§ 200.431 - Compensation—fringe benefits.

§ 200.431 Compensation—fringe benefits.

(a) General. Fringe benefits are allowances and services provided by employers provide to their employees as compensation in addition to regular salaries and wages. Fringe benefits include, but are not limited to, the costs of leave (vacation, family-related, sick or military), employee insurance, pensions, and unemployment benefit plansbenefits. Except as provided elsewhere in these principles, the costs of fringe benefits are allowable provided that the benefits are reasonable and are required by law, nonan organization-Federal entity-employee agreement, or an established policy of the non-Federal entityrecipient or subrecipient.

(b) Leave. The cost of fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as for annual leave, family-related leave, sick leave, holidays, court leave, military leave, administrative leave, and other similar benefits, are allowable if all of the following criteria are met:

(1) They are provided under established written leave policies;

(2) The costs are equitably allocated to all related activities, including Federal awards; and,

(3) The accounting basis (cash or accrual) selected for costing each type of leave is consistently followed by the non-Federal entity or recipient or subrecipient or a specified grouping of employees.

(i) When a non-Federal entity recipient or subrecipient uses the cash basis of accounting, the cost of leave is recognized in the period that the leave is taken and paid for. Payments for unused leave when an employee retires or terminates employment are allowable in the year of payment and should be allocated as a general administrative expense to all activities or included in the fringe benefit rate.

(ii) The accrual basis may be only used for those types of leave for which a liability as defined by GAAP exists when the leave is earned. When a non-Federal entity recipient or subrecipient uses the accrual basis of accounting, allowable leave costs are the lesser of the amount accrued or funded.

(c) Fringe benefits. The cost of fringe benefits in the form of employer contributions or expenses for social security; employee life, health, unemployment, and worker's compensation insurance (except as indicated in § 200.447); pension plan costs (see paragraph (i) of this section); and other similar benefits are allowable, provided such benefits are granted permitted under established written policies. Such benefits, must be allocated The recipient or subrecipient must allocate fringe benefits to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities, and charged as direct or indirect costs in accordance with the non-Federal entityfollowing the recipient's or subrecipient's accounting practices.

(d) Cost objectives. Fringe benefits may be assigned The recipient or subrecipient may assign fringe benefits to cost objectives by identifying specific benefits to specific individual employees or by allocating them based on the basis of entity-wide salaries and wages of the employees receiving the benefits. When the allocation method is used, separate allocations must be made to selective groupings of employees , unless the non-Federal entity recipient or subrecipient demonstrates that costs in relationship to salaries and wages do not differ significantly for different groups of employees.

(e) Insurance. See also § 200.447(d)(1) and (2).

(1) Provisions for a reserve under a self-insurance program for unemployment compensation or workers' compensation are allowable to the extent that the provisions represent reasonable estimates of the liabilities for such compensation , and the types of coverage, the extent of coverage, and rates and premiums would have been allowable had insurance been purchased to cover the risks. However, provisions for self-insured liabilities which do not become payable for more than one year after the provision is made must not exceed the present value of the liability.

(2) Costs of insurance Insurance costs on the lives of trustees, officers, or other employees holding positions of similar responsibility are allowable only to the extent that the insurance represents additional compensation. The costs cost of such insurance is unallowable when the non-Federal entity recipient or subrecipient is named as beneficiary are unallowable.

(3) Actual claims paid to or on behalf of employees or former employees for workers' compensation, unemployment compensation, severance pay, and similar employee benefits (e.g.for example, post-retirement health benefits) , are allowable in the year of payment provided that the non-Federal entity recipient or subrecipient follows a consistent costing policy.

(f) Automobiles. That portion of automobile costs furnished by the non-Federal entity recipient or subrecipient that relates to personal use by employees (including transportation to and from work) is unallowable as a fringe benefit or indirect (F&A) costs regardless of whether the cost is reported as taxable income to the employees.

(g) Pension plan costs. Pension plan costs which are incurred in accordance with the established written policies of the non-Federal entity recipient or subrecipient are allowable, provided that:

(1) Such policies meet the test of reasonableness.

(2) The methods of cost allocation are not discriminatory.

(3) Except for State and Local Governments, the The cost assigned to each fiscal year should be determined in accordance with GAAP, except for State and local governments.

(4) The costs assigned to a given fiscal year are funded for all plan participants within six months after the end of that year. However, increases to normal and past service pension costs caused by a delay in funding the actuarial liability beyond 30 calendar days after each quarter of the year to which such costs are assignable are unallowable. Non-Federal entity may elect to The recipient or subrecipient may follow the “Cost Accounting Standard for Composition and Measurement of Pension Costs” (48 CFR 9904.412).

