Fringe Benefits Overview

Review the below standard for guidance on fringe benefits and the impact they have on recharge and service centers.

The university receives federal sponsored awards. Fringe benefit expenses included in rate submissions must be calculated in accordance with the Federal Office of Management and Budget’s Uniform Guidance. Units that bill for goods or services within or between university accounts must utilize the approved fringe benefit rates published by the Office of the University Controller (UCO). The below standard emphasizes the significance of proper fringe benefit calculations for recharge activities, outlines employee and benefit cost pools, and delves into the requirements for units when submitting budgeting and planning documents, including external grant proposals for funding salaries, wages, and benefits.

UCO-RSC-8.00: Fringe Benefits

Prerequisites

Prior to reading the standard on Fringe Benefits, it is beneficial to review the below items to gain foundational information:

1. FIN-ACC-400 Recharge and Service Center Activity
2. UCO-RSC-1.00 Rate Submission Requirements for Recharge and Service Centers
3. UCO-RSC-2.00 Internal Recharge Activity in Accounts under $100,000 in Internal Revenue
4. UCO-RSC-3.00 Allocating Costs to Internal and External Activity

Preface

This standard will provide an overview of pooled fringe benefits and the methodology of how they are applied at Indiana University. This standard does not include information on taxable non-cash fringe benefits.

Introduction

Employee fringe benefits are an additional form of pay or compensation provided by employers to employees, beyond the employee’s normal rate of pay. Examples of fringe benefits include but are not limited to the employer portion of employer retirement contributions, terminal pay, and health insurance. Indiana University uses pooled fringe benefit rates to assign benefit costs to the accounts where an employee is paid. Employees are grouped based on the types of benefits they are eligible to receive. Pooled rates make costs more consistent, predictable, and easier to budget. They also simplify the process of calculating fringe benefits, help to avoid fluctuations in costs due to changes in individual employee status, and reduce compliance risk.

Importance and Impact of Fringe Benefits

Because the university receives federal sponsored awards, fringe benefit rates are calculated in accordance with the Federal Office of Management and Budget’s Uniform Guidance (OMB Uniform Guidance). All fringe benefits that are attributable to benefit-eligible salaries and wages are charged directly the university accounts where the employee was paid including accounts funded by sponsored awards. Fiscal officers are responsible for using the published fringe benefit rates for all university accounts in budgeting and planning documents, including contract and grant proposals. Noncompliance with Uniform Guidance could result in audit findings, reflect negatively on future award proposals, limit federal cost reimbursement, and lead to repayments or fines to the granting agency.

Fringe Benefits Discussed in Detail

Employee Pools

Employees are eligible for certain fringe benefits based on their position/appointment type that determines the cost pool to which they are assigned below.

• Academic staff
• Exempt staff
• Summer faculty
• Bi-Weekly (Non-Exempt staff)
• Hourly (Retirement eligible)
• Hourly (FICA only)

Benefit Cost Pools

Indiana University has five benefit cost pools. Some employees are eligible for more than one of the cost pools below.

• Group Insurance (KFS benefit type code G): Includes life insurance, unemployment compensation, workers compensation, employee tuition benefit*, health insurance, and benefit administration costs (because IU is self-funded)
• Exempt Retirement (KFS benefit type code R): Includes 18/20 Retirement Plan, IU Replacement Plan, IU Supplemental Early Retirement Plan (IUSERP), Income Protection (long-term disability), and IU Retirement Plan
• Bi-Weekly Retirement (KFS benefit type code B): Includes PERF and Retirement Savings
• FICA (KFS benefit type code F): Includes Social Security and Medicare
• Terminal Pay Monthly and BWP (KFS benefit type code P): Includes vacation and sick time paid upon separation from the university.
• Terminal Pay Bi-weekly (KFS benefit type code T): Includes vacation and sick time paid upon separation from the university.

*Includes only the employee tuition benefit and does not include spouse or dependent tuition benefit.

Calculation of the Fringe Benefit Rates

The fringe benefit rate is a ratio of the total benefit costs of the pool divided by the applicable salaries and wages of eligible employees in the benefit cost pool. Prior year costs are used as a basis when calculating the rate and adjusted for changes in the future year’s projection. The cost of each benefit is projected on an annual basis and adjusted for prior year under/over collections.

The individual rates of each benefit are summed together to get the rate that is applied to the wages paid on a given object code. The Office of the University Controller is responsible for calculating the fringe benefit rates. University units are responsible for using these rates in budgeting and planning documents, including external grant proposals that are funding salaries, wages, and benefits.

Fringe benefit rates are published in February for the following fiscal year.

Requirements and Best Practices

Requirements

1. Include current fringe benefit rates in budgeting and planning documents, including external grant proposals funding salaries, wages, and benefits.