Selzer& Hollinger, a legal services firm, is considering outsourcing its payroll function. It has received a bid from ABC Payroll Services, Inc., for $18,000 per year. ABC Payroll will provide all payroll processing, including employee checks and payroll tax reporting. Selzer & Hollinger’s costs for payroll processing in- house over the past year were as follows:
Cost Amount
Payroll clerk (part time).................. $ 9,000
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..... $1,200

Currently the payroll clerk works only on payroll processing, and will be laid off if payroll is out sourced. The human resources manager spends 25 per cent 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?