PROCEDURES FOR INCLUSION OF SALARY AND BENEFITS

IN FEE-FOR-SERVICE (FFS) RATES

There are two areas to consider regarding the inclusion of salary and benefits in FFS rates: what salaries and benefits costs are appropriate to include and how to incorporate salaries and benefits into the rate development. Salary and benefit costing relates to how and when salaries and benefits are charged to FFS accounts. The rate development will vary in complexity, depending on the services provided, and is detailed below.

Salary and Benefit Costing

Regardless of the rate development model used, salaries and benefits included in a FFS rate must be charged to the FFSaccount. FFS administrative staff should periodically review the FFS account to ensure all personnel performing services for the FFS operation are being paid from the FFS account. For example, if 20% of an employee’s salary is paid by the FFS account, only the 20%portion may be used in the rate. If adjustments need to be made to move a portion of salary from the current account to the FFS account, an electronic personnel action (EPA) for salaried employees, or a payroll correction voucher for hourly employees, needs to be processed to move thebudgeted/estimated annual salary and benefits to the FFS account. Personnel NOT related to the FFSoperationsshould not be paid from the FFS account.

Administrative time

Time spent on administration of the service unit itself should also be built into the cost-reimbursable rate. The administrative time should be included in the overall labor rates and allocated across all services.

Rate Development

Factors to consider when selecting a model include the nature of the service being provided as well as the anticipated volume of service.Centers can use variations of these models as long as the result is to accurately allocate the actual cost of the service.

Available Budget Hours

Before selecting a model, we need to determine the appropriate full-time budget hours by pay base available for use in a FFS operation. The table shows the maximum allowable hours after vacation/sick leave/holiday accruals have been removed.

While actual leave usage varies by individual, use of these annual budgeted hours is required for consistency across the University. The B base annual budgeted hours can be used for other 9 month appointments such as P9, A9, E9 and K9.

Fringe Benefit Rates

The average benefit rate by individualis available using the Benefit Rate by Month report located in e-Data’s Labor Portal. The image below is an example report.

Labor Rate Models

After determining the annual budgeted hours and fringe benefit rates for individuals working on the FFS operations, choose from one of the costing models below. Using a combination of the models may be appropriate in certain FFS operations. A template of the 3 labor rate models is available on the FAR website,

Specific Labor Rate Model

The specific labor rate model breaks down an employee’s salary and benefits into a per hour rate. This model applies when a specific individual(s) is assigned to the service(s).

Example 1: Hourly rate by employee

Faculty member A is spending 75% of their time on a service center operations. Their annual salary is $90,000, with a benefit rate of 35%. The faculty’s member’s rate is calculated below.

$90,000*1.35(benefit rate) = $121,500*.75 (time)/(1672*.75) hours (working hours per table on page 1) = $72.67/hr.

OR

Example 2: Hourly rate by service per hour

Pooled Average Labor Model

The pooledaverage labor modelcalculates an average labor rate and is applicable whenmultiple people with varying labor rates provide the same service but itmakes no differencewhich employee provides the service.Note: This example calculates the average labor rate per hour; the number of hours to perform the service will need to be determined to calculate a rate per service.

Elements to review

When reviewing the labor component of a FFS rate, the following are suggestions on where to focus:

  • Verify the salary for the employee(s) and that the employee is paid from the account. It is acceptable to build in a reasonable factor for estimated annual raise if the rates will cross the fiscal year.
  • Verify that the correct fringe benefit rate is being used. Estimates of the increase in benefit rate are much more difficult to determine and are not recommended.
  • Rate reviews need to be performed annually by the operations manager and rate developer to compare budgeted salary to actual efforts needed to perform the services. Over or under recovery of actual salaries should result in an adjustment to the next year’s rates in order to compensate for the variance.
  • When hours of service are built into the rates, compare the expected number of hours of service to the actual hours charged to the FFS account. For example, if the initial budget was 100 tests at 3 hours each, 300 hours of labor should be budgeted.If actual hours were more than 300 hours the FFS will need to adjust next year’s rates by the amount of excess revenue recovered due to the additional hours.Same is true if the budget hours were over estimated.

Please discuss exceptions with FAR staff,

Salary and Benefits in Fee-for-Service Rates11/7/2018