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Go to Budget Examples, Resources, and Templates
Click here to read the July 3, 2007 memo distributed by Marilyn Hausammann and Elizabeth Mora.
Sponsored Programs & Budgeting under Harvard University's New Vacation Policy
The University will soon implement PeopleSoft’s Absence Management module to manage paid time off for exempt and non-exempt employees. As part of this implementation, Harvard will modify its accounting practices and vacation policy to more accurately account for and fund the University’s vacation liability as it is earned. Effective July 1, 2007, Harvard will begin charging a vacation assessment on all exempt and non-exempt salaries in all funding sources, including sponsored and non-sponsored. Please note that the vacation assessment does not apply to faculty or postdocs. It applies only to exempt and non-exempt staff paid through object codes 6050 or 6070. All University payroll transactions in these object codes will be charged a vacation assessment rate of 10.5% of base salary for exempt staff and 9.8% of base salary for non–exempt staff, in addition to the regular fringe benefits rate already being charged. The dollars accumulated from the vacation assessment will be pooled in a central vacation account that will be used to fund vacation payments as people take vacation beginning July 1, 2007.
How This Change Affects Sponsored Awards
Sponsored awards will be charged for vacation as it is earned, rather than as it is taken (as has been the case historically), for exempt and non-exempt employees. In other words: vacation taken will no longer be permitted as a direct charge to sponsored research awards. As employees take vacation, the central vacation pool will fund vacation salary and, therefore, the salary of an individual will not be charged to an award when that individual is on vacation. As a result of this change in policy, sponsored awards will not pay for vacation earned on prior awards and all awards will pay their share of vacation as earned by employees on the award, regardless of when the employee chooses to take vacation. After the initial historic liability is funded, departmental funds will not be needed to support vacations for employees whose projects are closed or do not have sufficient balances to fund employee vacations. (Please note that vacation earned, but not yet taken, as of June 30, 2007 represents an "historic liability" that cannot be funded by sponsored awards since our agreement with the federal negotiators does not allow it. For more information on the historic liability please contact your School or Unit’s Financial Officer or the Office of Budgets, Financial Planning and Institutional Research).
Changes to Sponsored Budgets
Effective immediately, grant managers should begin using the new vacation assessment rate for all exempt and non-exempt staff as they develop proposal budgets (see "Fed Budget w/Vacation Assessment" and "Non-Fed Budget w/Vacation Assessment" budget examples attached). Again, please bear in mind that the vacation assessment does not apply to faculty or postdocs.
When preparing grant application budgets, it is not necessary to request salary dollars for a full 52 weeks since any vacation an employee takes during the award will not be charged to the award but will be charged against the central vacation pool. Principal Investigators and Grant Managers, therefore, will need to make a reasonable estimation of the vacation that will be taken in the upcoming budget period. Based on historical data from payroll, staff take an average of 3 out of the 4 weeks of vacation earned each year. Therefore, for a full year budget period, a reasonable estimate for budgeted salary would be 49 weeks plus fringe and the vacation assessment (see aforementioned budget examples attached - additional examples will be posted to the OSP web site in the coming days). It is important to remember that the vacation pool will be funded by the vacation rate assessed on the original funding source as salary is earned. There will be no salary, regular fringe or vacation assessment charges to the award when vacation is taken. The additional amount paid by the fund through the vacation assessment, therefore, will be offset by reduced salary charged when the vacation is taken. So to summarize: if all exempt and non-exempt employees on the grant take as much vacation as they earn during the year (e.g., 4 weeks of vacation is expected to be earned and taken by an exempt employee in a given year, so 48 weeks of salary is anticipated and budgeted) the result to the project’s bottom-line will be budget neutral.
A vacation assessment template is attached (see "vacation assess template for schools-depts") to illustrate the financial impacts of the new vacation assessment. Simply enter the annual salary and you will see the financial impact of taking 0-5 weeks of vacation.
Budget Justification
Effective immediately, please also include the following statement in your budget justification:
The staff salary expenses in this budget were calculated in accordance with the Harvard Treatment of Paid Absences portion of Section II of our rate agreements negotiated with the Department of Health and Human Services on April XX*, 2007. Harvard will begin using a vacation accrual beginning July 1, 2007. Paid absences for vacation will no longer be claimed as direct charges on federal awards and regular salary will carry a vacation fringe to accrue earned vacation.
*Substitute dates below as appropriate:
SPH - April 18, 2007
HMS - April 18, 2007
University Area - April 13, 2007
Risks
- In order to project the total cost for staff salary to a sponsored award, grants managers need to factor in an estimate of vacation to be taken to approximate the real cost to a grant. It is always acceptable to build in known salary increases or bonuses that are paid in accordance with standard institutional practice. In estimating the total salary charges, there is a risk of under-budgeting on the award if the staff member does not take vacation that was earned or budgeted. See "Fed Budget w Vacation Assessment" budget example, which illustrates the impact of staff not taking vacation during any given year/period.
- It is also important to note that salary plus fringe benefits and vacation assessment can not be greater than the NIH cap. Since exempt and non-exempt
staff salaries rarely approach the NIH cap this will not become a problem for most departments. However, for those departments who may have highly paid
senior project directors on NIH awards, please note that
Regular pay x 1.105 can not be greater than the NIH cap.
Please keep in mind that a staff member who is part-time but who would be over the cap if they were 1.0 FTE must also be capped but at the appropriate proportional amount.
Final Thoughts
- A detailed set of FAQs is being developed that will hopefully address additional questions you may have. In the meantime, please contact your OSP or local school sponsored award staff should you have any questions related to budgeting.
- A separate communication will be sent directly to Principal Investigators explaining these changes and detailing the financial impacts of not closely managing staff vacations.
- Because of the complexities involved, it will be very challenging and labor-intensive to make retroactive adjustments in the PeopleSoft system as well as the University’s general ledger. Please ensure that staff request and receive approval for vacation in advance of taking it, and no later than the payroll cycle in which the vacation is taken.
Examples, Resources, and Templates
Absence Management information on HARVie:
- http://harvie.harvard.edu/benefits/timeoff/ptochange.shtml
- http://harvie.harvard.edu/working/pdf/ptoannoucement.pdf
Sponsored Guidance Materials
- Absence Management Update Presentation from SPOC - February 15, 2007
- FY08, FY09, and FY10 Fringe Rates
Example Budgets
- Federal Budget w/Vacation Assessment
- Federal Budget - Personnel Only
- Non-Federal Budget w/Vacation Assessment
- Federal Budget - NO Vacation Assessment
- Vacation Fringe Budget in Loaded Rate Format
Templates and Tools
