Fringe Benefits

October 2, 1998

Mr. Charles F. Wynne
Governor's Authorized Representative
Pennsylvania Emergency Management Agency
Box 3321
Harrisburg, PA 17105-3321

Dear Mr. Wynne:

This is in response to your August 15, 1997, letter, which transmitted the Pennsylvania Department of Transportation's (PennDOT's) second appeal of the fringe benefit rate used for disasters FEMA-1130-DR-PA and FEMA-1138-DR-PA. In their appeal, PennDOT is requesting that a fringe benefit rate of 61.4287 percent be allowed for reimbursement of all labor.

The Regional Director responded to a first appeal in a letter dated April 29, 1997. In her response, she explained that the requested rate was not an accurate assessment of actual fringe benefit costs incurred by PennDOT. She further explained that the overhead rate submitted by PennDOT reflected an aggregate of all overhead costs pro-rated across all salaries. This includes employees who were not performing eligible disaster related work. Therefore, she denied the appeal.

PennDOT calculates its fringe benefit rate by dividing total benefits paid for the previous fiscal year by total direct payroll for the same year. This actual historic rate is used as the estimated rate for the following year. Actual benefits paid will never exactly equal those estimated, so the difference is carried over to the following year's calculation as an addition or subtraction to the numerator (benefits paid). The calculated fringe benefit rate (also known as the payroll additive rate) for FY 1996/1997 is 61.4 percent. The denominator (direct payroll) includes costs for part-time and temporary employees and overtime pay for all employees. In this appeal, PennDOT is requesting that this benefit rate be applied for any and all hours worked.

PennDOT contends that because the Federal Highway Administration (FHWA) accepts their fringe benefit rate, FEMA should also. FEMA does not reimburse applicants for regular time for emergency work (Category A and B DSRs). However, FHWA does not have this policy. Because of this significant difference in policies, it is not appropriate to compare the two agencies regarding the manner in which fringe benefits are calculated for grant administration.

Generally, FEMA will reimburse reasonable costs that can be directly tied to the performance of eligible work. This includes labor and fringe benefits. Labor costs include actual wages paid, straight time, and overtime for permanent repair or restoration work only, plus fringe benefits actually paid or credited for personnel on the job and for supervisory personnel administering the work. For emergency work, labor costs only include actual wages paid for overtime, plus a prorated share of fringe benefits for personnel. Salaries of general supervisory personnel who are not normally employed in the field are not eligible unless they are working full time on the project.

Fringe benefits are those costs paid by an employer for the benefit of their employees. Eligible fringe benefits consist of both out-of-pocket expenses and leave (e.g. vacation time, sick leave, etc.). Typically, fringe benefits for overtime are less than those for regular time. This is because fringe benefits that are included with regular time such as leave, health insurance, and disability insurance are generally not included in the calculation of overtime fringe benefits. These items are not included because they are a fixed cost per employee per month and do not change if the employee works additional hours. Generally, the fringe benefit costs included with overtime pay are FICA matching, Retirement, Workers Compensation, and Unemployment Insurance.

Therefore, applicants, such as PennDOT, must provide separate fringe benefit rates for regular time and overtime. PennDOT has previously been requested to provide accurate fringe benefit rates based on actual costs of performing eligible work. To date, these rates have not been provided. Therefore, I have calculated fringe benefit rates which are acceptable for disasters 1130 and 1138.

To calculate the fringe benefit rate for permanent employees for regular time, the benefits paid for hourly employees for overtime hours are subtracted from the Total Employee Costs, and the direct payroll costs for overtime are subtracted from the Total Direct payroll Costs. Dividing the adjusted Total Employee Benefit Costs by the adjusted Total Direct Payroll Costs results in a fringe benefit rate of approximately 61.4 percent. A similar calculation yields an overtime fringe benefit rate for permanent employees of 22.5 percent. Detailed calculations are provided in the attachment. Until such time that PennDOT provides more accurate rates, the ones shown in the table will be used.

Interim Fringe Benefits

Permanent Employee	Regular Time	61.4%
Permanent Employee	Overtime	22.5%

Please inform the applicant of my determination. The applicant may submit third appeals to the Director of FEMA. The appeal must be submitted through your office and the Regional Director within 60 days of receipt of this determination.

Sincerely,
/S/
Lacy E. Suiter
Executive Associate Director
Response and Recovery Directorate

Enclosure

cc: Ms. Rita Calvan
Regional Director
FEMA Region III