Indirect Cost and Fringe Benefit Rates
Definition of the Indirect Cost and Fringe Benefit Rate
In addition to the "direct costs" of conducting a research project -- salaries, equipment, travel, etc. -- there are "indirect costs" involved. These indirect costs include administrative support and services and the use of University facilities for research. Indirect costs incorporate a wide range of University costs from administrative salaries to lights and water to the library. In addition, the costs of University personnel include both direct salary costs and fringe benefits.
Most sponsoring agencies recognize the right of universities to recover some of these costs when university personnel and facilities are involved in sponsored research. Most sponsors will agree to some form of cost-sharing with universities on the indirect costs of a sponsored research project. Typically U.S. universities engaged in sponsored research negotiate with the U.S. government a standard formula for sharing of indirect costs. Once a negotiated indirect cost rate has been approved, most other sponsors will apply the same rate. AUC's rate has been negotiated with the U.S. Department of Health and Human Services.
For federal sponsors, the current AUC rate for recovering indirect costs and fringe benefits on sponsored programs consists of the following (NICRA 2013; effective September 1, 2013) :
1- Facilities and Administrative Cost Rate - 56.80 percent of total direct costs excluding capital expenditures (buildings, individual items of equipment, alterations and renovations) and subawards
2- Fringe Benefits Rate - 23.70 percent of salaries and wages
For non-federal sponsors, an alternative rate, such as the sponsor's ceiling, may be used; OSP secures the necessary approvals.
How to Calculate the Indirect Cost and Fringe Benefit Rate in a Budget
In developing the budget for a sponsored research project, the direct and indirect costs should be shown separately. Personnel salary costs should also be shown separately from fringe benefit costs.In situations where the sponsor is not covering the full indirect costs, AUC and sponsor cost-shares should be shown separately in the budget. For examples, see the sample budget below with full indirect costs recovered from the sponsor.
In this case, fringe benefits are included in the Indirect Costs category.
|Salaries (excluding Fringe Benefits)||
|Total Direct Costs (Excluding Equipment)||
|Total Direct Costs||
|Facilities and Administrative Cost Rate (56.8 Percent of Total Direct Costs - Excluding Equipment)||
|Fringe Benefits Rate (23.7 Percent of Salaries and Wages)||
|Total Indirect Costs||
AUC is entitled to recover indirect costs as shown above. Any un-recovered portion of this indirect cost shall be counted as cost sharing by AUC subject to prior approval of the vice president for finance. In cases where overhead is a fixed percentage of total direct cost, fringe benefits must be a direct cost.