An overview of lab finances

The University operates like a shopping mall landlord, and they have agreed to give you a lease. Effectively, YOU are responsible for funding all of your academic work. This includes:

• Your salary and benefits
• The salary and benefits of your employees
• Your research space, and to support all of the shared academic facilities of the University
• All of your research costs (supplies, reagents)
• Travel to meetings, publishing papers
• Everything

All expenses are divided into “direct” and “indirect” (or, overhead) expenses. Direct expenses are costs that are under your control:

• Salary and benefits for your and your staff
• Experimental reagents and supplies
• Travel to meetings

Indirect expenses are costs that the University controls:

• Your lab space and keeping the lights on
• Shared academic facilities (library, campus, administrative offices)
• Salary for academic support staff (budget office, IRB, IACUC)
• A small and surprising list of supplies (e.g., paper for photocopy machine, perhaps a computer for the faculty)

The University negotiates with funding agencies an “indirect rate”, which is the additional amount that is added to the “direct” award to support overhead costs

• Penn’s NIH indirect rate is 62.5% for on-campus research
• Penn’s DoD indirect rate is 65.5% for on-campus research
• Penn’s rate for “other sponsored programs” is 39%

This means that, for every $1,000,000 the NIH gives you to perform research, the NIH gives an ADDITIONAL $625,000 to UPenn To a first approximation, you have no control over these indirect funds (but…stay tuned for high-level power broker negotiation). This money flows first to the University, which then gives a portion to your School, which then gives a portion to your Department. YOUR SCHOOL AND YOUR DEPARTMENT WANT THESE INDIRECT DOLLARS

Some philanthropic and society grants refuse to pay indirect dollars. The University may not allow you to take this money! (Although they will generally do so for Junior investigators). If you are one day a Big Shot, and bring in lots of indirect dollars, negotiations can happen around your departmental affiliation and receiving a kick-back of these dollars from the University to support your program of research. Be aware that there are some things that the University MUST pay for out of overhead (such as printer paper). Key example: laptop computer for faculty

“Equipment” is a special case. Large items of equipment (e.g., >$10k) are paid for from DIRECT dollars, but the University does not receive an INDIRECT dollar allocation for that expense.

People devote a specified amount of “effort” to a research project. This is described in percentage terms, or in units of “calendar months”. Typically, a PI might devote 25% of their effort to an R01 project. You are required each year to certify a statement that describes how your effort was divided between different activities. Note that:

• You only have 100% effort to give
• The NIH has been known to audit departments / faculty
• You have to leave some time not otherwise assigned (when did you write your new grant?)

Grants provide money to pay for salaries, proportional to the effort expended. Employees (including you) get benefits from the University, in addition to their salary. You need to pay for this too. The surcharge to salary is called the “Fringe Benefit Rate” or “fringe”. At Penn, the fringe is 32.3% for full-time employees, and 8.9% for part-time employees. Note that not all people who work in your lab are “full-time employees”! Post-docs receive limited benefits, and thus have an 8.9% fringe rate. It is customary to pay for health insurance for your post-doc, however, so this is an additional, non-salary expense that is broken out in a grant. If you have a graduate student, you may have to pay for their tuition expenses.

The NIH imposes a salary cap. For effort on an NIH grant, no one may be paid more than $199,300 annual salary. If you spend 50% of your effort on NIH grants, then only 50% of your salary faces this limit. Other federal grants (e.g., DoD) do not have this limit. In most cases, your department will make use of general, non-NIH University funds to cover any “over the cap” difference between your salary and the NIH limit.

Grants are often awarded over a multi-year period, and differ in how they give you the money (all at once, year-by-year, or based upon meeting milestones). Grants also differ in what you can do with money you have not spent in a given year. A typical R01 has these properties:

• 4-5 year grant
• You receive a new allocation of money each year
• You are required to provide a yearly progress report, but you are granted great flexibility to modify your research plans
• If you don’t spend all of the money, you may “carry forward” the money to the next year
• If you reach the end of the original award period and still have money left, you can receive an automatic “no cost extension” of ONE MORE YEAR to finish the project
• It is rare for the NIH to agree to a second no cost extension

Other grants (e.g., U24) take the form of a contract, in which there is a greater expectation that you will follow your original proposal, and do not allow carry-over. You cannot “bank” or “pre-spend” dollars from one year to the next.

You are ultimately responsible for tracking your financial situation. Create a spreadsheet and plan ahead; the math isn’t that hard. Your grants / budget office can / should provide you with a monthly breakdown of expenses and remaining funds.

It is possible to make adjustments in spending categories for an ongoing grant, but there are limits:

• You can't change your effort by more than 25% in any one year, and may require NIH approval.
• The University doesn’t want you to make big, unplanned equipment purchases
• There are strict limits on travel funds

There is some reasonable flexibility in how expenses are divided between projects and research activities, but I you should stay very clearly on the honest side of the line.