This can be avoided by outsourcing payroll agenda.
I think that companies in Slovakia more and more realise the above-mentioned advantages of outsourcing, and because of this, interest in external bookkeeping, administration of the payroll agenda and tax advisory is increasing.
Bart Waterloos (BW): We have noticed a steady interest in outsourcing over the past few years. Certainly, with fewer new foreign investments in Slovakia, the growth has slowed. We see that more companies are now doing more of the basic registration themselves and are leaving more of the specialised work (e.g. preparation of VAT statements) to external professionals.
Jiří Majer (JM): Compared with the situation on the market several years ago we perceive that companies have more experience with outsourcing and that it is used by both international and local Slovak companies. They view in a more sensitive way not only the price, but they are also more demanding with regards to processes, quality and security. Criteria for choosing a provider were extended by requirements from clients for international certification; international up to even the global operation of the company, as well as new technologies and a high level of management of the order.
We can confirm that the increase in experience of companies in general has increased interest in outsourcing. The elevated requirements of [the client] companies have also resulted in the emergence of visible and significant differences between local and international providers of outsourcing and advisory services.
TSS: Which outsourcing services are companies in Slovakia most interested in? Does this interest differ from abroad? If yes, could you specify?
BD: In this respect, Slovakia is not different from other countries. As with any other functions, the decision about whether to outsource accounting, payroll or tax is basically a question of assessment of what is economically more favourable.
Typically, when a business is in the start-up phase, or when the physical presence of staff is not needed to operate the business, these functions are outsourced, as this is less expensive than hiring and training one’s own support staff. As the business grows it may make more economic sense to perform these functions in house.
However, in many cases even very large companies decide to outsource highly specialised support functions, such as accounting or tax, to external professional providers. This enables them to concentrate on what is their field of expertise, i.e. their core business, while support functions are taken care of by external providers.
Another example is if a business is very complicated so that the company frequently faces a broad range of accounting or tax issues which require highly specialised assessment. In such cases, many companies have their own staff to perform routine operations themselves, while seeking advice on highly specialised and complex tax or accounting matters from external advisors.
MJ: In Slovakia, similar to other countries in the region, the primary interest in outsourcing services in the fields of IT, finance and facility management persists. While most companies operating in the Slovak market are affiliations of companies of foreign owners, the decision to outsource is mostly made by the group and thus there is no significant difference in the subject of outsourcing in Slovakia or abroad.
JF: Out of the three services (accounting, payroll agenda and tax advisory) our clients are most interested in tax advisory. Companies with their own accounting and payroll departments often leave preparation of tax returns to external tax advisors, and they also turn to tax advisors during more complicated transactions. This is also because the tax legislation in Slovakia changes often and companies are not able to follow all these changes internally. Simultaneously, companies want to avoid payment of additional taxes and fines and thus they prefer being advised by qualified experts.
As far as comparing the level of outsourcing in Slovakia and abroad, I assume that outsourcing of accounting and payroll agenda is more common abroad because what often happens is that, for example, a foreign “sister” of a Slovak company has these services outsourced, while the Slovak company secures these services internally.
BW: Mostly it is accounting and payroll. When compared to the surrounding countries, this is very similar. However, in comparison with western Europe, we see still a lot of possibilities in the outsourcing of payroll processing. For example, in Belgium hardly any company is performing this function itself.
JM: Often, legislative changes increase requirements laid on companies and hamper their orientation within the legislation. Because of this the biggest interest is in tax consultancy. For the time being we have also registered an increased interest in external administration of payroll. With regards to external bookkeeping, companies are much more cautious when selecting an external provider and are afraid of losing access. In general it remains true that outsourcing is much more common abroad, especially in the US and western Europe.
TSS: Which sizes and types of business are best suited to outsourcing of accounting, payroll and tax consultancy?
MJ: The main reason why companies opt for tax advisory is the complexity of tax matters, tax optimisation and, subsequently, to make costs more effective. Outsourcing of tax advisory is chosen by rather bigger companies because of the complexity and the number of operations they perform, but the size is not the main criterion when deciding to use the services of an advisor.
In the field of outsourcing of accounting and payroll agenda, it is possible to see two basic lines: the traditional one, which is outsourcing in smaller companies for which employing one’s own employee would not be effective, and the modern one, which is the outsourcing of these services by large companies. Large companies often opt for outsourcing cumulatively for several countries and their main goal is to reduce costs compared with securing these services internally. Suppliers of outsourcing reach savings via standardisation of processes and effective usage of human resources, especially in countries with lower wage costs.
JF: The answer to this question is linked with the advantages that outsourcing offers – especially the possibility to focus on the core business and move auxiliary activities onto experts, including risks, which are linked with performance of these activities. These advantages are ‘valid’ for all companies regardless of their size or business in which they are involved.
BW: I think that this [outsourcing] is suitable for all companies, regardless of the size or business. Indeed, one should take into account all aspects and the full cost-picture for outsourcing, not only the salary of the persons previously performing the outsourced service. So, also the expert knowledge gained, the time advantage, the shared responsibility, the higher degree of flexibility ... and then all companies will gain from outsourcing.
JM: In general it may be said that companies opt for outsourcing solutions when they cannot effectively manage the processing of a given agenda on their own. Ineffective organisation of work and wasting of time and personnel increase costs. In practice we often meet with an approach that outsourcing is perceived as a way to cost reduction. As a professional provider of services we perceive this in a different way – outsourcing primarily brings higher quality and thus contributes to the success of the company on the market. Apart from other advantages, by choosing a proper partner for outsourcing, the company obtains access to the most modern technologies and the best specialists in the given sector on the market.
