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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