Authority/Reference(s) Uniform Grant Guidance (UGG);45 CFR 75, Subpart E
Revision Date November 1, 2011


Employee Compensation

Employee compensation costs (or compensation for personal services) must be calculated in compliance with OMB Circular A-87 and OMB Circular A-122.

A contractor must:

  • compensate employees according to policy, program, and procedures that effectively relate individual compensation to the person's contribution to performance of the contract work; result in internally consistent, equitable treatment of employees; and effectively relate compensation paid within the organization to that paid for similar services outside the organization;
  • review and approve salaries by position or function;
  • not provide retroactive salary increases or future increases unless the contract specifically allows for increases;
  • keep time sheets on part-time employees or employees who devote a portion of their time to the contract; and
  • provide job descriptions when required by DFPS and only hire or promote people who meet job qualifications.

A contractor must not bill and receive reimbursement from funding sources for more than 100% of an employee's total salary or work time.

Contractors substantially engaged in activities other than the services for which DFPS is contracting must provide compensation for employees engaged in contract services that is comparable to compensation for other comparable contractor activities. The contractor also must provide compensation to employees that is considered reasonable and comparable to the compensation paid for similar work in the labor market in which the contractor competes for the kind of employees involved.


Overtime is allowable as a cost to DFPS only under the following conditions:

  • when necessary to cope with emergencies, such as those resulting from accidents, natural disasters, or temporary, unavoidable situations.
  • when periodically paying overtime to current staff will cost the department less than hiring temporary or additional staff.
  • when services are required to meet client needs and no substitute direct service staff are available.

Overtime is reimbursable subject to allowability and budget limitations of the contract.

Incentive Compensation (including merit raises)

Merit raises or other additional compensation reimbursed by DFPS and instituted by a contractor must meet the following requirements:

  • Incentive compensation must be reasonable.
  • Payment is made according to an agreement entered into in good faith between the contractor and its employees before the services are rendered or according to an established plan that the contractor follows.

DFPS must approve the incentive compensation plan and funding for the incentive compensation. To be allowable under a cost reimbursement contract, incentive compensation must be included as part of the budget for payments.

Activity Reports (or Equivalent Documentation Including Time Sheets)

Each employee is required to have activity reports that reflect an after-the-fact distribution of the employee's actual activity. These activity reports must be prepared at least monthly, must coincide with one or more pay periods, and must be signed by the employee. Personnel activity reports must account for the total activity for which the employee is compensated and which is required to fulfill the employee's obligation to the contractor.

If an employee performs only one function and only performs that one function for one contract/program area, then that employee's activity report can include the minimum information: name, date, beginning time, ending time, total time worked, paid and unpaid leave time, and appropriate signature(s).

Direct care staff must be directly costed between program areas (business components) based upon their activity reports (not a time study). A ctivity reports must account for the different functions and/or contracts/program areas, if a direct care employee performs:

  • more than one function;
  • one function for more than one contract/program area, or;
  • more than one function for more than one contract/program area.

These activity reports should be the documentation for the percentages of salaries budgeted to the various contracts. The percentage of an employee's salary charged to the contract must not exceed the time or effort the employee actually devoted to the contract.

A sample of an activity report/time sheet provided by the U.S. Department. of Labor can be found here. Use of this time sheet is not required; it is only an example that meets OMB and TAC requirements.