Payroll covers all the people employed by the club, from the players, through the board members, through to the match day tea-lady.
Because the numbers are so large the club like to talk about the ratio of payroll to the amount of money coming in to the club. (Try and work out for yourself how much the players must be getting paid.) So for example in 2006 the payroll was £24.8m and the income was £36m, a ratio of just under 69% which is widely seen as an unacceptably high ratio.
Up to 2007 wages had been in the range of 60-70% of the money coming into the club, and this had allowed the club to roughly break even over that period.
In 2007 things started to go mad, before in 2008 they just went berserk.
Often clubs roll out the line that their payroll has risen because of success within the club, and the consequent payments of bonuses for that success. This may have been a part of the reason for rise in 2008, but not in 2007. In 2007 the club paid wages that were 91% of the club's income. This madness and was a huge part of the reason the club lost £23m that season.