<xsl:template match="ScheduleVariance">

		<td><font color="gold"><b>Total</b></font></td>
		<xsl:for-each select="Employee">
		<xsl:variable name="subtotals">
			<subtotal><xsl:value-of select="Total" /></subtotal>
		</xsl:variable>
		<tr>
			<xsl:call-template name="Employee" />
		</tr>
		</xsl:for-each>

I get the report formatted the way they want it, but when I try to add

That's because the variable is not in scope. The scope
of variables is the enclosing element, in this case
the for-each statement working on your Employee elements.

 <tr>
 	<td></td>
 	<td><b>Totals</b></td>
 	<td></td>
 	<td></td>
 	<td></td>
 	<td></td>
 	<td></td>
 	<td><xsl:value-of select="sum(Employee/Total)" /></td>
 </tr>