A cost centre is a defined unit of the business - a department, team or project - that costs are allocated to so management can budget and report on spending at that level rather than only at the whole-company level.
What it means
A cost centre does not generate revenue of its own; it exists purely to track what is spent. Every employee is typically assigned to a cost centre so their salary, employer contributions and benefits roll up to the right budget line.
Where it fits in
Payroll cost is one of the largest items allocated by cost centre - each pay run's expense and employer contributions post against the cost centre the employee belongs to, letting a business see staffing cost department by department rather than as one undifferentiated total.
Key rules
- An organisational unit costs are grouped against, not a revenue-generating unit.
- Every employee is typically assigned to one for budgeting purposes.
- Payroll cost is one of the largest items allocated by cost centre.
- Enables department-level cost reporting rather than only company-wide totals.
