New Limitation on Charging Salaries to HHS Grant Funds Goes Into Effect New Limitation on Charging Salaries to HHS Grant Funds Goes Into Effect
Recently, the Health Resources and Services Administration (HRSA issued a “System Announcement” through the Electronic Handbook (EHB), notifying grantees of a legislative provision limiting the amount of an employee’s salary that can be paid using federal grant funds. This provision is part of the Consolidated Appropriations Act of 2012 (P.L. 112-74, or “the Act”), signed into law on December 23, 2011. The Act is the law that appropriates funds to support activities (including grant-making) conducted by the federal government’s agencies (such as HRSA and other agencies of the Department of Health and Human Services or HHS).
The provision states that the funds appropriated to HHS cannot be used by grantees receiving such funds to pay an employee’s salary “at a rate in excess of Executive Level II.” The Executive Level II amount for FY 2012 is $179,700.
According to the HRSA announcement, the limitation applies to organizations that have “received HRSA funds” on or after December 23, 2011. HRSA has not yet clarified its interpretation of “received”; however, until further clarification, NACHC interprets this to mean that the $179,700 cap applies only to Notice of Grant Awards (NGAs) with award dates on or after December 23, 2011 – not to NGAs with prior award dates from which funds were (or are) drawn down after December 23, 2011.
Based on discussions with HRSA officials, the provision is not intended to limit the amount a health center is allowed to pay its employees. Rather, it establishes a ceiling (or a “cap”) on the portion of an individual employee’s salary that can be charged to the federal grant. Health centers can charge to the grant an amount no more than the ceiling of $179,700 per employee, with the remaining costs (if any) charged to non-grant funds, such as program income.
If an employee is not full-time (less than 1.0 FTE), or if a full-time employee splits his or her time between the HRSA-funded project and a separate non-HRSA-project, the salary cap amount that can be charged to the HRSA project should be proportionate to the amount of time expended by the employee on activities supported by the HRSA grant. For example, if an individual is a .5 FTE or is full-time but works only 50% of his or her time on the health center project, the amount of his or her salary that can be charged to the project would be capped at $89,850 (50% of $179,700).
Additionally, if an employee’s time is charged to more than one HHS grant, the amount of his or her salary that can be charged to all HHS grants in the aggregate cannot exceed the $179,700 cap, with each grant charged an amount proportionate to the employee’s time expended on activities supported by such grant (if appropriate under the terms of the specific grant).
There are several outstanding questions yet to be addressed, including how grantees should: (1) develop their budgets going forward given that many do not currently itemize their expenses by funding source; and (2) address administrative salaries that are charged in part to an indirect cost rate. Further, while HRSA has confirmed that the application of the cap discussed above is their current interpretation, they have left open the possibility of a future modification. Thus, health centers affected by this cap should continue to check with the EHB and their project officers to confirm that there have not been any changes in interpretation. NACHC will continue to monitor these and other related issues and will post any updates and clarifications.
 Both our interpretation of non-retroactivity addressed in the previous paragraph and HRSA’s (apparent) view of the salary limitation applying solely to federal funds are supported by statute and case law dealing with federal budgeting and accounting.
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