Part of your payroll increases directly with the amount you sell and part is purely administrative. If you will not fire Mom no matter how much or how little you sell, her payroll is an administrative expense. If you intend to fire poor Joe when sales drop after Christmas, his payroll is an operating expense and should be deducted as a part one expense. It is more important that your estimate for total payroll is accurate than to divide it perfectly between administrating and operating expenses so don't waste much time on this split.

Do not forget payroll expenses such as Social Security, Unemployment Insurance and Workman's Compensation. A good estimate is to add 20% more to cover the employer's share of these obligations. If you think you will pay employees cash and avoid these obligations, add 40% to 50% to cover the additional penalties when you get caught.