# Office of Sponsored Programs - 300.07, Procedure 2 - Working with Salary Caps

## Title

Office of Sponsored Programs - 300.07, Procedure 2 - Working with Salary Caps

Corresponding with:

## Purpose

Salary caps, generally seen with Public Health Service funding, limit the amount of funding the agency will provide for an individual’s salary. The current National Institutes of Health (NIH) salary cap amount is reviewed annually. When an individual’s projected salary exceeds an agency-mandated salary cap, the administrating University department is responsible for funding the difference. Confirmation from an authorized department administrator on the RAMSeS Internal Processing Form (IPF) indicates the department’s commitment to provide such funds as part of its cost-sharing effort.

Estimating a person's salary can be accomplished in several ways, including calculations that may not appear in this procedure. There are minor differences between the results of 12- and 9-month appointments, but the basic formulas are the same. Salary calculations can be based on a percentage of effort (Percent Effort Model) or the number of months of effort (Person-Months Model) dedicated to the sponsored project. Guidelines for both are listed below.

Summer salary, normally considered three (3) months, is added compensation to 9-month employees, so it is calculated separately. Some sponsors limit the effort allowed for summer salaries. Thus, it is very important to read the sponsor guidelines carefully.

Calculations for salary do not include fringe benefits. They are calculated separately, based on the salary cap, and should be identified in the proposed budget as a separate line item.

## Procedure

### I. Annual Salary Estimations

#### Percent Effort Model

- Determine an employee's Full-Time Equivalency (FTE) on a project:
- Multiply the number of months of effort divided by the length of the employee appointment: 2 ÷ 9 = .22
- Multiply the FTE by 100 to determine the percentage of effort: .22 x 100 = 22%
- Multiply this percentage of effort (22% here) times the employees Institutional Base Salary (IBS) minus the salary cap amount: .22 x ($250,000.00-$191,300.00) = .22 x $58,700.00 = $12,914.00
- The department would be responsible for $12,914.00 of the employee’s salary.
- As for the sponsoring agency, multiply the percentage of effort times the salary cap amount to calculate the amount funded by the sponsoring agency: .22 x $191,300.00 = $42,086.00
- The resulting amount (here, $42,086.00) is the amount the funding agency will provide for the individual’s proposed annual salary for the estimated time spent on the project.
- In total: $12,914.00 (department cost share) + $42,086.00 (Sponsor Paid) = $55,000.00

#### Person-Months Model

- Determine the number of months of effort by multiplying the percentage of effort times the length of the employee appointment:
- The entire equation is: (Salary Cap Amount ÷ length of appointment) x percentage of effort = estimated salary provided by the sponsor
- Divide the amount of the salary cap by the length of the individual's appointment: $191,300.00 ÷ 12 = $15,941.67 (rounding is allowed)
- Then multiply that amount times the number of months of effort: $16,000.00 x 3 = $48,000.00
- As for the department’s shared cost, subtract the Salary Cap amount from the IBS: $250,000.00 (IBS) - $191,300.00 (Salary Cap) = $58,700.00
- Divide the difference ($58,700.00) by the length of the individual’s appointment: $58,700.00 ÷ 12 = $4,891.67
- Multiply the number of months of effort by the result to calculate the amount funded by the department: 3 x $4,900.00 = $14,700.00
- In total: $14,700.00 (department cost share) + $48,000.00 (Sponsor Paid) = $62,700.00

### II. Summer Salary Estimations

#### Percent Effort Model

- Determine an employee's Full-Time Equivalency (FTE) on a project:
- Multiply the number of summer months of effort divided by the length of the employee appointment: 2 ÷ 9 = .22
- Multiply the FTE by 100 to determine the percentage of effort: .22 x 100 = 22%
- Calculate the department’s cost sharing amount by multiplying this percentage of effort (22% here) times the employee's Institutional Base Salary (IBS) minus the salary cap amount: .22 x ($200,000.00 (IBS) - $180,000.00 (Salary Cap)) = .22 x $20,000 = $4,400.00
- Multiply the percentage of effort times the salary cap amount to calculate the amount funded by the sponsoring agency. Include this amount in the proposal: .22 x $180,000.00 = $39,600.00
- In total: $4,400.00 (department cost share) + $39,600.00 (Sponsor Paid) = $44,000.00

#### Person-Months Model

- Divide the mandated salary cap (here, $180,000.00) by the length of appointment (in most cases, 9) to determine the monthly salary: $180,000.00 ÷ 9 = $20,000.00
- Next, multiply the number of summer months of effort times the one month of summer salary: 2 x $20,000.00 = $40,000.00
- As for the department’s shared cost, subtract the Salary Cap from the IBS: $200,000.00 (IBS) - $180,000.00 (Salary Cap) = $20,000.00
- Divide the difference ($20,000.00) by the length of the individual’s appointment: $20,000 ÷ 9 = $2,222.22
- Multiply the number of months of effort times the result to calculate the amount funded by the department: 2 x $2,222.00 = $4,444.00
- In total: $4,444.00 (department cost share) + $40,000.00 (Sponsor Paid) = $44,444.00

### III. Factoring Salary Escalations

Once the proposed annual salary amount is calculated, apply the allowable escalation percent, which is generally set by the sponsor, to reflect inflationary and/or legislative increases in future years (commonly known as the Escalated Institutional Base Salary).

For example, if the annual projected salary of the project has been estimated at $13,320 for the first year and a 3% increase is anticipated each year, the salary calculations for a 5-year project would be calculated as follows:

- Year 1: $13,320
- Year 2: $13,320 x 1.03 =$13,720
- Year 3: $13, 719 x 1.03 =$14,132
- Year 4: $14,131 x 1.03 =$14,556
- Year 5: $14,555 x 1.03 =$14,993

## Contact Information

For questions regarding this procedure and its related operating standard, please contact SponsoredPrograms@unc.edu.

For questions regarding Pre-Award management or Post-Award administration, please contact the assigned Sponsored Projects Specialist (SPS).

For invoicing, reporting and other financial matters, please contact the assigned Sponsored Projects Accountant.

OSP Staff assignments may be found in RAMSeS or on the OSP website.

## History

Date | Description |
---|---|

07/01/2022 | Revised to reflect new office name. |

05/15/2018 | Revised to coincide with the release of the new OSP Website. |

The operating standards in the ** Office of Sponsored Programs Operating Standards & Procedures Manual** supersede any OSP operating standards, procedures and appendices previously included in the

*University Business Manual*, a publication of UNC-Chapel Hill’s Division of Finance.