Hire Layoff Decisions - New Project 5

Sydney Sweets is a lolly and candy manufacturer in a resort town, just bought a new candy machine for $27,000 and is planning to increase the production of their signature hard candy. Due to the increased production, Sydney Sweets is deciding between hiring two university students on a casual basis or one full-time employee. Each university student would work half days totalling 20 hours per week, and would earn $22 per hour. The full-time employee would work full days 40 hours per week and would earn $22 per hour plus the equivalent of $2 per hour in sick and annual leave. Each employee is given two t-shirts to wear as their uniform. The t-shirts cost Sydney Sweets $25 each. In addition, Sydney Sweets provides disposable hair coverings and plastic gloves for the employees. Each employee uses, on average, six sets of gloves per eight-hour shift or four sets per four-hour shift. One hair covering per shift per person is typical. The cost of the hair covering is $0.05 per covering and the cost of a pair of gloves is $0.02 per pair.

Therefore, at Sydney Sweets, when looking at the total relevant costs, the full time staff member is the more expensive option than two university students. However, we need to think about qualitative factors. This could include the need for greater training costs (not covered in the questions) or that university students may be less efficient at making candy because they are working less hours. We may also need to consider the quality impact of using 2 staff members to make the candy versus one.

Lake Law has ten lawyers on staff who handle workers’ compensation and workplace discrimination lawsuits.Lake has an excellent success rate and frequently wins large settlements for their clients. Because of the size of their settlements, many clients are interested in establishing trusts to manage the investing and distribution of the funds. Lake Law does not have a trust or estate lawyer on staff and is debating between hiring one or using an attorney at a nearby law firm that specializes in wills, trusts, and estates to handle the trusts of Lake’s clients. Hiring a new attorney would require $120,000 in salary for the attorney, an additional 20% in benefits, a legal assistant for the new attorney for 20 hours per week at a cost of $20 per hour, and conversion of a storage room into an office. Lake spent $100,000 on redecorating the offices last year and has sufficient furniture for a new office. The attorney at the nearby firm would charge a retainer of $50,000 plus $200 per hour worked on each trust. The retainer is in addition to the $200 per hour charge for work on trusts. The average trust takes 10 hours to complete and Lake estimates approximately 50 trusts per year. In addition, an external attorney would charge $500 for each trust to cover office expenses and filing fees.

To determine the solution, first, find the relevant costs for hiring internally and for using an external attorney.

Based on the quantitative analysis, Lake should hire an estate attorney to have on staff. For the year, the firm would save $10,200 ($164,800 for internal versus $175,000 with the external attorney) by going with the internal hire. Other potential advantages would be that an in-house attorney could complete more than the estimated 50 trusts without incurring additional costs, and by keeping the work in-house, it helps to build the relationship between the firm and the clients. A disadvantage would be if there is not sufficient work to keep the in-house attorney busy, the company would still have to pay the $120,000 salary plus the additional costs of $44,800 for benefits and the legal assistant’s salary, even if the attorney is working at less than full capacity.