NOT-OD-12-035: Notice of Salary Limitation on Grants, Cooperative Agreements, and Contracts

Notice of Salary Limitation on Grants, Cooperative Agreements, and Contracts

Notice Number: NOT-OD-12-035

Update: The following update relating to this announcement has been issued:

May 8, 2013 - See Notice NOT-OD-13-064. NIH Fiscal Policy for Grant Awards FY 2013.

Key Dates
Release Date: January 20, 2012

Related Notice:
NOT-OD-12-034: Notice of Legislative Mandates in Effect for FY2012

Issued by
National Institutes of Health (NIH)

Purpose

This Notice provides information regarding the salary limitation for NIH grant and cooperative agreement awards and extramural research and development contract awards (referred to here as grants).

Every year since 1990 Congress has legislatively mandated a provision limiting the direct salary that an individual may receive under an NIH grant. For FY 2011, the Department of Defense and Full-year Continuing Appropriations Act of 2011 (Public Law 112-10) continued implementation of Public Law 111-117: Consolidated Appropriations Act, 2010 which restricted the amount of direct salary to Executive Level I of the Federal Executive Pay scale; this information was published May 4, 2011 in the NIH Guide for Grants and Contracts (NOT-OD-11-073). No increase had been provided for Federal salaries.

For FY 2012 the Consolodated Appropriations Act, 2012 (Public Law 112-74) signed into law on December 23, 2011, restricts the amount of direct salary to Executive Level II of the Federal Executive Pay scale. The Executive Level II salary is $179,700.

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: None of the funds in this award shall be used to pay the salary of an individual at a rate in excess of the applicable salary cap.

This is the first year that the salary limitation has been reduced; it is now restricted to Executive Level II of the Federal Pay Scale. Since this reduction was included in the law signed December 23, 2011, implementation of the lower level is effective with FY2012 awards where the initial Issue Date of the award is on/after 12/23/2011. For FY2012 awards issued on/before December 22, 2011 (competing and non-competing), the effective salary limitation remains at Executive Level 1, $199,700. Please see the salary cap summary and the time frames associated with salary caps at https://grants.nih.gov/grants/policy/salcap_summary.htm.

Implementation of salary limitation for NIH grant and cooperative agreement awards and extramural research and development contract awards:

For awards (competing and non-competing) with an initial Issue Date on/before December 22, 2011, the salary limitation is Executive Level I of the Federal Pay Scale, $199,700. OER has posted a list on RePORT titled FY2012 Grants Subject to Executive Level I Salary Cap for all grants issued on/before December 22, 2011 where Executive Level I would be the appropriate level when a salary limitation is applicable.

Effective with grant awards with an initial Issue Date on/after December 23, 2011, the salary limitation is limited to Executive Level II of the Federal Pay Scale, $179,700.
NIH competing grant awards with categorical budgets reflecting salary levels at or above the new limit that have an initial Issue Date on/after December 23, 2011 will reflect adjustments to the current and all future years so that no funds are awarded or committed for salaries over the limitation.

NIH competing grant awards with an initial Issue Date on/before December 22, 2011 with categorical budgets reflecting salary levels at or above the new limit may continue to apply the Executive Level I salary levels for the FY2012 award period. No adjustments are required. However, future years for these awards will be adjusted to reflect Executive Level II.
NIH non-competing awards will not be recalculated to adjust for this decrease in the salary limitation. However, grantee institutions are reminded that the level to charge on non-competing grants is dependent upon the Issue Date of the initial FY2012 award. For non-competing grants with initial Issue Dates on/before 12/22/2011, the applicable salary limitation is Executive Level I; for non-competing grants with an initial Issue Date on/after 12/23/2011, the applicable salary limitation is Executive Level II. For grants now limited to Executive Level II, unless otherwise restricted grantees may rebudget any funds freed as a result of the lower cap.

Any grants awarded in previous fiscal years (e.g., FY 2011, FY 2010, etc.) are not impacted by the FY 2012 salary limitation. Carrying over previous years funds to support salaries will remain at the salary limitation levels in effect at the time those awards were issued.

If the President signs a Continuing Resolution for any part of Fiscal Year 2013, unless legislative language provides otherwise, the salary limitation provided in the Consolodated Appropriations Act, 2012 (Executive Level II) will apply regardless of what level applied in FY2012.

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 pay an individual's salary amount in excess of the salary cap with non-federal funds.

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.

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

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. If an application/proposal fails to provide needed salary information, will an adjustment be made based on the new limit? No adjustment will be made if an application fails to provide adequate information regarding the individual's actual salary level. However, grantees must charge the grant based on the applicable salary limit in effect when the initial FY2012 award was issued.

2. Does the NIH appropriation language link the salary limitation to a Federal Executive Level or to a dollar level? The link is to the Federal Executive Level pay scale (i.e., Executive Level I for FYs 2001-2011, Executive Level I for FY2012 awards with an initial Issue Date on/before 12/22/2011, and Executive Level II for FY 2012 awards with an initial Issue Date on/after 12/23/2011).

