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 islinked 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 10, 2016, the Executive Level II salary increased to $185,100.

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 a Personnel Action Form (PAF) for an individual 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. Please see below for examples and a link to a salary cap calculator. Set up the payroll distribution on the PAF based on these calculations. Then, at effort reporting time, record the amount charged to the non-federal account as cost share to the project; this will demonstrate that the individual met her/his effort commitment.

**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.

Examples of methodology for charging salary on a DHHS project when salary exceeds the Executive Level II salary cap.

Example 1: A-contract faculty with IBS of $200,000 committed to 10% annual effort on project.

Salary and Cost CategoriesAmount
Institutional Base Salary (IBS) $200,000
Salary cap $185,100
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). On a PAF, charge this salary to a non-sponsored account and then record it as cost share during effort reporting. $1,490

The cost share must be recorded in the Effort Reporting System to show that the employee met his/her effort commitment.

Example 2: A-contract faculty with IBS of $200,000 committed to 75% effort on project for one month only.

Salary and Cost CategoriesAmount
Salary for month based on IBS ($200,000/12 months)

$16,667
Monthly salary cap ($185,100/12 months)

$15,425
Monthly over-the-cap amount ($16,667 - $15,425)

$1,242
Effort on project for month

75%
Monthly salary allowed to be directly charged to project (75% x $15,425)

$11,569
Monthly salary to be charged to non-federal account (75% x $1,242). On a PAF, charge this salary to a non-sponsored account and then record it as cost share during effort reporting.

$932

The cost share must be recorded in the Effort Reporting System to show the employee met his/her effort commitment.

Example 3: B-contract faculty with IBS of $125,000 committed to 30% effort on project during the 8-month academic contract period.

Salary and Cost CategoriesAmount
Institutional Base Salary for 8-month academic contract period $125,000
Salary cap ($185,100 x 8/12) $123,400
Over-the-cap amount ($125,000-$123,400) $1,600
Effort on project 30%

Salary allowed to be directly charged to project (30% x $125,000) $36,300
Salary to be charged to non-federal account (30% x $1,600). On a PAF, charge this salary to a non-sponsored account and then record it as cost share during effort reporting.

$480

The cost share must be recorded in the Effort Reporting System to show the employee met his/her effort commitment.
For a spreadsheet to help calculate salary cap cost share, click here.

Corrective Actions on Effort Reports

Example 1: Percent of effort on effort report is lower than actual/committed effort on project. (This will happen if the PAF was initially set up correctly.)

6-month Institutional Base SalaryActual effort on projectSalary charged to project account% of 6-mo. Institutional Base SalarySalary charged to non-federal account% of 6-mo. Institutional Base SalaryCost Shared to project account on effort report% effort reported on effort report</>
$125,000 11% $10,180.50 8% $3,569.50 3% $3,569.50 11%

Example 2: Percent of effort on effort report is correct and salary expenses are over the cap. (This would happen if the PAF was not initially set up correctly.)

6-mo. Institutional Base Salary% effort on effort reportSalary charged to project account for 11% effortAllowable per Salary CapOver CapCost Transferred to non-fed accountCost Shared back to project accountCertified Effort
$125,000 11% $13,750.00 $10,180.50 $3,569.50 $3,569.50 $3,569.50 11%

Note: in the Effort Reporting System (ERS), the cost share must be entered before the cost transfer because a pre-reviewer cannot make changes to an effort report once a cost share has been entered.

Example 3: Salary expenses are over the cap for the percent of effort on the effort report, and the employee actually worked more time on the project than the salary reflects.

6-mo. Institutional Base Salary% effort on effort reportSalary charged to project account for 11% effortAllowable per Salary CapOver CapDetermine % effort necessary for amount paidCost Share % effortCertified Effort
$125,000 11% $13,750.00 $10,180.50 $3,569.50 15% 4% 15%

In this example, determine the amount of effort for which $13,750 would be allowable (at or under the cap). The Effort Reporting System only works with whole numbers for percent of effort. At 14% effort, only $12,957 is allowable. At 15% effort, $13,882.50 is allowable. Because the actual salary paid is over $12,957, the individual will need to report 15% effort so that the amount charged to the project account is under the salary cap. Note: adding cost shared effort is only allowable if the individual actually worked the percent effort s/he certifies.