A business's overhead refers to all non-labor related expenses, which excludes costs associated with manufacture or delivery. Payroll costs -- including salary, liability and employee insurance -- fall into this category. Overhead expenses are categorized into fixed and variable, according to Entrepreneur. It is important for a small business owner to know how to calculate and separate his overhead costs -- especially if he's looking for financing or creating a bid for partnership.
Fixed Expenses
Fixed expenses are those that must be paid each month. These can include rent or mortgage payments, depreciation of assets, salaries and payroll, membership and subscription dues, legal fees and accounting costs. Fixed expense amounts stay the same regardless if a business earns more -- or loses more -- in revenue that month. Associated payroll costs, including outsourcing payroll services, are included in the fixed expense category. Labor costs, such as employee time, that are not chargeable to a direct manufacturing or production activity also fall under fixed expenses.
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Variable Expenses
Variable expenses can fluctuate based on when they're paid and the amount due. These amounts correlate with sales and other production activity such as office supplies, utility costs, packaging, advertising, promotion, printing and seasonal costs. Since variable expenses change from month to month, businesses can figure their variable by taking the average from the annual total.
