SALARY LIMITATION ON GRANTS, COOPERATIVE AGREEMENTS AND CONTRACTS Release Date: December 22, 1998 P.T. 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 February 12, 1998. Fiscal Year (FY) 1999 is the tenth 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 1999, Public Law 105-277, restricts the amount of direct salary of an individual under a grant or cooperative agreement (hereafter referred to as a grant) or applicable contract to Executive Level III of the Federal Executive Pay Scale. That rate is currently $125,900 which reflects a $900 increase over the FY 1998 salary limit. Direct salary is exclusive of fringe benefits and indirect costs/general and administrative expenses. NIH will apply the limitation to all competing awards made with FY 1999 funds. Therefore, NIH grant awards for applications that request direct salaries of individuals in excess of a RATE of $125,900 per year will be adjusted in accordance with the legislative salary limitation and will include a notification such as the following: According to the 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 III of the Federal Executive Pay Scale." The term "salary" has been interpreted by HHS Legal Counsel to mean "direct salary", which is exclusive of fringe benefits and indirect costs/general and administrative 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. The following are examples of the adjustments that NIH will make when salaries exceed the limitation: EXAMPLE 1. INDIVIDUAL WITH FULL-TIME APPOINTMENT. 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 indirect costs at a rate of 45% of subtotal $42,188 Amount requested - salary plus fringe benefits plus associated indirect costs $135,938 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 $125,900 multiplied by effort (50%) to be devoted to project $62,950 Fringe benefits (25% of allowable salary) $15,738 Subtotal $78,688 Associated indirect costs at 45% of subtotal $35,410 Total amount to be awarded due to salary limitation $114,098 Amount of reduction due to salary limitation ($135,938 requested minus $114,01998 awarded) $21,840 EXAMPLE 2. INDIVIDUAL WITH HALF-TIME APPOINTMENT. Individual's institutional base salary for a HALF-TIME appointment (50% of a full-time twelve month appointment) $65,000 Research effort requested in application/proposal 30% Direct Salary requested $19,500 Fringe benefits requested (25% of salary) $ 4,875 Subtotal $24,375 Applicant organization's indirect costs at a rate of 45% of subtotal $10,969 Amount requested - salary plus fringe benefits plus associated indirect costs $35,344 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 $125,900 multiplied by 50% appointment by 30% effort to be devoted to project $18,885 Fringe benefits (25% of allowable salary) $ 4,721 Subtotal $23,606 Associated indirect costs at 45% of subtotal $10,623 Total amount to be awarded due to salary limitation $34,229 Amount of reduction due to salary limitation $35,344 requested minus $34,229 awarded) $ 1,115 Other important points relating to NIH grants only are: o No adjustments will be made to previously established commitment levels for non-competing awards issued with FY 1999 funds. o NIH competing grant awards issued in FY 1999 will reflect adjustments to all years of a project, including future years, so that no funds are awarded or committed for salaries over the limitation. Other important points relating to both NIH grants and contracts are: o Awards issued with FY 1998 funds are still restricted to the $125,000 rate of pay. o An individual's base salary, per se, is NOT constrained by the legislative provision for the limitation of salary. The rate limitation simply limits the amount that may be awarded and charged to NIH grant and applicable contract awards. 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. o The salary limitation provision DOES apply to those subawards/subcontracts for substantive work under an NIH grant or contract. o COMPETING applications submitted to the NIH should continue to reflect the institutional base salary of all individuals for whom reimbursement is requested. NIH staff will make necessary adjustments to requested salaries prior to award. INQUIRIES Questions concerning this notice or other policies relating to grants or contracts should be directed to the grants management or contracts management offices in the NIH institutes or centers.
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