2 CFR 200.430: Compensation for Personal Services Allowability

Under 2 CFR 200.430, compensation for personal services can be charged to a federal award only when the pay is reasonable for the work performed, follows your organization’s own written compensation policies applied the same way to federal and non-federal work, and is supported by documentation that reflects what the employee actually did. The rule reaches every recipient and subrecipient of federal funds, including universities, nonprofits, and state and local governments, and it covers salary, wages, and the related benefits paid for services rendered during the award’s period of performance.¹ Get any of those three pieces wrong and the cost is unallowable, whatever the budget said.

The Three Allowability Tests

Total compensation must be reasonable for the services rendered and must conform to the organization’s established written policy, applied consistently to both federally and non-federally funded activities.¹ A separate, more generous pay structure that only applies to grant-funded positions fails this test on its face.

The employee’s appointment must comply with the organization’s own rules and any applicable federal statute. Hiring process, job classification, and pay rate all have to track your internal policies.¹

Finally, the charge has to be supported by records that meet the regulation’s personnel documentation standards. If you cannot prove the work happened and was properly allocated, the cost is not allowable.

What Reasonableness Actually Means

Reasonableness is a comparison, not a fixed dollar figure. If your organization employs people doing similar work on non-federal projects, the pay charged to a federal award should line up with what those other employees earn.¹ A grant-funded researcher earning 30 percent more than a non-grant researcher in the same role invites a finding.

When the skills required for the federal project do not exist elsewhere inside your organization, the benchmark shifts outside: what does the relevant labor market pay for comparable work? Salary surveys, Bureau of Labor Statistics data, and peer institution figures become the defensible basis. Every salary charged to a federal award needs one.

Documentation That Will Hold Up

Section 200.430 takes a standards-based approach rather than prescribing a single reporting format. Your organization needs a system of internal controls that gives reasonable assurance that every compensation charge is accurate, allowable, and allocated to the correct funding source.¹ Older language about specific time and effort certifications is gone, but the substance remains: records must reflect what people actually did, not what the proposal budget projected.

Records supporting personnel charges must be part of the organization’s official records. Side spreadsheets and informal trackers do not qualify. They must capture the employee’s total compensated activity across every funding source and cannot exceed 100 percent of compensated time. Federal and non-federal work must be covered on an integrated basis, though subsidiary records are permitted if your written policy allows them. And where an employee splits time across multiple federal awards, or between federal and non-federal work, or between direct and indirect cost activities, the records must document how the time was distributed.¹

The regulation does not force a specific certification frequency or signature format. Monthly or semi-annual certifications signed by the employee or a supervisor with firsthand knowledge remain a defensible approach. What matters is that the system produces records reflecting actual effort.

Using Budget Estimates on an Interim Basis

Budget estimates can drive interim salary charges, but they never stand as final support on their own. Three conditions apply. The estimating system must produce reasonable approximations of actual work. Significant changes in how employees spend their time must be identified and recorded promptly, though short-term fluctuations of a month or two can be ignored as long as the allocation is reasonable over a longer period. And internal controls must include after-the-fact reviews that compare interim charges to actual activity, with adjustments so the final amounts are accurate.¹

The frequent breakdown is setting up budget-based payroll allocations at project start and never revisiting them. Build the reconciliation into a routine, quarterly works for most organizations, and the risk drops considerably.

Types of Compensation You Can Charge

Direct salary and wages for time spent on a federal award are the core allowable cost, whether paid currently or accrued, as long as they satisfy the reasonableness and consistency standards.¹

Fringe benefits, including health insurance, retirement contributions, leave, and unemployment insurance, are allowable under the companion section 2 CFR 200.431. They must be reasonable, required by law or an established organizational policy, and allocated consistently across federal and non-federal work. They can be charged as direct costs or through an approved indirect cost rate, in line with the organization’s normal accounting practice. The personal-use portion of employer-provided vehicles, including commuting, is never allowable as a fringe benefit.²

Bonuses and other incentive pay can be allowable when the total package of base pay plus incentive stays reasonable and the arrangement rests on a pre-existing written plan or agreement that the organization followed consistently before services were rendered.¹ Invented-after-the-fact bonuses are not allowable.

Severance is allowable only to the extent required by law, by an employer-employee agreement, or by a consistently applied written organizational policy. The amount must be reasonable relative to the employee’s length of service and compensation.