(5) Pension Premiums for pension plan termination insurance premiums that are paid pursuant according to the Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. 1301-1461) are allowable. Late payment charges on such premiums are unallowable. Excise taxes on accumulated funding deficiencies and other penalties imposed under ERISA are unallowable.

(6) Pension plan costs may be computed using a pay-as-you-go method or an acceptable actuarial cost method in accordance with recognized by GAAP and following the recipient's or subrecipient's established written policies of the non-Federal entity.

(i) For pension plans financed on a pay-as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries.

(ii) Pension costs calculated using an actuarial cost -based method recognized by GAAP are allowable for a given fiscal year if they are funded for that year within six months after the end of that year. Costs funded after the six -month period months (or a later period agreed to by the cognizant agency for indirect costs) are allowable in the year funded. The cognizant agency for indirect costs may agree to an extension of the six-month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal Government and related Federal reimbursement and the non-Federal entityrecipient's or subrecipient's contribution to the pension fund. Adjustments may be made by cash refund or other equitable procedures to compensate the Federal Government for the time value of Federal reimbursements in excess of contributions to the pension fund.

(iii) Amounts funded by the non-Federal entity recipient or subrecipient in excess of the actuarially determined amount for a fiscal year may be used as the non-Federal entityrecipient's or subrecipient's contribution in future periods.

(iv) When a non-Federal entity recipient or subrecipient establishes or converts to an acceptable actuarial cost method, as defined by GAAP, and funds pension costs in accordance with this method, the unfunded liability at the time of conversion is allowable if amortized over a period of years in accordance with GAAP.

(v) Payments for unfunded pension costs must be charged in accordance with the allocation principles of this subpart. Specifically, the recipient or subrecipient may not charge unfunded pension costs directly to a Federal award if those unfunded pension costs are not allocable to that award.

(vi) The recipient or subrecipient must provide the Federal Government

must receive

an equitable share of any previously allowed pension costs (including subsequent earnings

thereon

)

which

that revert or inure to the

non-Federal entity in the form of

recipient or subrecipient through a refund, withdrawal, or other credit.

(h) Post-retirement health. Post A post-retirement health plans plan (PRHP) refers to the costs of health insurance or health services not included in a pension plan covered by paragraph (g) of this section for retirees and their spouses, dependents, and survivors. PRHP costs may be computed using a pay-as-you-go method or an acceptable actuarial cost method in accordance with recognized by GAAP and following the recipient's or subrecipient's established written policies of the non-Federal entity.

(1) For PRHP financed on a pay-as-you-go method, allowable costs will be limited to those representing actual payments to retirees or their beneficiaries.

(2) PRHP costs calculated using an actuarial cost method recognized by GAAP are allowable for a given fiscal year if they are funded for that year within six months after the end of that year. Costs funded after the six -month period months (or a later period agreed to by the cognizant agency for indirect costs) are allowable in the year funded. The Federal cognizant agency for indirect costs may agree to an extension of the six-month period if an appropriate adjustment is made to compensate for the timing of the charges to the Federal Government and related Federal reimbursements reimbursement and the non-Federal entityrecipient's or subrecipient's contributions to the PRHP fund. Adjustments may be made by cash refund, reduction in the current year's PRHP costs, or other equitable procedures to compensate the Federal Government for the time value of Federal reimbursements in excess of contributions to the PRHP fund.

(3) Amounts funded by the recipient or subrecipient in excess of the actuarially determined amount for a fiscal year may be used as the non-Federal entity recipient's or subrecipient's contribution in a future periodperiods.

(4) When a non-Federal entity If a recipient or subrecipient establishes or converts to an acceptable actuarial cost method and funds PRHP costs in accordance with this method, the initial unfunded liability attributable to prior years is allowable if amortized over a period of years in accordance with GAAP, or, if no such GAAP period exists, over a period negotiated with the cognizant agency for indirect costs.

(5) Payments for unfunded PRHP costs must be charged in accordance with the allocation principles of this subpart. Specifically, the recipient or subrecipient may not charge unfunded PRHP costs directly to a Federal award if those unfunded PRHP costs are not allocable to that award.

(6) To be allowable in the current year, the PRHP costs must be paid either to:

(i) An insurer or other benefit provider as current year costs or premiums

,

; or

(ii) An insurer or trustee

to

that will maintain a trust fund or reserve for the sole purpose of providing post-retirement benefits to retirees and other beneficiaries.

