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ACCOUNTING AND PAYROLL AGENDAS REMAIN POPULAR, ESPECIALLY DURING START-UP PHASE

Complex tax rules a candidate for outsourcing

THE PRIMARY reason for outsourcing routine activities is to save money and time, but it also allows firms to tap expertise they might otherwise miss. This is especially the case in accounting, payroll and tax advisory because of the complexity and frequent changes in legislation – something that drives the growth of outsourcing in Slovakia.

Many firms find taxes too complicated to handle themselves.(Source: SME)

THE PRIMARY reason for outsourcing routine activities is to save money and time, but it also allows firms to tap expertise they might otherwise miss. This is especially the case in accounting, payroll and tax advisory because of the complexity and frequent changes in legislation – something that drives the growth of outsourcing in Slovakia.

“There is certainly still a continued interest in outsourcing,” Bart Waterloos, partner of VGD - AVOS Bratislava-Slovakia, told The Slovak Spectator. “On the one hand we notice that some services have become a commodity where price is the only decisive criterion; on the other hand we notice that if you deliver high quality services aimed at the real needs of the customer, that there is a lot of room for expansion. You really have to show that you will go the extra mile to solve the problem of your client.”

Monika Smižanská, director at assurance at PwC in Slovakia, confirms that usage of outsourcing in accounting and tax services continues to rise. PwC notes this trend in both its international and domestic operations, she said.

Smižanská cites the Slovak CEO survey, which PwC annually conducts in cooperation with Forbes magazine, according to which outsourcing is one of the significant ways in which companies optimise and make their business more effective. As much as 29 percent of companies in Slovakia started some form of outsourcing in 2013 and 25 percent plan to do so this year.

“The increasing interest in outsourcing is a result of not only pressure to save but also efforts for innovation and focusing of companies’ management on key activities and getting rid of routine activities, which themselves do not mean added value,” said Smižanská, adding that ‘economies of scale’ with outsourcing firms can also boost efficiency.

Janka Farkašová, senior manager of the tax department at Deloitte in Slovakia, specified that outsourcing accounting services, payroll agenda and tax services is quite common in Slovakia, especially among small companies, which cannot afford to employ an accountant or a tax advisor. But affordability is only one of reasons why the popularity of outsourcing in Slovakia is increasing.

“A no less important reason is the fact that the tax and accounting legislation in Slovakia changes frequently,” Farkašová told The Slovak Spectator. “To follow these changes and apply them in practice is quite demanding and this is why, and in this case also medium-sized and large companies, prefer to reach for qualified accountants and tax advisors.”

In terms of the change in the interest in outsourcing, in accounting the interest in traditional accounting services persists, while Deloitte registers an increasing interest in new types of services. These include, for example, a temporary rental of an accountant or a payroll accountant. Such a contract lasts from some months up to one-two years and the most common reason for opting for this solution is to cover an employee’s maternity leave or the termination of a contract with an employee and the inability to find a new expert to fill the vacancy.

Another service is shifting bookkeeping done according to foreign standards to comply with Slovak ones. The interest in this service, according to Farkašová, is linked with the fact that for the time being large companies are trying to centralise their accounting, but also use accounting data from central bookkeeping for planning, making forecasts and financial analyses in individual markets. When accounting is centralised, companies encounter the problem of harmonisation of their accounting in individual countries with the related legislation in these countries.

According to Smižanská, global companies outsource especially in the form of offshoring, when processes are being centralised internally in localities meeting certain conditions in terms of the price, quality, IT infrastructure, cultural affinity, legal and tax system of the country, political stability and other factors.

Slovakia is one country where global companies conduct some of their activities offshore.
“Even though Slovakia has already lost its comparative advantage in the field of taxes and [compulsory] contributions, offshoring activities is still increasing and is especially beneficial for Slovakia in that these increase in the field of financial activities with higher added value as planning, budgeting, controlling, taxes, payroll agenda or even responsibility for compiling statutory financial statements,” said Smižanská.

Accounting and payroll agenda top the list of services being outsourced in Slovakia. This is, according to Waterloos, because there is a lot of legal compliance that has to be adhered to, and thus using an expert saves companies time and effort.

According to Farkašová, the interest in outsourcing of individual types of services is linked to the needs of individual companies.
“While in the case of outsourcing of accounting, in my opinion, the main reason is saving time and costs and thus possibility to be devoted to a higher extent to the core business. In the case of outsourcing payroll agenda, there is one additional reason and this is keeping confidence of information related with the calculation of wages,” said Farkašová.

One specific field is tax consultancy, as qualified tax advisors solve tax impacts of non-standard transactions which, for example, internal accountants may not be able to handle.

“This is why tax advisory services are often used regardless of whether a company has its own accounting department or its accounting is outsourced,” said Farkašová.

For whom outsourcing is suitable

In general, experts believe that every company, irrespective of the size or business, can benefit from outsourcing.

“Leaving this administrative burden of accounting, tax and payroll to a specialist will make sure that the entrepreneur can concentrate on his core business,” said Waterloos.

According to Smižanská, outsourcing of accounting, payroll agenda or tax advisory is suitable for each organisation to some extent, while this extent depends on the character of the company, the complexity and automation of its operating processes, the organisational structure and other factors. She remarked that outsourcing has been used even more by the state administration in the EU.

According to Farkašová, small companies are interested in outsourcing especially from a financial point of view, as it is not effective for these companies to employ an accountant or a wage accountant full time. Medium-sized and large companies often decide to outsource so that such services are provided by experts.

The field of business in which a company operates usually does not have an impact on whether it decides to outsource.

“A company often decides to outsource accounting and payroll services during the first phase of its existence,” said Farkašová, adding that later the company often builds its own accounting department and carries out these activities internally, while tax advice often remains outsourced because of the complexity.

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