SALARY LIMITATION ON GRANTS, COOPERATIVE AGREEMENTS, AND CONTRACTS

RELEASE DATE:  March 18, 2003

NOTICE:  NOT-OD-03-034

National Institutes of Health (NIH)

This notice provides updated information regarding the salary 
limitation for NIH grant and cooperative agreement awards and 
extramural research and development contract awards.  On January 25, 
2002, the Fiscal Year (FY) 2002 information on the salary limitation 
was published in the NIH Guide for Grants and Contracts. 
A notice on the continuing resolutions for FY 2003 regarding the
salary limitation was published February 10, 2003.

For fourteen consecutive years, Congress has legislatively mandated a 
provision for the limitation of salary.  For FY 2003,the Consolidated 
Appropriations Resolution 2003, Public Law 108-7, which includes 
appropriations for the Department of Health and Human Services, 
restricts the amount of direct salary of an individual under an NIH 
grant or cooperative agreement (referred to here as a grant) or 
applicable contract to Executive Level I of the Federal Executive Pay 
scale.  The Executive Level I annual salary rate was $166,700 for the 
period January 1 through December 31, 2002.  Effective January 1, 2003, 
the Executive Level I salary level increased to $171,900.    

For the purposes of the salary limitation, the terms "direct salary," 
"salary," and "institutional base salary" have the same meaning and are 
exclusive of fringe benefits and facilities and administrative (F&A) 
expenses, also referred to as indirect costs.  An individual's 
institutional base salary is the annual compensation that the applicant 
organization pays for an individual's appointment, whether that 
individual's time is spent on research, teaching, patient care, or 
other activities.  Base salary excludes any income that an individual 
may be permitted to earn outside of the duties to the applicant 
organization.

NIH grant/contract awards for applications/proposals that request 
direct salaries of individuals in excess of the applicable RATE per 
year will be adjusted in accordance with the legislative salary 
limitation and will include a notification such as the following:

According to the Consolidated Appropriations Resolution 2003, "None of 
the funds appropriated in this Act for the National Institutes of 
Health, the Agency for Healthcare Research and Quality, and the 
Substance Abuse and Mental Health Services Administration shall be used 
to pay the salary of an individual, through a grant or other extramural 
mechanism, at a rate in excess of Executive Level I" of the Federal 
Executive Pay Scale.

In summary, the following reflects the time frames associated with the 
existing salary caps from FY 1999 through FY 2003:

FY 1999 Awards  (Executive Level III)
o  October 1, 1998 through December 31, 1999    $125,900
o  January 1, 2000 through December 31, 2000    $130,200

FY 2000 Awards  (Executive Level II)
o  October 1, 1999 through December 31, 1999    $136,700
o  January 1, 2000 through December 31, 2000    $141,300
o  January 1, 2001 through December 31, 2001    $145,100

FY 2001 Awards  (Executive Level I)
o  October 1, 2000 through December 31, 2000    $157,000 
o  January 1, 2001 through December 31, 2001    $161,200
o  January 1, 2002 through December 31, 2002    $166,700

FY 2002 Awards  (Executive Level I)
o  October 1, 2001 through December 31, 2001    $161,200 
o  January 1, 2002 through December 31, 2002    $166,700

FY 2003 Awards (Executive Level I)
o  October 1, 2002 through December 31, 2002    $166,700
o  January 1, 2003 and beyond                   $171,900

The following are examples of the adjustments that NIH will make when 
salaries exceed the current salary limitation:

EXAMPLE 1.  INDIVIDUAL WITH FULL-TIME APPOINTMENT (based on grant 
award/contract issued after January 1, 2003 with a $171,900 salary 
limitation)

Individual's institutional base salary for a FULL-TIME
twelve month) appointment
                                                            $ 175,000
Research effort requested in application/proposal - 50%

Direct Salary requested                                     $  87,500
Fringe benefits requested (25% of salary)                   $  21,875
Subtotal                                                    $ 109,375

Applicant organization's F&A  (indirect) costs at 
a rate of 45% of subtotal                                   $  49,219
Amount requested - salary plus fringe benefits plus
associated F&A (indirect) costs                             $ 158,594

If a grant/contract is to be funded, the amount included for the above 
individual will be calculated as follows:

Direct salary - restricted to a RATE of                     $171,900
Multiplied by effort (50%) to be devoted to project         $ 85,950
Fringe benefits (25% of allowable salary)                   $ 21,488
Subtotal                                                    $107,438 

Associated F&A (indirect) costs at 45% of subtotal          $ 48,347

Total amount to be awarded due to salary limitation         $155,785                

Amount of reduction due to salary limitation
($158,594 requested minus 155,785 awarded)                  $  2,809                                   

EXAMPLE 2.   INDIVIDUAL WITH HALF-TIME APPOINTMENT (based on a grant 
award/contract issued after January 1, 2003 with a $171,900 salary 
limitation)

Individual's institutional base salary for a
HALF-TIME appointment (50% of a full-time
twelve month appointment)                                   $ 87,500

Research effort requested in application/proposal     30%

Direct Salary requested                                     $ 26,250
Fringe benefits requested (25% of salary)                   $  6,563
Subtotal                                                    $ 32,813

Applicant organization's F&A (indirect) costs at a rate
of 45% of subtotal                                          $ 14,766

Amount requested - salary plus fringe benefits
plus associated F&A (indirect) costs                        $ 47,579

If a grant/contract is to be funded, the amount included in the award 
for the above individual will be calculated as follows:

