Accounting offshoring vs outsourcing vs a dedicated offshore team
Outsourcing or subcontracting means paying another firm to do a job. Accounting offshoring means moving work to people in another country, with or without another firm in between. A dedicated offshore team is where the two overlap: a partner employs people abroad who work only for your firm, inside your software.
Below, for each of the three: who employs the people, who controls the work, how you pay, where the Tax Practitioners Board's Code lands, and what breaks first.
Serkan Honeine, Co-founder, CoSauce
Published · Last updated
The three models, plainly
The Tax Practitioners Board's factsheet defines outsourcing as "entering into an arrangement with a third party to perform specific services or functions". Offshoring is moving services or functions to another country, and it "may or may not involve outsourcing" (TPB factsheet). One word is about who does the work. The other is about where.
1. Subcontracting work to another firm, per job
You send a defined job, such as a batch of tax returns or a month of bookkeeping for a set of clients, to another firm. It can be down the road or in Manila. Their staff do it to their process, usually in their own systems, and you pay per job or per hour. Some of these firms are registered agents in Australia and some are not, which changes your obligations.
2. Offshoring your own function
You hire people in another country yourself, through your own entity there, a local payroll provider or direct contracts. They are your staff in all but geography. You own the hiring, the payroll and the management, and you keep the whole saving.
3. A dedicated offshore team through a partner
A partner employs the people in its own country and you direct the work. They have named logins in your Xero and XPM, follow your checklist and work for nobody else. This is how we run our outsourced bookkeeping and accounting service, the Offshore finance desk, from South Africa. Our people prepare the work. Your firm reviews it and signs off.
Who employs the people, and who controls the work
The ATO draws a useful line for Australian workers: "Employees work in and are part of your business. Independent contractors provide services to a principal's business" (ATO). Borrow the frame, as a description rather than a ruling, and the three models sort themselves out. A subcontracted firm provides services to your business while running its own. People you offshore yourself work in your business, and you employ them. A dedicated team works in your business, under your direction, while someone else employs them: in our case, us, in South Africa, under South African law.
That last split is the point of the model. You get the control of an employee without becoming an employer in a country you don't know. You don't get to skip the management, though. Someone at your firm sets the work, answers questions and reviews the output, as they would for a junior down the hall.
How you pay
- Subcontracting: a price per job or per hour. Cheap at low volume, and the cost moves with the work.
- Offshoring yourself: salary and that country's employer costs, plus recruitment, equipment, software and your own time. The lowest cost per hour once it's working, and the most work to get there.
- A dedicated team: one monthly rate per person, or the salary at cost plus a flat management fee. We use the second, with no placement fee and open books.
A dedicated person costs more than per-job subcontracting until you have close to a full week of work for them. Below that you're paying for idle hours. For published prices and a worked example in dollars, see how much offshore accounting costs.
Where the TPB Code lands
For a registered tax or BAS agent, the Code follows the client's information wherever it goes, and all three models need client consent before it leaves your firm. Subcontract to another registered agent and the TPB says you're not responsible for reviewing or supervising their work (TPB guidance statement 31/2018). Offshore your own staff and they're unregistered people working on your behalf. Their work sits under your supervision and control, and you are "ultimately responsible for the quality of work". A dedicated team is the same: our people prepare, your registered agents review and sign off, and lodgement stays with your firm. This is a summary, not legal advice. For the Code items in detail, read what stays onshore.
Side by side
| Subcontract per job | Offshore it yourself | Dedicated team via a partner | |
|---|---|---|---|
| Who employs the people | The other firm. You may never know their names. | You, or an entity you set up or contract with abroad. | The partner, in its own country. You pick the people from a shortlist. |
| Who directs the daily work | The other firm, to its own process. | You, with nobody in between. | You set the work and the checklist. The partner manages the person. |
| Where the work happens | Usually in the other firm's systems, with files sent back and forth. | In your software, under logins you issue. | In your software, under named logins you issue. |
| How you pay | Per job or per hour. | Salary and local employer costs, plus setup and your own management time. | A monthly rate per person, or the salary at cost plus a flat management fee. |
| Client consent (Code item 6) | Needed, unless the other firm is the same legal entity as yours. | Needed if the people sit in a separate entity, including your own subsidiary. | Needed. The partner is a third party. |
| Supervision (Code item 7) | Not required if the other firm is a registered agent. Required if it is not. | Required. The people are unregistered and you are responsible for their work. | Required. A registered agent at your firm reviews and signs off. |
| What breaks first | Turnaround at peak, and consistency between jobs. | Payroll and employment law in a country you do not know. | The first month, if nobody at your firm owns the review. |
| Suits | Overflow, one-off jobs and low volume. | Firms big enough to run a second office. | A full week of recurring work and a reviewer who can commit to a weekly cadence. |
What breaks first
With subcontracting, it's turnaround in BAS month, because you share the other firm's queue with every client they have. With offshoring yourself, it's the employer admin, and recruiting from Sydney when someone resigns in a market you don't know.
With a dedicated team, it's the first month. If your process lives in someone's head and nobody has blocked out time to review, the files pile up and the new person gets blamed. The model only works when a reviewer at your firm owns it and turns up each week. A co-founder joins your weekly review, and we go live in about four weeks (how we work). The time zone is the other limit. South Africa is eight hours behind Sydney, nine in daylight saving, so files sent in your afternoon are ready for review the next morning.
A worked example: 20 clients, 30 hours a week
Say your firm has about 30 hours a week of bookkeeping across 20 clients that nobody in the office has time for, all in Xero. The hours are our assumption, so swap in your own.
Subcontract per job
Send the 20 clients to a bookkeeping firm each month. Nothing to hire or manage, and you pay only for the months you use. Your reviewer reconciles their format to yours each month, and in BAS month you wait in their queue.
Offshore it yourself
Hire one bookkeeper abroad on a contract or through a local payroll provider. The cheapest hour once it is running, but the setup is yours: a contract under foreign law, equipment, payroll, leave cover and a replacement if they leave. For one person, the management time can eat the saving.
Dedicated team through a partner
One bookkeeper, employed by the partner, working in your Xero files on those 20 clients and nothing else. A full role, so little idle time. The cost is fixed every month, and you need a reviewer who checks every file for the first weeks and joins a short weekly review after that.
At 30 hours a week the dedicated person is close to a full role, so the idle-time problem is small. At six hours a week it would be the wrong answer, and we'd tell you to subcontract. If the real question is whether to hire locally at all, start with outsourced vs in-house bookkeeping.
Questions
Is offshoring the same as outsourcing?
No. Outsourcing is about who does the work, offshoring about where it's done. You can offshore to your own staff, outsource to a firm in the same suburb, or do both at once.
Do I need client consent if the offshore team works inside my own software?
Yes, if the people sit in a different legal entity from yours, which they do with any partner. The TPB treats subsidiaries, labour-hire arrangements and offshore entities as third parties under Code item 6, wherever the data is stored.
Next step
If you're weighing these up, book a call with me. Bring the work you'd move, how many hours a week it is and who at your firm would review it. If subcontracting is the better buy for your volume, I'll say so.