Handling Salary Over the Cap

The National Institutes of Health (NIH) and other Department of Health and Human Services (DHHS) agencies* limits, or ‘caps’, the amount of salary charged for individuals working on DHHS funded grants to the congressionally mandated salary cap, currently tied to the Federal Executive Level II Pay Scale. The salary cap applies to DHHS funding agencies regardless of the type of individual effort proposed (%, months, or hours). The pay scale typically increases annually and applies for the majority of the calendar year. Be aware there are other sponsors and funding mechanisms that specify salary caps limits in their application instructions or terms and conditions of award, be sure to read both and adhere to applicable salary caps.

Effective January 6, 2019 the (Executive Level II pay scale) salary cap is $192,300.

Guidance for handling and monitoring individuals exceeding the salary cap is provided below.

*Includes all sponsors under DHHS: NIH, CMS, CDC, FDA, AHRQ, HRSA and SAMHSA

Handling in Pre-Award

If salary on a proposal is requested above an applicable salary cap, the sponsor adjusts the total amount of the award accordingly. A full cost budget* should be prepared to determine if you will be submitting an application with a modular or categorical budget. The salary cap budget options available for each budget type are listed below. 

*For more information on budgeting or the concept of preparing a full cost budget, please see our Budgeting/Costs page or our video, Considering All the Costs.

Modular budgets are prepared using the current salary cap. Since the modular budget is intended to be a reasonable estimate of allowable costs of the proposed project, the current salary cap must be used when estimating the budget. Please create internal budgets estimating the needed modules based on required salary caps.

Categorical budgets can be calculated using one of three budget methods. You must be consistent with the method selected across all UM investigators on a proposal.

  • Ask for actual salary and increase salary in subsequent years
  • Ask for the current salary cap in the initial budget period and increase in subsequent budget periods
  • Ask for the current salary cap in the initial budget period and hold at the salary cap with no increase in subsequent budget periods

The Medical School has a general expectation that categorical budget proposals are formulated using the actual salaries of those participating (even though they may be over the cap) in case the cap increases prior to award. This is the first option listed above. However, the final decision lies with the department.

A notable exception to the Medical School’s preference of using actual salaries for budgeting is when there is a direct or total cost cap on the proposed budget. In this instance, it may be better to use applicable salary caps as asking for the actual salary amount limits remaining funds you may request in other categories. This concept should also be applied to other sponsors that have specific salary restrictions.

Handling in Post-Award

NIH and other sponsors with salary cap limitations only reimburse salary up to their allowable salary cap limit. Therefore, salary can only be charged to awards funded by these agencies up to the specified salary cap limit.

Example:

Dr. Smith’s base salary is $225,000, which exceeds the DHHS Salary Cap of $192,300*. She is spending 1.20 calendar months on an NIH award. Therefore,1.20 calendar months of the salary cap for the corresponding time period can be charged to the project. 

In summary:

Faculty Base Salary:            $225,000
Sponsor Salary Cap:            $192,300*
Calendar Months on Grant: 1.20

*This is the DHHS salary cap in place effective January 6, 2019. Caveat: under a continuing resolution units may apply existing rules (e.g. maintain salary cap at Executive Level II Pay Scale cap). However, if in final legislation the language changes the cap to a different Executive Level Pay Scale, changes may be required.

When the sponsor does not have a salary cap the base salary is used to calculate the maximum allowable salary recovery:

Normal Recovery =    (Calendar Months / 12 Months) x Base
                                    (1.20 CM / 12 Months) x $225,000  = $22,500

To apply a salary cap, substitute the base salary with the salary cap in the maximum allowable salary recovery calculation:

Applied Salary Cap =  (Calendar Months / 12 Months) x Salary Cap  
                                     (1.20 CM / 12 Months) x $192,300* = $19,230

The salary difference between the normal recovery amount and the applied salary cap amount is charged to an account (chartfield) established specifically for salary that is over the salary cap amount. In this example:

Over the Cap Amount =   Normal Recovery – Applied Salary Cap
                                          $22,500 - $19,230 = $3,270

An ‘Over the Cap’ excel spreadsheet is available to assist in calculating the over the cap salary amount:

Investigators with split UM/VA Appointments should use the VA MoU template for calculations. See VA MoU & VA Cost Share Form.

These spreadsheets walk you through capturing effort distribution over multiple projects, allow you to apply multiple caps to one individual capturing project award dates, and calculate effort and salary distribution (by project/grant) and includes the cumulative “over the cap” distribution to enter in the HR system. The spreadsheets are populated with the current DHHS salary cap but can be overridden as needed.

If you have ‘Over the Cap’ calculation questions contact Grant Services & Analysis at msgrants@umich.edu or 734-763-4272.

If you have questions about obtaining or using an ‘Over the Cap’ account contact your department grants administrator or Sponsored Programs Coordinator.

