Would outsourcing the payroll function increase or decrease Duck Associates’ operating income?
Payroll outsourcing function can be regarded as a better decision as it helps save any durations accounted for and also enables the staff to do different activities of the company (Dickmann, 2005). The manager should make a comparison of the outsourcing costs of payroll with the payroll processing cost. The sunk cost is comprised of payroll software purchases and is therefore not appropriate for the decision. The bookkeeper’s time is halved to enter into the system the payroll data is currently used for input form preparation. Hence, no savings are present accounting for the bookkeeper’s time. Thus, the only comparison present is between the outsourcing costs of the payroll and payroll clerk’s salary as below:
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| Description | Amount |
| Toby Stock’s salary | $42,000 |
| Minus outsourcing cost of the payroll | ($2,000 x 12) = $24,000 |
| Increase/reduction in the operational income | $18,000 |
From the above table, it is evident that the payroll outsourcing functions will raise operating income. The case is realized by the $18,000 increment.
Can you think of other factors that might support keeping Stock, rather than outsourcing payroll processing? How should each of the factors affect Tan’s decision if she wants to do what is best for Duck Associates and act ethically?
Payroll services being outsourced helps in cost savings for the company. However, laying off is required for it to be considered successful. Nonetheless, it is unethical for an employee lay off to help in cost savings. Nevertheless, if there is a need for operating income maximization, then cost savings are not to be overlooked.
The best alternative would be to do payroll outsourcing and include Toby Stock in different vital duties and responsibilities instead of sacking him from his job. Toby Stock may help at the supervisory positions that would help time-saving techniques to be realized for Tan. Besides, Tan can aim at doing other functions for the business. Another role Toby Stock could do is business analysis aimed at gathering data on cost elements and finding ways of slashing costs further. Much focus could be done by Stock on accounts for managed properties. On the other hand, Tan can think of nourishing the business at his own time. As realized, Toby Stock can utilize his time for different higher tasks that would help Tan focus on the central business and leave the accounting work to Stock.
Reference
Dickmann, M., & Tyson, S. (2005). Outsourcing payroll: beyond transaction-cost economics. Personnel Review, 34(4), 451-467.