3. As the salary limitation is linked to Federal Executive Levels, can grantees/contractors with ongoing awards rebudget/charge the various salary limits, based on the fiscal year of the award and the time the salary expense is incurred? Salary may be charged in accordance with the applicable FY limit in effect when the FY2012 award was initially issued, as long as the levels are consistent with the individual's institutional base pay. Please refer to the salary cap summary with times frames for existing salary caps, at https://grants.nih.gov/grants/policy/salcap_summary.htm.

4. A grant was issued on/after December 23, 2011. The award was based on the Executive Level I. Can I rebudget the funds awarded in excess of the new Executive Level II salary limit, or will NIH adjust the award by the difference between the two? It depends on the type of award. If the award is a non-competing award, then grantees may rebudget the funds awarded in excess of the new salary limit. However, if the grant is a competing award, the NIH IC will revise the award when an adjustment for the lower salary limit is needed.

5. Can grantees rebudget on FY2012 awards that were proposed using Executive Level I and are awarded on/after 12/23/2011? Executive Level II is effective with awards with an initial Issue Date of 12/23/2011 and beyond. For non-competing awards with an initial Issue Date of 12/23/2011 and beyond, grantees can rebudget. For competing awards issued on/after 12/23/2011, the ICs will revise the award and adjust the current and all future year commitments to apply Executive Level II when applicable.

6. For awards issued on/before 12/22/2011, will future year commitments be adjusted to reflect Executive Level II? For competing awards issued on/before 12/22/2011, no adjustment will be made to the FY2012 award; however, future year commitments will be adjusted when applicable to reflect Executive Level II. Non-competing awards will not be adjusted to reflect Executive Level II for either the FY2012 award or any future year commitments.

7. A grant with an initial Issue Date on/before 12/22/2011 was awarded an included funding for a to be named position; the to be named person will not begin employment until after January 1, 2012. Which salary limit is applicable? Apply the Executive Level I. The salary limit is tied to the limit in effect when the grant was initially funded, regardless when the individual’s employment became effective.

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 on or after December 23, 2011 with salary limitation of $179,700)

Individual's institutional base salary for a FULL-TIME calendar year appointment	$ 200,000

Research effort requested in application/proposal - 6 months (50%)

Direct Salary requested	$ 100,000
Fringe benefits requested (25% of salary)	$ 25,000
Subtotal	$ 125,000

Applicant organization's F&A (indirect) costs at a rate of 45% of subtotal	$ 56,250

Amount requested - salary plus fringe benefits plus associated F&A (indirect) costs	$ 181,250

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		$ 179,700
Divided by 12 months multiplied by 6 months (50%)		$ 89,850
Fringe benefits (25% of allowable salary)		$ 22,463
Subtotal		$ 112,313

Associated F&A (indirect) costs at 45% of subtotal		$ 50,541

Total amount to be awarded due to salary limitation		$ 162,854

Amount of reduction due to salary limitation
($181,250 requested minus $162,854 awarded)	$ 18,396

Example 2. Individual with Half-Time Appointment (based on a grant award/contract issued on or after December 23, 2011 with salary limitation of $179,700)

Individual's institutional base salary for a HALF-TIME calendar year appointment	$ 100,000

Research effort requested in application/proposal - 1.8 months (30% of 6 months)

Direct Salary requested	$ 30,000
Fringe benefits requested (25% of salary)	$ 7,500
Subtotal	$ 37,500

Applicant organization's F&A (indirect) costs at a rate of 45% of subtotal	$ 16,875

Amount requested - salary plus fringe benefits
plus associated F&A (indirect) costs	$ 54,375

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	$ 89,850
Divided by 6 months multiplied by 1.8 months (30%)	$ 26,955
Fringe benefits (25% of allowable salary)	$ 6,739
Subtotal	$ 33,694

Associated F&A (indirect) cost at 45% of subtotal		$ 15,162

Total amount to be awarded due to salary limitation	$ 48,856

Amount of reduction due to salary limitation
($54,375 requested minus $48,856 awarded)	$ 5,519

Example 3. Individual with a Nine-Month Appointment (based on a grant award/contract issued on or after December 23, 2011 with salary limitation of $179,700)

Individual's institutional base salary for a nine-month calendar year appointment	$ 150,000

Research effort requested in application/proposal - 2.7 months (30% of 9 months)

Direct Salary requested	$ 45,000
Fringe benefits requested (25% of salary)	$ 11,250
Subtotal	$ 56,250

Applicant organization's F&A (indirect) costs at a rate of 45% of subtotal		$ 25,313

Amount requested - salary plus fringe benefits
plus associated F&A (indirect) costs	$ 81,563

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	$ 134,775
Divided by 9 months multiplied by 2.7months (30%)	$ 40,432
Fringe benefits (25% of allowable salary)	$ 10,108
Subtotal	$ 50,540

Associated F&A (indirect) cost at 45% of subtotal	$ 22,743

Total amount to be awarded due to salary limitation	$ 73,283

Amount of reduction due to salary limitation
($81,563 requested minus $73,283 awarded)	$ 8,280

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.