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.
| Salary and Cost Categories | Amount |
|---|---|
| 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.
| Salary and Cost Categories | Amount |
|---|---|
| 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.
| Salary and Cost Categories | Amount |
|---|---|
| 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
| 6-month Institutional Base Salary | Actual effort on project | Salary charged to project account | % of 6-mo. Institutional Base Salary | Salary charged to non-federal account | % of 6-mo. Institutional Base Salary | Cost 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% |
| 6-mo. Institutional Base Salary | % effort on effort report | Salary charged to project account for 11% effort | Allowable per Salary Cap | Over Cap | Cost Transferred to non-fed account | Cost Shared back to project account | Certified 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.
| 6-mo. Institutional Base Salary | % effort on effort report | Salary charged to project account for 11% effort | Allowable per Salary Cap | Over Cap | Determine % effort necessary for amount paid | Cost Share % effort | Certified 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.