Payroll Department Outsourcing


Peaches Pty Ltd (Peaches) is considering outsourcing its payroll department. The following estimates have been obtained:
·    In-house cost per payroll transaction                       $7.25
·    Outsourced cost per payroll transaction:                  $6.50
·    Cost of managing the outsourced relationship:          $20,000 per annum
·    Payroll transactions per annum:                              25000

Which one of the following statements is correct?

A. Peaches should outsource payroll as it has limited strategic risk may be performed at a lower cost

B. Peaches should not outsource payroll as external access to employee data is very risky and it will be performed at a higher cost.

C. Peaches should outsource payroll as even if the cost of outsourcing is higher, other non-financial benefits may be realized.

D. Peaches should not outsource payroll as it will cost more in the long run in the number of transactions per annum increases.


This multiple choice question belongs to Operations Management and the question discusses about a company contemplating about outsourcing payroll department. The options are being evaluated.

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