Question

Megan Kris, the Vice-President for Human Resources in Learning, Inc. was concerned about a recent memo she had recently received from the CEO's office regarding the possibility of outsourcing the payroll function to Salary Experts, a growing provider of a variety of human resource services. She was shocked that the CEO's office had discussed this matter with the Board of Directors, but failed to consult her.

Megan was preparing for a meeting with the CEO. In reading the memo and its attachments, Megan observed the following comparison of costs in a report prepared by the controller's office:

Payroll department expenses:
Salaries of employees	$	210,000
Share of utilities		75,000
Share of building rent		39,350
Manager’s salary		69,000
Computers and supplies		26,000
Other department expenses		20,000
Total annual expenses	$	439,350

Megan also noted that Salary Experts quoted a fixed fee of $125,000 and variable processing costs of $7.50 per employee transaction. She did not believe that the company will actually save money by outsourcing the payroll function. For one, she did not think that the company will actually save all of the above mentioned amounts. She knew that the payroll department manager could not be removed from the company because he had to oversee the payroll function and serve as a liaison with the outside company. However, all other employees in the department would likely not be required.

a. Assume Learning Inc. has 14,000 employees on its payroll. Can the company save money by outsourcing the payroll function?
b. What are the pros and cons of outsourcing the payroll function?

NEED THIS ASAP

Answer 1

Ans  Learning, Inc.

Saving from Outsourcing
Salaries To employees		$210,000
Share of utilities		$0
Share of Building rent		$0
Manager's Salary		$0
Computer and Computer Supplies		$26,000
Other departmental Expenses		$20,000
Total Saving	a	$256,000
Outsourcing cost
Fixed Fee		$125,000
Processing cost	(7.50*14,000)	$105,000
	b	$230,000
Incremental Saving	(a-b)	$26,000

2) Pros And Cons of outsourcing of payroll

Pros: Company can pay more focus on other important work.

More proficient work force is available.

Cons: Salary information is considered important from strategic point of view sharing of this information to rival company lead to loss of strategic advantage of company.