How to Exceed the NIH Salary Cap by Planning Your F&A Rate to be Used in an Indirect Cost Proposal

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The challenge of Grantees to attract and retain top employees is made more difficult given the Congressional statutory restriction imposed on Health and Human Services (HHS) Appropriations that limits the maximum rate of compensation that can be paid to an individual.

The "salary rate cap" language contained in the NIH Grants Policy Statement limits the rate of pay directly chargeable to grants, cooperative agreements and contracts issued by the National Institutes of Health (NIH) for FY2009 at $196,700 per year (or $94.57 per hour). Any direct salary exceeding the salary cap (including proportional fringe benefits) will not be reimbursed by the Government.

Note the use of the word "directly".

Direct salary is exclusive of fringe benefits and F&A costs, including the costs contained in your fringe benefit rate or F&A rate

including the following:

Overtime Premiums

Premiums for overtime generally are allowable; If overtime premiums are allowable, the

classification of employees eligible to receive overtime premiums should be determined according to the formal policies of the organization consistently applied regardless of the source of funds. If you are going to "discriminate" who gets paid for overtime in any way, we strongly suggest that you have a firm understanding of the Fair Labor Standards Act.

Bonuses and Incentive Compensation

Bonuses and Incentive Compensation are allowable as set forth in FAR 31.205-6 provided such payments are reasonable and are made according to a formal policy of the grantee that is consistently applied regardless of the source of funds. Our firm suggests that Grantees follow the stipulations contained in the DCAA Contract Audit Manual that the basis of the award is adequately supported and the award is made:

• According to an agreement established between the contractor/grantor and the employee before the services are rendered, or

• In conformity with an established plan or policy consistently followed.

Conclusion

Using incentive compensation and paying for overtime can be effective ways to recruit and retain top employees. However, keep in mind that compensation costs are allowable only to the extent that they are reasonable and conform to the established policy of the organization consistently applied. Inconsistent application of these policies can make these costs unallowable and can devastate employee morale.

In order to ensure that these costs will withstand the "reasonableness" test during the negotiations leading to a final indirect rate agreement, we strongly recommended that Grantees project these costs into their projected F&A rate when submitting their annual provisional indirect cost proposal.

By disclosing these projected costs up-front, and building them into your negotiated indirect cost rate agreement you may have a better chance of holding onto your budding superstars!

In closing, as a way to introduce our firm´s unique services, we are happy to provide the following free of charge:

1. provide benchmarking feedback on your indirect rate projection,

2. assist in the preparation of the financial portion of your government proposal,

3. negotiate your initial provisional indirect rate agreement

For more information on related topics, or to take us up on our offer and download our complimentary indirect rate projection template please click here.

Edward G. Jameson, CPA

www.jamesoncpa.com