Salary Cap Compliance Oversight & Auditing (Salary Cap Reporting)

What is Salary Cap Reporting?
The Medical School partners with the Cost Reimbursement Office to prepare salary cap analysis reports for Medical School Departments and faculty to provide oversight of and facilitate adherence to salary cap requirements. Report data is shared with the Cost Reimbursement Office and Sponsored Programs Reporting to ensure salary cap compliance on financial reports.

Salary Cap Expectation
The expectation is that each department adheres to DHHS salary cap requirements, reviews salary cap compliance worksheets provided and addresses non-compliant line items where salary exceeds the allowable cap.

IMPORTANT TO KNOW!
What happens if corrections aren’t made before the Salary Cap Report is run and an individual / project grant is listed on the report sent to Cost Reimbursement and Sponsored Programs Reporting?

A comment is added to the Project Grant in the financial system indicating there is a salary cap adjustment required for the individual named on the report. Comments entered in the financial system remain until Sponsored Programs is notified that the ‘over the cap’ salary distribution is corrected. Departments are advised to carefully review the Adjustment Analysis on reports to make sure it correctly reflects salary cap corrections.

The Salary Cap Reporting Process
Departments are provided with Preliminary Salary Cap Report Worksheets and given three weeks to process any necessary adjustments PRIOR to the Salary Cap Report run for submission to CRO and Sponsored Programs Reporting. The reporting timeline is provided below.

Salary Cap Reporting Timeline

2nd Week in October

Salary Cap Report Worksheet sent to:

  • Department CDA

- PAAC Representatives notified worksheet distributed


4th Week in November

Salary Cap Report Generated and sent to:

  • Department CDA
  • Cost Reimbursement Office
  • Sponsored Programs Reporting

- PAAC Representatives notified report distributed

2nd Week in February
(or at least 3 weeks after new salary cap announced)

Salary Cap Report Worksheet(s) sent to:

  • Department CDA

- PAAC Representatives notified worksheet(s) distributed

4th Week in March
(or at least 3 weeks after salary cap worksheets are distributed)

Salary Cap Report(s) Generated and sent to:

  • Department CDA
  • Cost Reimbursement Office
  • Sponsored Programs Reporting

- PAAC Representatives notified report(s) distributed

3rd Week in June

FY Departmental Salary Cap Report(s) Generated and sent to:

  • Department CDA

- PAAC Representatives notified report(s) distributed​

 

What are Departments Expected to Do?
Upon receipt of your worksheets the department is expected to review all Project/Grants listed for compliance with the salary cap and address those lines where the salary cap was exceeded and is out of compliance. In some instances, departments may find that the ‘over the cap’ determination on the report is not accurate as the data will not identify anomalies, such as funding that was passed down from a direct sponsor where the salary cap was not applied. If you find the ‘over the cap’ determination indicated on the report is not applicable or inaccurate please communicate this information so it can be noted on the campus report.

SALARY CAP REPORTING (FAQs)

I did not receive a salary cap review spreadsheet. How do I get my information?
Contact Grant Services & Analysis at msgrants@umich.edu.

Do I really need to make corrections when the amount over the cap was only a couple hundred dollars for the entire fiscal year?
Yes, if the account was audited the University would be found to be non-compliant with federal regulations, even for a couple hundred dollars.

Some of this data is from the prior fiscal year. Will Sponsored Programs let us make these corrections now (over 120 days)?
Yes, Sponsored Programs expects you to make necessary distribution changes if you find that the salary cap was not properly applied.  Because you are changing the distribution from sponsored to internal funds, the change is allowed by Sponsored Programs. Please work directly with your Sponsored Programs Project Representative. 

Some of the faculty on my project grant list belong to other departments, why are they on my report?
All of the Project/Grants listed are held by your department.  However, some of the appointed faculty listed may have a primary appointment in another department. Regardless of whether or not the faculty member’s primary appointment is within your department, as the administrative home for the P/G  you are responsible for ensuring the salary charged to the project is within the allowable limits. In these cases, please work closely with the faculty member’s administrative home unit to ensure appropriate changes are made when necessary.

Why is this line showing up on this list as this is a general fund account (cost share)?
Cost share accounts (usually in the general fund) associated with sponsored projects are handled the same way as the sponsored projects themselves. The same rules apply to each – therefore the salary cap should also be used on the cost share accounts.  

I used Grant Services & Analysis' Over the Cap spreadsheet to figure out the distribution that should be used, how could this still be off?
In some cases the individual in question may have received a salary increase (that you may not have been made aware of) after the date that the distribution was added to the HR system. In these instances, another distribution change would need to be calculated and applied.

Questions?

Contact us at msgrants@umich.edu or 734-763-4272 / Fax: 734-615-9458

2800 Plymouth Road, NCRC Building 520, Room 3174, Ann Arbor, MI 48109-2800

A list of Grant Services & Analysis is available in the Personnel Directory.