(

6

7) The recipient or subrecipient must provide the Federal Government

must receive

an equitable share of any

amounts of

previously allowed post-retirement benefit costs (including subsequent earnings

thereon

)

which

that revert or inure to the

non-Federal entity in the form of

recipient or subrecipient through a refund, withdrawal, or other credit.

(i) Severance pay.

(1) Severance pay, also commonly referred to as dismissal wages, is a payment in addition to regular salaries and wages, by non-Federal entities recipients and subrecipients to workers whose employment is being terminated. Costs of severance Severance pay are is allowable only to the extent that, in each case, it is required by:

(i) Law;

(ii) Employer-employee agreement;

(iii) Established policy that constitutes, in effect, an implied agreement on the non-Federal entityrecipient's or subrecipient's part; or

(iv) Circumstances of the particular employment.

(2) Costs of severance payments are divided into two categories as follows:

(i) Actual severance payments for normal turnover severance payments must be allocated to all activities; or, where the non-Federal entity recipient or subrecipient provides for a reserve for normal severances, such method will be is acceptable if the charge to current operations is reasonable in light of payments actually made for normal severances over a representative past period, and if amounts charged are allocated to all activities of the non-Federal entityrecipient or subrecipient.

(ii) Measurement of Measuring the costs of abnormal or mass severance pay by means of an accrual method will not achieve equity to for both parties. ThusTherefore, accruals for this purpose are not allowable. However, the Federal Government recognizes its responsibility to participate, to the extent of contribute its fair share , in any toward a specific payment. Prior approval by the Federal awarding agency or cognizant agency for indirect cost, as appropriate, is required.

(3) Costs incurred in certain severance pay packages which that are in an amount in excess of the normal standard severance pay paid provided by the non-Federal entity recipient or subrecipient to an employee upon termination of employment and that are paid to the employee contingent upon a change in management control over, or ownership of, the non-Federal entityrecipient's or subrecipient's assets, are unallowable.

(4) Severance payments to foreign nationals employed by the non-Federal entity recipient or subrecipient outside the United States, to the extent that the amount exceeds the customary or prevailing practices for the non-Federal entity recipient or subrecipient in the United States, are unallowable , unless they are required by applicable foreign law or necessary for the performance of Federal programs and approved by the Federal awarding agency.

(5) Severance payments to foreign nationals employed by the non-Federal entity recipient or subrecipient outside the United States due to the termination of the foreign national as a result of the closing of, or curtailment of activities by, the non-Federal entity recipient or subrecipient in that country, are unallowable , unless they are necessary either:

(i) Required by applicable foreign law; or

(ii) Necessary for the performance of Federal programs and approved by the Federal

awarding

agency.

(j) For IHEs only.

(1) Fringe benefits in the form of undergraduate and graduate tuition or tuition remission of tuition for individual employees are allowable, provided such benefits are granted in accordance with established non-Federal entity policies, written policies of the IHE and are distributed to all non-Federal entity IHE activities on an equitable basis. Tuition benefits for family members other than the employee are unallowable.

(2) Fringe benefits in the form of undergraduate and graduate tuition or tuition remission of tuition for individual employees not employed by IHEs the IHE are limited to the tax-free amount allowed per section 127 of by the Internal Revenue Code as amended (26 U.S.C. 127).

(3) IHEs may offer employees tuition waivers or tuition reductions, provided that the benefit does not discriminate in favor of highly compensated employees. Employees can exercise these benefits at other institutions according to institutional policy. See § 200.466, for treatment of tuition remission provided to students.

(k) Fringe benefit programs and other benefit costs.

(1) For IHEs whose costs are paid by

state

a State or local

governments

government, fringe benefit programs (such as pension costs and FICA) and any other benefits costs incurred specifically

incurred

on behalf of, and in direct benefit to, the

non-Federal entity

IHE, are allowable

costs of such non-Federal entities whether or not these costs are recorded in the accounting records of the non-Federal entities

, subject to the following:

(

1

i) The costs meet the requirements of Basic Considerations in §§ 200.402 through 200.411;

(

2

ii) The costs are properly supported by approved cost allocation plans in accordance with applicable Federal cost accounting principles; and

(

3

iii) The costs are not otherwise borne directly or indirectly by the Federal Government.

[85 FR 49565, Aug. 13, 2020

(2) The allowability of these costs for the IHE does not depend on whether they are recorded in the accounting records of the IHE.

[89 FR 30136, Apr. 22, 2024, as amended at 89 FR 79732, Oct. 1, 2024]