Topic

How & When to Include Indirect Costs

Who is this for?

All individuals involved with facilitating research funding provided to Principal Investigators (PIs) at the University of Toronto (U of T) should familiarize themselves with the concept of indirect costs of research. This includes those in the following positions:

  • Principals, Deans, Academic Directors, and Chairs
  • Professors, Faculty Members
  • Senior Research Associate, Research Associate
  • Research Team Members
  • Research or Financial Administrator

What do I need before I can begin?

Additional helpful information for understanding the indirect costs of research includes the following.

What are Indirect Costs of Research?

While direct costs are expenses a Principal Investigator (PI) requests for the specific needs of a research project – such as student salaries, non-student salaries, travel, and equipment - indirect costs, sometimes referred to as overhead, are those that the university incurs to support research, which include, but are not limited to the following.

  • Infrastructure: building upkeep, power, communications network
  • Common equipment depreciation, life cycle costs
  • Environmental and safety monitoring, security, hazardous waste disposal
  • Ongoing regulatory and certification requirements (i.e. ethical review, biohazard or radiation safety, environmental assessments)
  • Financial and agreement management
  • Insurance
     

The University Planning and Budget Office calculates the indirect cost rate annually, and as of 2019, for every $1 received in direct research funding, the University incurs 56.7 cents in indirect costs.

Rate for Calculating Indirect Costs

When calculating the indirect costs in a research budget, use the maximum rate permitted by the sponsor. Alternatively, if the sponsor permits indirect costs but does not specify a rate, use the University’s standard rate of 40 %.
 

*Specific Sponsor Notes:

  • For CIHR, SSHRC, and NSERC applications: Do not request indirect costs. Indirect costs from the Tri-Agencies flow separately through a dedicated, centrally administered federal government program.
  • For NIH applications (including if you are a co-applicant): Use a rate of 8%
  • For US Government funding (including if you are a co-applicant): Use the University’s US Government rate of 53.5% on wages and salaries only. Do not include benefits.
  • For all other rates, refer to the University’s Guideline on Full Cost Recovery in Research

How to Request Indirect Costs in Research Budgets

When the sponsor permits indirect costs (i.e. overhead), request the costs in one of the following ways.
 

Sponsor states that indirect costs are permitted as a percentage of direct costs

Apply the sponsor’s indirect rate. For example, if the sponsor states that they permit a maximum of 25% in indirect costs, and your total direct cost budget is $100,000, then multiply your total direct costs by 25% to determine the indirect cost amount, which in this example would be $25,000. Your total budget would thus be $125,000.
 

  • Sponsor’s indirect rate (%)   x   Total direct cost budget   =   Indirect cost amount
  • Total direct cost budget   +   Indirect cost amount   =   Total budget
     

Note: Some sponsors permit indirect costs as a percentage of all direct costs, whereas some will permit indirect costs only on certain direct costs (e.g. salary). Be sure to follow their guidelines.
 

Sponsor sets a maximum budget amount inclusive of indirect costs

Follow the amount, and rate if provided, set by the sponsor. For example, if the sponsor permits a maximum budget of $100,000, inclusive of indirect costs to a maximum of 25%, the maximum direct cost amount would be $100,000/1.25 = $80,000. If the direct costs are $80,000, then the indirect costs would be $20,000.
 

  • Maximum budget   /  (Sponsor’s indirect rate (%)   +   1)   =   Total direct costs
  • Maximum budget   -   Total direct costs   =   Total indirect costs
     

Sponsor does not specify a maximum rate

Use the University’s standard rate of 40%. In the above example with a maximum budget of $100,000, direct costs would equal $100,000/1.4 = $71,428.57, and indirect costs at 40% would be $28,571.43
 

  • Maximum budget   /  (University’s indirect rate (.40)   +   1)   =   Total direct costs
  • Maximum budget   -   Total direct costs   =   Total indirect costs

Indirect Cost Distribution

Under the University’s budget model, all indirect costs are a source of revenue for the University’s divisions, which, in turn, distribute them as each division determines respectively. Indirect costs are not retained by VPRI.

Each funded research digest (FReD) includes an indirect cost amount if provided by the sponsor. The indirect cost amount is not available as a funding source for direct research costs.

Requesting a Reduction or Waiver of the Maximum Indirect Cost Rate

As a first step, the PI should discuss their rationale for seeking approval for a lower rate with their Department Chair, or equivalent, in advance of preparing an application.

All exceptions to requesting the maximum permitted indirect cost rate, inclusive of any waivers, must then be approved by the Dean of their division.

VPRI staff do not have authority to approve a lower indirect cost rate.

Applicants may be apprehensive that requesting indirect costs will impede the competitiveness of their application. However, sponsors are aware of indirect costs principles and, if indirect costs are permitted, expect that these costs will be included in the application.

VPRI Role

  • Provide guidance about sponsor guidelines regarding indirect costs, including eligibility and rate
  • Ensure that the appropriate indirect cost amount is requested, unless a lower amount or a waiver has been approved by the relevant Dean prior institutional sign-off

VPRI Contact

Find the appropriate VPRI staff member to assist you by checking our staff directory.


 

 

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