SALARY LIMITATION ON GRANTS, COOPERATIVE AGREEMENTS, AND CONTRACTS

RELEASE DATE:  February 13, 2004

NOTICE:  NOT-OD-04-025 (see NOT-OD-04-034 for update) 

National Institutes of Health (NIH)
 (http://www.nih.gov/)

This notice provides updated information regarding the salary 
limitation for NIH grant and cooperative agreement awards and 
extramural research and development contract awards.  On March 18, 
2003, the Fiscal Year (FY) 2003 information on the salary limitation 
was published in the NIH Guide for Grants and Contracts. 

For fifteen consecutive years, Congress has legislatively mandated a 
provision for the limitation of salary.  For FY 2004, the Consolidated 
Appropriations Act, Public Law 108-199, which includes appropriations 
for the Department of Health and Human Services, restricts the amount 
of direct salary of an individual under an NIH grant or cooperative 
agreement (referred to here as a grant) or applicable contract to 
Executive Level I of the Federal Executive Pay scale.  The Executive 
Level I annual salary rate was $171,900 for the period January 1 
through December 31, 2003.  Effective January 1, 2004, the Executive 
Level I salary level increased to $174,500.

For the purposes of the salary limitation, the terms "direct salary," 
"salary," and "institutional base salary" have the same meaning and are 
exclusive of fringe benefits and facilities and administrative (F&A) 
expenses, also referred to as indirect costs.  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 the duties to the applicant 
organization.

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 Consolidated Appropriations Act 2004, "None of the 
funds appropriated in this Act for the National Institutes of Health, 
the Agency for Healthcare Research and Quality, 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.  This is the fourth year that the limitation has been linked to 
Executive Level I of the Federal Pay Scale.

Please see the salary cap summary and the time frames associated with 
existing salary caps at 
https://grants.nih.gov/grants/policy/salcap_summary.htm

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 
wards issued with FY 2004 funds.

o NIH competing grant awards with categorical budgets reflecting salary 
levels at or above the new cap(s)issued in FY 2004 will reflect 
adjustments to the current and all future years so that no funds are 
awarded or committed for salaries over the limitation.

o For awards issued with FYs 2003, 2002 and 2001 funds, if adequate 
funds are available in active awards, and if the salary cap increase is 
consistent with the institutional base salary, grantees may rebudget to 
accommodate the current Executive Level I salary level and contractors 
may charge at the higher level.  However, no additional funds will be 
provided to the prior year grant awards 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 pay an individual's salary amount in 
excess of the salary cap 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, those 
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. If a grant award (competing or non-competing) has already been 
issued in FY 2004, will an adjustment be made?  No adjustments will be 
made.  However, rebudgeting is allowable.

2. Can I rebudget grant funds or charge contracts issued with FY 2001, 
2002 or 2003 funds to allow for the 2004 salary cap increase?  Yes, 
provided funds are available and the increase is warranted.  Prorated 
figures should be used for the applicable months, i.e., the $174,500 
level is effective beginning January 1, 2004.

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 actual 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 FYs 2001, 
2002, 2003 and 2004).  As the cap is linked to Federal Executive 
Levels, can grantees/contractors with ongoing awards rebudget/charge up 
to the various salary caps, based on the fiscal year of the award and 
the time of the salary expense is incurred?  Yes, salary may be charged 
in accordance with the FY cap(s), as long as the levels are consistent 
with the individual's institutional base pay.  Please refer to the 
salary cap summary with times frames for existing salary caps, at 
https://grants.nih.gov/grants/policy/salcap_summary.htm

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 the salary cap based on information available at 
the time of award.

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, 2004 with a $174,500 salary 
limitation)

Individual's institutional base salary for a FULL-TIME twelve month) 
appointment    $ 180,000
Research effort requested in application/proposal - 50%

Direct Salary requested                                     $  90,000
Fringe benefits requested (25% of salary)                   $  22,500
Subtotal                                                    $ 112,500

Applicant organization's F&A (indirect) costs at 
a rate of 45% of subtotal                                   $  50,625
Amount requested - salary plus fringe benefits plus
associated F&A (indirect) costs                             $ 163,125

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                     $ 174,500
Multiplied by effort (50%) to be devoted to project         $  87,250
Fringe benefits (25% of allowable salary)                   $  21,813
Subtotal                                                    $ 109,063

Associated F&A (indirect) costs at 45% of subtotal          $  49,078

Total amount to be awarded due to salary limitation         $ 158,141                

Amount of reduction due to salary limitation
($163,125 requested minus $158,141 awarded)                 $   4,984          
 
EXAMPLE 2.   INDIVIDUAL WITH HALF-TIME APPOINTMENT (based on a grant 
award/contract issued after January 1, 2004 with a $174,500 salary 
limitation)

Individual's institutional base salary for a
HALF-TIME appointment (50% of a full-time
twelve month appointment)                                   $ 90,000

Research effort requested in application/proposal     30%

Direct Salary requested                                     $ 27,000
Fringe benefits requested (25% of salary)                   $  6,750
Subtotal                                                    $ 33,750

Applicant organization's F&A (indirect) costs at a rate
of 45% of subtotal                                          $ 15,188

Amount requested - salary plus fringe benefits
plus associated F&A (indirect) costs                        $ 48,938

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                     $ 87,250
for a 50% appointment multiplied by 30% effort              $ 26,175
Fringe benefits (25% of allowable salary)                   $  6,544
Subtotal                                                    $ 32,719

Associated F&A (indirect) cost at 45% of subtotal           $ 14,723

Total amount to be awarded due to salary
limitation                                                  $ 47,442

Amount of reduction due to salary limitation
($48,938 requested minus $47,442 awarded)                   $  1,495

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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