Costs That Are Restricted or Unallowable

Costs that are unallowable under any other section of the Uniform Guidance cost principles, such as lobbying, entertainment, or alcoholic beverages, do not become allowable by being categorized as compensation.¹

Compensation contingent on the successful outcome of a federal award is generally unallowable. Cost-of-living adjustments are allowable only when they apply consistently across the entire workforce; a COLA limited to federally funded employees does not qualify. A substantial jump in the organization’s compensation structure that tracks an increase in federal funding will draw close audit scrutiny.

The Executive Salary Cap

Federal law caps the salary rate that can be charged to certain federal awards. For grants and cooperative agreements from agencies such as NIH, the ceiling is set at Executive Level II of the federal pay scale, which stands at $228,000 as of January 2026. You can still pay someone above that figure; you just cannot charge the excess to the award. If a principal investigator earns $280,000 in institutional base salary, the organization funds the difference from non-federal sources. For active awards issued in fiscal year 2026, recipients can rebudget existing funds to accommodate the updated cap, but the sponsoring agency will not provide additional money for the increase.³ Organizations must have policies preventing any federal draw above the cap, whether in direct or indirect costs.

Special Rules for Colleges and Universities

Section 200.430 contains an entire subsection that applies only to institutions of higher education, and it houses some of the most misunderstood provisions in the Uniform Guidance.

All faculty charges to federal awards during the academic year must be based on the institutional base salary (IBS) rate. IBS is the annual compensation a university pays for an individual’s appointment, covering research, teaching, administration, and other duties, and does not include income earned outside the institution. Regardless of the calculation method, a faculty member’s compensation from federal awards cannot exceed their proportionate share of IBS for the period they worked on the project unless the federal agency gives prior approval.¹

When a faculty member consults for another department inside the same institution, the default rule treats the work as part of regular university responsibilities, with no pay beyond IBS. Additional compensation for intra-university consulting is allowable only when the consultation crosses departmental lines or involves a separate operation, the work is genuinely on top of the faculty member’s regular duties, and the arrangement is built into the federal award budget or approved in writing by the federal agency.¹

Faculty working on federal awards can charge reasonable amounts for activities that directly contribute to the funded project, including writing reports and articles, managing research data, coordinating research subjects, and attending related conferences. Incidental activities that qualify for supplemental compensation under the institution’s written policy, at a rate not exceeding IBS, do not need to be included in the standard personnel documentation records. Charging those incidental activities directly to a federal award, however, requires express authorization in the award budget or prior written approval from the federal agency.¹

Situations That Require Prior Written Approval

Several compensation scenarios call for advance approval from the federal awarding agency. Charging without that approval is a compliance violation, even if the cost would otherwise be allowable.

Faculty salary charged above a proportionate share of IBS on an award.¹
Additional compensation for intra-university consulting above IBS, unless already authorized in the award budget.
Direct charging of incidental faculty activities to a federal award, unless expressly authorized in the budget.¹
Performance-based accounting across multiple federal awards funding similar activities in place of traditional time allocation, which requires approval from every involved agency.
Compensation arrangements for outside professional activity where the federal agency considers the outside work excessive or in conflict with the award.

Outside Professional Activities

When employees working on federal awards also perform paid professional services for outside entities, the organization must follow its written policies on how much outside activity is permissible. Where the organization lacks adequate written policies on outside consulting or professional work, the federal government can require formal allocation of that employee’s effort between organizational and non-organizational activities.¹ If the federal agency views the outside work as excessive or in conflict with award terms, it can require a case-by-case negotiation of compensation arrangements. Put a written policy in place before employees start work on a federal award; creating one retroactively after audit questions is worse than having an imperfect policy from the start.

Audit Exposure

Organizations spending $1,000,000 or more in federal awards during a fiscal year must undergo a Single Audit under 2 CFR 200 Subpart F. The regulation explicitly flags programs that primarily involve staff payroll costs as higher risk for noncompliance with 200.430.⁴ Auditors are directed to scrutinize compensation charges carefully.

When an auditor concludes that compensation costs were unreasonable, improperly documented, or inconsistently applied, the federal agency can disallow those costs and require repayment. In more serious cases, the agency can suspend or terminate the award. The most common findings involve personnel records that do not reflect actual effort, budget-based allocations that were never reconciled to reality, salary charged above the cap, and fringe benefit rates applied inconsistently across federal and non-federal activities. Each of those failures is preventable with the documentation and internal control systems the regulation already requires.

1
eCFR. 2 CFR 200.430 – Compensation Personal Services
2
eCFR. 2 CFR 200.431 – Compensation Fringe Benefits
3
National Institutes of Health. Guidance on Salary Limitation for Grants and Cooperative Agreements
4
eCFR. 2 CFR Part 200 Subpart F – Audit Requirements