What am I spending on payroll?
Payroll is usually the single largest expense for any business with employees. Here's how to find your total payroll cost and understand whether it is in line with your revenue.
The short answer
Total payroll costincludes gross wages, employer payroll taxes (Social Security, Medicare, unemployment), health insurance contributions, retirement matching, and workers' comp. Your P&L report shows these across several line items. Below, we walk you through how to find and total them in QuickBooks and Xero.
Why payroll is the expense that quietly eats your margin
You hire one new employee at $55,000 per year. Seems manageable. But the real cost is more like $68,000 when you add employer payroll taxes (7.65% for Social Security and Medicare), health insurance ($6,000/year for your contribution), and workers' comp. That is a 24% premium on top of the base salary.
Multiply that by 8 employees and your payroll is not $400,000 a year. It is closer to $500,000. If your revenue is $900,000, you are spending 56% of every dollar on people. That leaves 44 cents to cover materials, rent, software, insurance, marketing, and profit.
Payroll does not fluctuate like other expenses. You cannot turn it down when revenue dips. It is a fixed obligation that arrives every two weeks whether you had a good month or a bad one. That is why tracking payroll as a percentage of revenue matters more than tracking the absolute dollar amount.
What makes up your total payroll cost
Payroll is not one number on your P&L. It is usually spread across several accounts:
- Gross wages and salaries: The base pay before deductions. This is the largest component.
- Employer payroll taxes: Your share of Social Security (6.2%), Medicare (1.45%), federal unemployment (FUTA), and state unemployment (SUTA). These are costs to you, not deductions from employee paychecks.
- Benefits: Health insurance contributions, dental, vision, 401(k) matching, HSA contributions. These vary widely by company.
- Workers' compensation insurance: Required in most states. Rates depend on your industry and claims history.
A good benchmark: total payroll cost (including all taxes and benefits) is typically 1.2x to 1.4x the gross salary number. If you are only looking at gross wages, you are underestimating your people cost by 20-40%.
How to find your payroll spending in QuickBooks Online (5 steps)
- 1Open the Profit and Loss report
From the left sidebar, click Reports. Search for “Profit and Loss” and open it. Set the date range to the current month.
- 2Find payroll-related line items in Expenses
Scroll to the Expenses section. Look for accounts like “Payroll Expenses,” “Wages,” “Salaries,” “Payroll Tax Expense,” “Employee Benefits,” and “Workers Comp.” If you use QuickBooks Payroll, these are often grouped under a Payroll Expenses parent account.
- 3Add them up for total payroll cost
Sum all payroll-related accounts: gross wages + employer taxes + benefits + workers' comp. This is your true payroll cost for the month.
- 4Run the Payroll Summary report (if available)
If you use QuickBooks Payroll, go to Reportsand search for “Payroll Summary.” This consolidates all payroll components into one view, including employer taxes broken out by type.
- 5Calculate payroll as a percentage of revenue
Divide your total payroll cost by Total Income from the P&L. Example: $48,200 payroll / $92,000 revenue = 52%. Track this percentage monthly. If it is climbing while revenue is flat, you have a problem building.
Total time: about 6 minutes. The challenge is that payroll costs are often scattered across multiple accounts. You need to identify all of them to get the true total.
How to find your payroll spending in Xero (4 steps)
- 1Go to Accounting → Reports → Profit and Loss
Set the date range to the current month and click Update.
- 2Find payroll accounts under Operating Expenses
Look for accounts labeled “Wages and Salaries,” “Superannuation” (if in Australia/NZ) or “Employer Tax Expense,” “Employee Benefits,” and similar. Xero groups these in the Operating Expenses section.
- 3Total all payroll-related accounts
Add up every account that relates to employee costs: wages, employer taxes, benefits, workers' comp. If you also have contractor payments that are effectively labor costs, include those too.
- 4Calculate the ratio and compare periods
Divide total payroll by Total Revenue. Add a comparison period (“Compare with: Previous Period”) to see if the ratio is changing. If payroll is 52% this month and was 48% last month, find out why.
Total time: about 5 minutes. Like QuickBooks, the main challenge in Xero is that payroll is spread across multiple accounts. You need to find and sum them all.
What it takes to monitor payroll cost every month
- 5-6 minutes per month to pull the P&L, find all payroll accounts, and total them.
- A spreadsheet to track payroll as a percentage of revenue over time. The absolute number matters less than the ratio.
- Context your P&L cannot give you. Payroll went up $4,000. Was it overtime? A new hire? A raise? The P&L shows the total but not the reason. You need to check your payroll system or ask your bookkeeper.
Or see your payroll spending automatically, every month
Bottomline pulls all payroll-related accounts from your QuickBooks or Xero data, totals them, and shows payroll as a percentage of revenue each month:
Bottomline also flags when your payroll ratio crosses key thresholds. And because it connects to your CRM and pipeline data, it can tell you whether the payroll increase is supported by growing revenue or if you are adding headcount ahead of demand.