and Human Services (HHS)
SALARY LIMITATION ON GRANTS, COOPERATIVE AGREEMENTS AND CONTRACTS Release Date: January 6, 2000 NOTICE: OD-00-011 National Institutes of Health The purpose of this notice is to provide updated information regarding the salary limitation as it relates to NIH grant and cooperative agreement awards. This information also applies to extramural research and development contract awards. The last notice in the NIH Guide for Grants and Contracts regarding the salary limitation was published December 22, 1998. Fiscal Year (FY) 2000 is the eleventh consecutive year for which there is a legislatively mandated provision for the limitation of salary. Specifically, the Department of Health and Human Services (HHS) Appropriation Act for FY 2000, Public Law 106-113, restricts the amount of direct salary of an individual under an NIH grant or cooperative agreement (hereafter referred to as a grant) or applicable contract to Executive Level II of the Federal Executive Pay scale. For FY 2000 awards the Executive Level II salary level is $136,700 for the period October 1 through December 31, 1999. Effective January 1, 2000, the Executive Level II salary level increased to $141,300. For FY 1999 awards, the legislatively imposed salary limitation was linked to Executive Level III of the Federal Executive Pay scale, which was set at a level of $125,900 for the period October 1, 1998 through December 31, 1999. Effective January 1, 2000, this level was raised to $130,200. Direct salary is exclusive of fringe benefits and facilities and administrative (F&A) expenses, also referred to as indirect costs. 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 FY 2000 HHS Appropriations Act, "None of the funds appropriated in this title for the National Institutes of Health 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 II of the Federal Executive Pay Scale." The term "salary" means "direct salary" which is exclusive of fringe benefits and F&A expenses. "Direct salary" has the same meaning as the term "institutional base salary." 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 duties to the applicant organization. In summary, the following reflects the time frames associated with the existing salary caps: FY 1999 Awards (Executive Level III) October 1, 1998 through December 31, 1999 $125,900 January 1, 2000 and beyond $130,200 FY 2000 Awards (Executive Level II) October 1, 1999 through December 31, 1999 $136,700 January 1, 2000 and beyond $141,300 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, 2000 with a $141,300 salary limitation) Individual's institutional base salary for a FULL-TIME (twelve month) appointment $150,000 Research effort requested in application/proposal - 50% Direct Salary requested $ 75,000 Fringe benefits requested (25% of salary) $ 18,750 Subtotal $ 93,750 Applicant organization's F&A (indirect) costs at a rate of 45% of subtotal $ 42,188 Amount requested - salary plus fringe benefits plus associated F&A (indirect) costs $135,938 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 $141,300 multiplied by effort (50%) to be devoted to project $ 70,650 Fringe benefits (25% of allowable salary) $ 17,663 Subtotal $ 88,313 Associated F&A (indirect) costs at 45% of subtotal $ 39,741 Total amount to be awarded due to salary limitation $128,054 Amount of reduction due to salary limitation ($135,938 requested minus $128,054 awarded) $ 7,884 EXAMPLE 2. INDIVIDUAL WITH HALF-TIME APPOINTMENT (based on a grant award/contract issued after January 1, 2000 with a $141,300 salary limitation) Individual's institutional base salary for a HALF-TIME appointment (50% of a full-time twelve month appointment) $ 75,000 Research effort requested in application/proposal 30% Direct Salary requested $ 22,500 Fringe benefits requested (25% of salary) $ 5,625 Subtotal $ 28,125 Applicant organization's F&A (indirect) costs at a rate of 45% of subtotal $ 12,656 Amount requested - salary plus fringe benefits plus associated F&A (indirect) costs $ 40,781 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 $141,300 multiplied by 50% appointment by 30% effort to be devoted to project $ 21,195 Fringe benefits (25% of allowable salary) $ 5,299 Subtotal $ 26,494 Associated F&A (indirect) cost at 45% of subtotal $ 11,922 Total amount to be awarded due to salary limitation $ 38,416 Amount of reduction due to salary limitation $40,781 requested minus $38,416 awarded) $ 2,365 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 awards issued with FY 2000 funds. o NIH competing grant awards with categorical budgets reflecting salary levels at or above the new cap(s) issued in FY 2000 will reflect adjustments to the current and all future years so that no funds are awarded or committed for salaries over the limitation. o Awards issued with FY 1999 funds are still restricted to the Executive Level III. From the period October 1, 1998 through December 31, 1999, the level is $125,900. Effective January 1, 2000, Executive Level III is limited to $130,200. If adequate funds are available in active FY 1999 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 1999 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, such 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 1999 funds to allow for the increase from $125,900 to $130,200? Yes, provided funds are available and the increase is warranted. Prorated figures should be used for the applicable months, i.e., the $130,200 level is effective for budget periods that extend beyond January 1, 2000. 2. If a grant award (competing or non-competing) has already been issued in FY 2000, 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). 5. 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. The following provides an example. A competitive grant or a contract, using FY 1999 funds, requested salary in excess of the cap and was awarded with an August 1, 1999 start date reflecting a salary level of $125,900. The grantee/contractor may charge salary at a rate of $125,900 per annum through December 31, 1999. Effective January 1, 2000, salary may be charged at a rate of $130,200 per annum through July 31, 2000. Effective with the FY 2000 non-competing award or contract, salary may be charged at the rate of $141,300 per annum. 6. 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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