Small business owners know that average payroll expense is an important factor in calculating their profitability. Average payroll expense is calculated by looking at the total amount of wages paid to employees in a given period, divided by the number of full-time equivalent employees (FTEs) over the same period. The result is the average cost per employee, or average payroll expense. This metric lets small business owners understand how much they’re spending on their workforce and optimise their resources while still providing fair wages to employees.