Direct salary - restricted to a RATE of                     $ 85,950
Multiplied by 50% appointment by 30% effort                 $ 25,785
Fringe benefits (25% of allowable salary)                   $  6,446
Subtotal                                                    $ 32,231

Associated F&A (indirect) cost at 45% of subtotal           $ 14,504 

Total amount to be awarded due to salary
limitation                                                  $ 46,735

Amount of reduction due to salary limitation
($47,579 requested minus $46,735 awarded)                   $    844

EXAMPLE 3.   INDIVIDUAL WITH NINE MONTH APPOINTMENT (based on a 
contract award/grant issued after January 1, 2003 with a $171,900 
salary limitation)

Individual's institutional base salary WITH NINE MONTH 
appointment                                                 $131,250

Research effort requested in application/proposal     50%

Direct Salary requested                                     $ 65,625
Fringe benefits requested (25% of salary)                   $ 16,406
Subtotal                                                    $ 82,031

Applicant organization's F&A (indirect) costs at a rate
of 45% of subtotal                                          $ 36,914

Amount requested - salary plus fringe benefits
plus associated F&A (indirect) costs                        $118,945

If a contract/grant is to be funded, the amount included in the award 
for the above individual will be calculated as follows:

Direct salary - restricted to a RATE of $171,900 (annual rate) divided 
by 12 months 
Multiplied by 9 months by 50% effort                        $ 64,463
Fringe benefits (25% of allowable salary)                   $ 16,116
Subtotal                                                    $ 80,579

Associated F&A (indirect) cost at 45% of subtotal           $ 36,260

Total amount to be awarded due to salary limitation         $116,839

Amount of reduction due to salary limitation
($118,945 requested minus $116,839 awarded)                 $   2106

NOTE: If a faculty member with a 9 month appointment works during 
his/her off months, the monthly salary rate limitation is $14,325 
($171,900 divided by 12 months) multiplied by the proposed percent of 
effort during those months.

Implementation of new salary limitation:

o No adjustments will be made to modular grant applications/awards or 
to previously established commitment levels for non-competing grant 
wards issued with FY 2003 funds.

o NIH competing grant awards with categorical budgets reflecting salary 
levels at or above the new cap(s)issued in FY 2003 will reflect 
adjustments to the current and all future years so that no funds are 
awarded or committed for salaries over the limitation.

o For awards issued with FY 2002 funds, if adequate funds are available 
in active FY 2002 awards, and if the salary cap increase is consistent 
with the institutional base salary, grantees may rebudget to 
accommodate these salary levels and contractors may bill at the higher 
level.  However, no additional funds will be provided to the FY 2002 
grant award and the total estimated cost of the contract will not be 
modified.

o An individual's base salary, per se, is NOT constrained by the 
legislative provision for a limitation of salary.  The rate limitation 
simply limits the amount that may be awarded and charged to NIH grants 
and contracts.  An institution may supplement an individual's salary 
with non-federal funds.

o The salary limitation does NOT apply to payments made to consultants 
under an NIH grant or contract although, as with all costs, those 
payments must meet the test of  reasonableness and be consistent with 
institutional policy.

o The salary limitation provision DOES apply to subawards/subcontracts 
for substantive work under an NIH grant or contract.

o COMPETING grant applications and contract proposals that include a 
categorical breakdown in the budget figures/business proposal should 
continue to reflect the actual institutional base salary of all 
individuals for whom reimbursement is requested.  In lieu of actual 
base salary, however, applicants/offerors may elect to provide an 
explanation indicating that actual institutional base salary exceeds 
the current salary limitation.  When this information is provided, NIH 
staff will make necessary adjustments to requested salaries prior to 
award.

Questions & Answers

1. Can I rebudget grant funds or bill contracts issued with FY 2003 
funds to allow for the increase?  Yes, provided funds are available and 
the increase is warranted.  Prorated figures should be used for the 
applicable months, i.e., the $171,900 level is effective beginning 
January 1, 2003.

2. If a grant award (competing or non-competing) has already been 
issued in FY 2003, will an adjustment be made?  No adjustments will be 
made.  However, rebudgeting is allowable.

3. If an application/proposal fails to provide needed salary 
information, will an adjustment be made based on the new rates?  No 
adjustment will be made if an application fails to provide adequate 
information regarding the individual's salary level.

4. Does the NIH appropriation language link the salary cap to a Federal 
Executive Level or to a dollar level?  The link is to the Federal 
Executive Level pay scale (i.e., Executive Level III for FY 1999 and 
Executive Level II for FY 2000 and Executive Level I for 2001, 2002, 
and 2003).  As the cap is linked to Federal Executive Levels, can 
grantees/contractors with ongoing awards rebudget/bill up to the 
various salary caps, based on the fiscal year of the award and the time 
of the salary expense?  Yes, salary may be charged in accordance with 
the prevailing FY cap(s), as long as the levels are consistent with the 
individual's institutional base pay.

5. Will grantees be permitted to submit revised budgets reflecting 
higher base salaries?  Not as a general rule.  NIH policy states that 
grantees should always reflect actual base salaries in the requested 
budgets or provide an explanation indicating that actual institutional 
base salary exceeds the current salary limitation.  As a general rule, 
NIH will use the information available in the existing application and 
make adjustments for salary cap based on information available at the 
time of award.

INQUIRIES

Questions concerning this notice or other policies relating to grants 
or contracts should be directed to the grants management or contracts 
management office in the appropriate NIH Institute or Center.


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