Incremental analysis of Outsourcing Decision [LO 1, 2] Selzer & Hollinger, a legal services firm, is considering outsourcing its payroll function. It has received a bid from ABC Payroll Services for $22,000 per year. ABC Payroll will provide all payroll processing, including employee checks and payroll tax reporting. Selzer & Hollinger’s costs for payroll processing inhouse over the past year were as follows:
cost amount Payroll clerk (part time) $12,000 Annual cost of payroll processing software updates 1,000 Human resources manager’s salary 80,000 Depreciation of computers used in payroll processing 2,000 Annual payroll tax update seminar costs for one employee 1,500
Currently the payroll clerk works only on payroll processing, and will be laid off if payroll is outsourced. The human resources manager spends 25 percent of her time currently on payroll-related issues. The computers would remain and be used for other tasks if payroll is outsourced.
RequiRed a. What is the annual impact of outsourcing payroll? Will the company save money or spend extra money if payroll is outsourced? b. What qualitative factors should be considered in this decision?
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