Executive Office for Administration and Finance
Leslie A. Kirwan, Secretary
Effective Date: May 1, 2008

Purpose and Scope

This Administrative Bulletin describes the policies and procedures governing the assessment and collection of fringe benefits, payroll taxes and indirect costs for all programs and activities of the Commonwealth as required by M.G.L. c. 29, §§ 5D and 6B. It applies to all state departments. For the purpose of this Bulletin, a department is a state agency authorized to manage its financial affairs through the state accounting system as established and maintained by the Comptroller.

Role of the Comptroller

The Secretary of Administration and Finance ("the Secretary") has designated the Comptroller to act as the Secretary's designee in all matters related to setting, negotiating, assessing, and recovering fringe benefit costs and indirect costs. The responsibilities associated with this designation are set forth in more detail in the paragraphs below. No department may submit or negotiate indirect cost rates or cost allocation plans to or with the federal government without the prior written approval of the Secretary or the Comptroller.

To assist the Comptroller in the calculation of indirect cost rates, the Comptroller may require departments to provide such information as is deemed necessary to carry out the provisions of this Bulletin, including but not limited to:

  • a current and complete organization chart of the department, identifying the positions of each unit;
  • functional description of some or all units of the department; and
  • financial reports or comparable supporting documentation as of the end of the fiscal year used as the cost base for the department's Indirect Cost Rate Calculation.

The Comptroller may develop such additional procedures and guidelines as is deemed necessary to ensure that departments comply with the provisions of this Bulletin and with federal guidelines including Office of Management and Budget ("OMB") Circular A-87, "Cost Principles for State, Local, and Indian Tribal Governments."

Fringe Benefits and Payroll Taxes

As used in this Bulletin, fringe benefits are the Commonwealth's cost for employee-related expenses including health and life insurance and the administration of these benefit programs, pension liabilities, terminal leave salaries. The fringe benefit rate is the cost of fringe benefits as a percent of salaries paid.

Payroll taxes are unemployment insurance, universal health insurance and Medicare tax. A separate rate is calculated for payroll taxes. Both rates are the same for all departments, although there may be separate state and federal rates. The costs of fringe benefits are assessed against all funds except the General Fund. Payroll taxes are assessed against all funds.

The Comptroller notifies departments once the fringe benefit and payroll tax rates for the coming fiscal year are certified. Department heads are responsible for budgeting these costs from the applicable funds. The Comptroller charges departments for fringe benefit costs each month based on expenditures for personnel costs in the state accounting system for that month.

Statewide Cost Allocation Plan (SWCAP)

As the Secretary's designee, the Comptroller prepares and negotiates the Statewide Cost Allocation Plan ("SWCAP" or "Plan") for submission to the federal government. The Plan identifies the cost of central government services, such as those provided by the Office of the Comptroller, the Operational Services Division, the Office of the State Treasurer, and the like, and allocates these costs to individual departments. The SWCAP requires federal approval.

Indirect Costs

Indirect costs are the sum of department overhead costs, as determined in the Indirect Cost Rate Calculation prepared by the Comptroller, including for example administrative services of the Executive Office and other relevant costs associated with the department's programs, and the department's allocated share of statewide costs as set out in the SWCAP. The Comptroller is responsible for calculating a separate Indirect Cost Rate for each department receiving or anticipating receipt of federal funding. The rate may not exceed the federally approved rate as certified by the Comptroller.

The Comptroller will notify each department of its indirect cost rate, including all personnel and department costs allocated through the approved rate. Departments must ensure that they do not charge costs directly to federal grants, through the labor distribution systems or other cost allocation mechanisms, when such costs are also allocated through the indirect cost rate.

Indirect costs will be assessed against all federal, non-budgeted special revenue, and trust fund accounts unless an explicit exemption applies. All budgetary funds are exempt. For departments without a federally approved rate, the indirect cost rate will be equal to ten percent (10%) of the department's personnel costs, including both regular employees and contract employees.

As in the case of fringe benefits, department heads are responsible for budgeting for indirect costs from the appropriate funds. The Budget Director may waive assessment of indirect costs for a particular fiscal year, in whole or in part, when he determines that the waiver is in the best interest of the Commonwealth, as described further below.

Higher Education

Institutions of higher education must prepare their indirect cost rate proposals in accordance with OMB Circular A-21, "Cost Principles for Educational Institutions." These institutions are excluded from the requirements of the preceding section of this Bulletin governing indirect costs. Institutions of higher education may retain funds received for any purposes other than the direct object of the grant, including indirect costs, pursuant to M.G.L. c.29, 6B (g).

Personnel Costs

Departments posting personnel costs to federal grants must document these costs pursuant to OMB Circular A-87.

Policy on Waiving Indirect Costs

Federal Grants and reimbursements as well as revenue streams dedicated to a specific program including special revenue funds and trust funds should fund the full cost of their programs. Indirect rates are designed to allocate and recover costs not otherwise directly charged to the program. It is ANF's policy that they not be waived. Accordingly, requests for the waiver of indirect costs will be closely scrutinized. If any such waiver is granted, it shall only be for one fiscal year, unless otherwise noted.

In general, a waiver request should demonstrate that a particular fiscal hardship has beset the agency or account. The hardship should be short-term in nature, with the waiver of indirect part of a long-term plan to address the situation and regain a sound fiscal footing. Documentation of the situation must be provided to substantiate the request.

After review, if several waivers were granted in the past or recently requested, it will be ANF's assessment that in most cases they indicate larger, unsustainable budget conditions of an agency's federal grant or trust, and the additional request(s) will be denied.

If a waiver is granted, it will only be allowed for the current fiscal year, and will expire on June 30 of that year unless expressly authorized otherwise.

In addition to short-term conditions, waivers will be considered under the following circumstances:

  1. The Commonwealth is diverting its own funds to pay for a particular program. Examples of this include the pension trust funds, which receive a considerable influx from the state each year.
  2. A federal statute or the terms of a trust agreement that specifically prohibits or limits indirect costs.

Process for Waiving Indirect Costs

If an agency feels that it meets the rare circumstances which warrant an indirect waiver, it should put that request in a written memo to the Budget Director, including the following information:

  • An explanation of the fiscal hardship surrounding the grant - why the department cannot afford to pay the indirect costs - and documentation of the department's plan to restore fiscal stability.
  • An estimate of the amount of indirect to be waived in the given fiscal year.
  • A statement indicating that the department understands that any waiver will only last for the current fiscal year.

The agency's fiscal policy analyst will review and provide a recommendation using strict guidelines above. The decision will be relayed to the agency and also sent to Comptroller. Waivers will expire at end of fiscal year in which they were granted.

Forms and Links

None applicable.

A&F Secretary Approval and Effective Date

This Administrative Bulletin published by the Executive Office for Administration and Finance shall be effective as of the date specified below:

Leslie A. Kirwan, Secretary
Effective Date: May 1, 2008


This information provided by the Executive Office for Administration & Finance