Instructions on how to work with salary caps
Congress has limited the salary that an individual may receive under certain federal awards (DHHS/NIH/AHRQ/SAMHSA/CDC/HRSA). The salary cap is linked to the federal Executive Level II executive pay scale and is adjusted whenever federal salaries are increased. This usually happens in January of each year. Effective January 6, 2019, the Executive Level II salary increased to $192,300.
The salary cap restriction limits the amount of salary that can be charged to grants and contracts issued by sponsors that apply either the DHHS salary cap or another salary cap. The salary cap serves as the base for determining the amount of salary that an individual may be paid from awards issued by these agencies. The DHHS salary cap limitation also applies to UNR's subcontractors on applicable sponsored projects.
Individuals with salaries over the cap must provide cost sharing from non-federal funds to cover the portion of their salary that exceeds the salary cap.
PIs are responsible for ensuring that salary over the cap is not charged to their sponsored project account and that the associated cost share is recorded.
How to avoid overcharging a project for salaries
The best way to avoid salary cap problems is to be pro-active when setting up the payroll allocation for an employee with a salary that is over the cap. Based on the percent of effort the individual has committed to the project, first determine the amount of salary that is allowable to be charged to the project account and the amount that must be paid from a non-federal account. The account that pays for the salary over the cap should be set up with a Salary Cap Cost Share worktag. Allocate only the allowable salary to be directly paid from the project worktag; allocate the remainder to the Salary Cap Cost Share worktag. The employee's total effort on the project will be the sum of the effort directly charged to the project and the cost shared effort.
**Note: The over-the-cap cost share dollars cannot be used to meet a committed cost share requirement as these expenses are unallowable on a sponsored project. Projects with salary caps rarely require cost share, so this isn't usually a problem.
Example of methodology for charging salary on a DHHS project when salary exceeds the Executive Level II salary cap.
|Salary and Cost Categories||Amount|
|Institutional Base Salary (IBS)||$200,000|
|Over the cap amount ($200,000 - $185,100)||$14,900|
|Effort on project||10%|
|Salary allowed to be directly charged to project (10% x $185,100)||$18,510|
|Salary to be paid by non-sponsored account (10% x $14,900). Allocate this salary to a Salary Cap Cost Share worktag that is linked to the award.||$1,490|
The over-cap salary must be allocated to a Salary Cap Cost Share worktag linked to the award to show that the employee met his/her effort commitment.
Payroll accounting adjustment options to correct salary charged over the cap
If payroll expenses that exceed the salary cap are charged to a sponsored project, there are two options for adjustment.
- If the effort percent is correct, determine the dollar amount of over-cap salary and enter a Payroll Accounting Adjustment to transfer the over-cap salary to a Salary Cap Cost Share worktag linked to the award. If a Salary Cap Cost Share worktag has not been set up, contact your Grants & Contracts Officer in Sponsored Projects to set one up, then enter the Payroll Accounting Adjustment.
Example: an employee worked 10% on a project and charged $25,000, but only $22,500 is allowable for 10% effort. $2,500 too much was charged to the project. Enter a Payroll Accounting Adjustment to transfer $2,500 to a Salary Cap Cost Share worktag linked to the award. The employee's total effort on the project is still 10%, but only 9% ($22,500) is directly charged to the project and the other 1% ($2,500) is cost shared.
- If the percent of effort directly charged to the project is less than the percent of time that the employee actually worked on the project, keep the salary expenses on the project, and enter a Payroll Accounting Adjustment to identify the amount of salary that was cost shared. This will increase the percent effort on the project.
Example: an employee charged $25,000 to a project for 10% effort. Only $22,500 is allowable for 10% effort on this project. The employee actually spent 15% of her time on the project. The salary for the additional 5% effort ($12,500) was paid by a non-sponsored account, but not identified as cost share. Enter a Payroll Accounting Adjustment to add a Salary Cap Cost Share worktag to the $12,500 in the non-sponsored account. Now the employee is reporting 15% effort on the project, only $25,000 of which was directly charged to the project. For 15% effort, $25,000 is under the salary cap.
For more information
If you would like assistance with salary cap issues, please contact Michele Dondanville at email@example.com or (775) 784-6360.