SALARY LIMITATION ON GRANTS, COOPERATIVE AGREEMENTS AND CONTRACTS

Release Date:  January 11, 2001

NOTICE:  NOT-OD-01-013

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 
January 6, 2000.

Fiscal Year (FY) 2001 is the twelfth 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 2001, Public Law 106-554, 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 I of the Federal Executive Pay scale.  The Executive 
Level I annual salary rate is $157,000 for the period October 1 through 
December 31, 2000.  Effective January 1, 2001, the Executive Level I 
salary level increased to $161,200.    

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 2001 HHS Appropriations Act, "None of the funds 
appropriated in this Act 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 I” 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)
o  October 1, 1998 through December 31, 1999                     $125,900
o  January 1, 2000 and beyond                                    $130,200

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

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

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, 2001 with a $161,200 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                          $161,200
multiplied by effort (50%) to be devoted to project              $ 80,600
Fringe benefits (25% of allowable salary)                        $ 20,150
Subtotal                                                         $100,750 

Associated F&A (indirect) costs at 45% of subtotal               $ 45,338

Total amount to be awarded due to salary limitation              $146,088

Amount of reduction due to salary limitation ($158,594 
requested minus $146,088 awarded)                                $ 12,506

EXAMPLE 2.   INDIVIDUAL WITH HALF-TIME APPOINTMENT (based on a grant 
award/contract issued after January 1, 2001 with a $161,200 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                          $161,200
multiplied by 50% appointment by 30% effort
to be devoted to project                                         $ 24,180
Fringe benefits (25% of allowable salary)                        $  6,045
Subtotal                                                         $ 30,225

Associated F&A (indirect) cost at 45% of subtotal                $ 13,601 

Total amount to be awarded due to salary limitation              $ 43,826

Amount of reduction due to salary limitation
$47,579 requested minus $43,826 awarded)                         $  3,753

EXAMPLE 3.   INDIVIDUAL WITH NINE MONTH APPOINTMENT (based on a 
contract award/grant issued after January 1, 2001 with a $161,200 
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 $161,200 (annual rate) divided 
by 12 months 
multiplied by 9 months by 50% effort
to be devoted to project                                         $ 60,450
Fringe benefits (25% of allowable salary)                        $ 15,112
Subtotal                                                         $ 75,562

Associated F&A (indirect) cost at 45% of subtotal                $ 34,003

Total amount to be awarded due to salary limitation              $109,565

Amount of reduction due to salary limitation
($118,945 requested minus $109,565 awarded)                      $  9,380

NOTE: If a faculty member with a 9 month appointment works during 
his/her off months, the monthly salary rate limitation is $13,433 
($161,200 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 
awards issued with FY 2001 funds. 

o NIH competing grant awards with categorical budgets reflecting salary 
levels at or above the new cap(s) issued in FY 2001 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 2000 funds are still restricted to the 
Executive Level II.  From the period October 1, 1999 through December 
31, 1999, the level is $136,700.  Effective January 1, 2000, Executive 
Level II is limited to $141,300.  If adequate funds are available in 
active FY 2000 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 2000 
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 2001 
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 $161,200 level is effective 
beginning January 1, 2001.

2. If a grant award (competing or non-competing) has already been 
issued in FY 2001, 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).  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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