How to Pay Yourself More Than the 2019 NIH Salary Cap

Every year since 1990, Congress has set a salary cap limiting the direct salary that an individual may receive for working on an NIH grant.  The 2019 NIH Salary Cap figure was recently released for salaries – effective January 6, 2019.

The 2019 NIH salary cap is $192,300 for Executive Level II

But what if the actual salary an individual receives is greater than the cap? How do you pay a higher salary and remain in compliance with your NIH grant funding award?  Here are two key points about the salary cap that might help you breathe easier.

1. The salary cap applies only to direct labor costs charged to NIH awards.
2. The $192,300 is effectively a cap on the hourly rate that can be charged to the NIH grant.

Two examples of how the NIH salary cap works

Example #1 Direct, full-time labor

You have a full-time employee, Sally, whose salary is $200,000 per year, $16,666.67 per month or $96.15(CC) per hour.  (We calculate this using 2,080 total hours per year divided by 12 months = 173.33 hours per month.  The monthly salary, $16,666.67, divided by monthly hours = an hourly rate of $96.15)

Remember, the 2019 NIH salary cap is $192,300, or $16,025 per month, or $92.45 per hour.

In a month when Sally dedicates all of her time to your NIH award, the amount in excess of the salary cap is $632.65, calculated as ($96.15 – $92.45)*173.33 hours (know that this should be based on the actual number of hours in that specific month).

This $632.65 excess is direct labor that you will charge to an “unallowable cost” account that you’ll have to pay for with non-federal funds or your award fee.

The NIH salary cap & employees who work on direct and indirect tasks.

Remember, the salary cap is a maximum rate of pay at which an individual’s full-time effort over a twelve-month period that can be charged to the NIH award(s).

What if you have an employee who spends time on tasks other than the NIH award?  Our next example demonstrates this.

Example #2  Direct and indirect labor

You have an employee, Fred, who works on your NIH award as direct labor. He also does some administrative tasks (indirect labor) during the month.

Fred’s salary is $200,000 per year, which equates to $16,667 per month, $96.15 per hour.

In one month, Fred works 40 hours on the NIH award and 128 hours on administrative tasks. Let’s break his salary down:

We have no problem with the indirect portion.  The portion of his salary allocated to indirect labor is 128 hours at $96.15 per hour = $12,307.20.

40 hours were spent on direct labor, and 40 hours at $96.15 = $3,846.  This is the amount of salary apportioned to direct labor on an NIH grant.

The salary cap for 40 hours of direct labor on NIH awards is $3,698 (40 hours * $92.45).  The amount in excess of the salary cap is $148. ($3,846 – $3,698)

The $148 is direct labor that you will charge to an “unallowable” labor account and pay for with non-federal funds or your award fee.

Paying yourself $400,000

Ok, we can hear your brain humming… If you want to pay yourself $400,000/year, charge most of it to indirect labor!

Problem is – indirect rates need to be negotiated, and reasonableness becomes the key negotiating term.  In our experience, $400,000 is a non-starter when negotiating with the Division of Financial Advisory Services (DFAS), but hopefully, this article demonstrates that if an employee’s pay exceeds the NIH salary cap you are required to meticulously maintain time sheets, distribute labor costs between direct and indirect labor costs, and be reasonable.

If you want more insight on the NIH salary cap or would like to discuss this or any issue with one of our government award accounting experts, please contact Ryan at 

Get educated

Learn why numbering or coding is in an essential part of a FAR-compliant accounting system. Read the blog.

Learn why a FAR-compliant job report is critical to your SBIR award. Read the blog.

Get tips on how to avoid Uniform Guidance Audit findings with direct subcontractors. Read the blog.