Recharge Standard Operating Procedures

 

SUBJECT:

Allocating Salaries to a Recharge Activity

SOURCE:

Cost Accounting, Financial Management Services

DATE ISSUED:

September 2016

DATE OF LAST REVISION:

 

N/A

RSOP NO:

9.0 

RATIONALE:

To provide options to fiscal officers, account managers and account supervisors in allocating salaries to recharge/service center activity

RSOP:

Costs that are shared by both external and recharge/service activity must be allocated. A recharge center billing rate cannot include more salary and wages than have been allocated to the account. The allocation method used must be based on the benefits received or other such equitable or logical association. The allocation method should be determined by the department and well documented. Below are some examples of acceptable allocation methods. The allocation should not be made based on percentage of revenue.

                                                   

Examples of Allocation Methods for Salary & Wages:

All allocation methods and percentages should be reviewed by the department at least annually and modified for significant changes.

 

1. Use of a Recharge/Service (66) Account for All Salary & Wages

In order to preserve a central administrative account for budget purposes, a recharge/service center activity may elect to budget all of salary and wages for both internal and external activity in a (central payroll) recharge/service (66) account within their organization. The recharge/service center would then bill other internal and external accounts for their proportionate usage of salaries and wages using an internal billing. The billing organization must use an expense object code that reports to the S&E object level.

 

The development of your rate for salary and wages can be a single pooled rate or a tiered pooled rate.

  • With a single pooled rate, all of the salaries, wages and benefits associated with the recharge activity are summed to get total compensation. The total compensation figure is then divided by the total anticipated labor hours of everyone in the pool. This method should only be used when the salaries in the pool are comparable.
  • With a tiered pooled rate, the salaries and benefits associated with the recharge activity are grouped together by type of employee and a rate is calculated for each tier. The salaries, wages, and benefits in a given tier are summed together to get total compensation for that tier. The total compensation for a given tier is then divided by the anticipated labor hours worked by employees in the tier.

Examples of pooled rates, can be found on S&W Rate Allocation Example.

 

2. Updating Job Funding for Each Employee Based on an Allocation

On an annual basis, the recharge/service activity could evaluate the percentage of time each employee spends on internal and external activities. Once they have a reasonable and documented allocation method, the department could update the job funding for the employee so that the internal and external accounts each reflect the allocated amount of salary, based on historical effort, for a given pay period. Any significant changes throughout the year would require that the job funding be updated accordingly.

 

3. Initiating Salary Transfers for a Given Employee for a Pay Period

The Salary Transfer (ST) document is used to move salaries and associated staff benefit charges for a given employee for a particular account period (or set of periods) from one or more accounts to another account (or set of accounts) after payroll has posted to the labor ledger.

 

Summary of Options:

The chart below outlines the primary differences in the options listed above.

 

 

1. Payroll Recharge Account

2. Job Funding

 3. Salary Transfer

Budget & Actual Expense Are Recorded in Same Account

 

Yes

 

Yes

 

No

Requires Subsequent Entries (i.e. internal billing or individual salary transfers)

 

 

Yes

 

No

 

Yes

Requires Subsequent Entries for Each Employee and Pay Period

 

No

 

No

 

Yes

 

Other allocation methods may be allowed. Please contact Cost Accounting if you wish to allocate salary and wages using another method.

 

Exceptions to this standard operating procedure require the approval of the Chief Accountant.


 

DEFINITIONS:

External Activity: An activity that furnishes goods or services a non-Indiana University department. This includes sales to students, faculty and staff for non-IU business, or the general public.

 

Internal Activity: An activity that furnishes goods or services to another Indiana University department.

 

Recharge/Service Center Activity: A recharge/service center activity is an activity that furnishes goods or services to another Indiana University department for the convenience of the university and charges a fee directly related to, and not more than the allowable cost to provide the goods or services.

 

CROSS

REFERENCE:

 

OMB Uniform Guidance (PDF) "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards"

RESPONSIBLE

ORGANIZATION:

 

Organizations that bill other Indiana University departments for goods or services