Payroll costs consist of all costs incurred by an employer to compensate its employees. These costs include employee compensation and the employer-paid portion of all payroll taxes. The employer-paid portion of these taxes encompasses FICA taxes and government unemployment insurance programs. At a more expanded level, the payroll costs concept can also include the administration of the payroll program for a business.
Payroll costs may be the largest cost category of an organization, especially one in a services industry where the staff provides the product to customers.