Payroll costs consist of all costs incurred by an employer to compensate its employees. These costs include the following:

Employee compensation. This include wages, salaries, paid leave, piece rate pay, commissions, and bonuses.
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, which can include the compensation of the payroll staff, as well as payroll process fees and the depreciation on any payroll data collection devices.

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. It is not such a large part of the cost structure of business with more automated operations, such as an oil refinery.