SBIR/STTR FAQ Part 3 - Taxes, Compensation, Timekeeping

We get a lot of great questions from small business owners each week, and some of the most common issues that come up during an SBIR Phase I are related to Timekeeping, Compensation/Payroll, and Tax issues. The six questions below were selected for the 3rd installment in this series.

The following questions were answered by ReliAscent® Account Executive, Dave Donley, Controller Christie Evans, and Marketing & Sales Director, Tyler Link. 

SBIR/STTR COMPENSATION AND TAXES

Question: For time allocated to non-STTR R&D (IR&D), do the employer taxes for that time also need to be allocated separately or can they be put under indirect expenses?

Answer: All employer taxes should go to the indirect fringe pool to be aggregated. That is used to apply a fringe rate to the direct labor on the project.

Question: If my salary is budgeted at 10% in the grant budget, should I be automatically allocating 10% of my salary to the SBIR direct account within the Chart of Accounts and 90% to the other categories? Or should the percent times allocated be directly linked to the exact hours work (i.e. if my timesheet says 10 hours STTR for a given week and 30 hours other then for that week I log 25% instead of 10%).

Answer: You should put time to the SBIR direct project based on hours worked, not a % of salary.  So, the 2nd scenario given is correct (i.e. if my timesheet says 10 hours STTR for a given week and 30 hours other then for that week I log 25% instead of 10%).

Question: For months where the total proceeds for hours worked between the 3 SBIR grants exceeds a team member’s Subtidal salary (eg: salary = $12k, hours billed to awards at negotiated rates = $16k), do we need to pay the employee the higher salary amount OR can we simply hold the surplus in reserves to pay the employees future salary after the grant period? 

Answer: No, all employees should complete a timesheet and enter the actual hours that are worked on each project each day.  The amount you pay the employee will be determined by the labor laws for the state they are working in and will also depend on if the employee is an hourly or salaried employee.  If they are on a salary, you won’t have to pay overtime rates for weeks when the employee works more than 40 hours.  For example, if an employee’s salary is $2,500 a week, there typical hourly rate is $62.5 but if they work 50 hours instead of 40, the employee still gets paid $2,500 but their effective hourly pay rate is $50 per hour instead of $62.50.  

Question: How do we bill for holidays, sick days, and vacation days.   Should those be included in overhead, be counted as work days towards a project, or something else? Also, if we have multiple concurrent SBIRs, how do we determine which grant covers the leave time? 

Answer: Employees should enter hours for these types of paid time off on their timesheets an those costs should be charged to overhead accounts and included as overhead.

SBIR/STTR Timekeeping

Question: Our company setup our timesheets to have 3 job types that employees select from when logging hours: STTR Direct, Non-STTR R&D, and General/Administrative. Is this sufficient or could you share an example timesheet?

Answer: You can download an example timesheet with timesheet codes by clicking here. Each grant or contract should have their own timesheet code so you can track the efforts separately. ReliAscent also offers a free Manual (Excel-based) DCAA compliant timekeeping system for download here.

Question: Our STTR Phase I grant budget doesn’t have enough funds to complete the project. I am the only employee receiving salary allocation under the STTR (35%), but we have other employees also doing experiments for the project. Should they be allocating time to STTR direct (even though their salaries aren’t budgeted in the grant) or Non-STTR R&D?

Answer: If they are working on the specific SOW for the STTR, they should track their time to the project. I understand that their might be some overlap in what research is being done, but whatever is applicable to the grant should be charged to the grant. Other work can go to R&D.

We hope you found those helpful! Keep an eye on this space as we will be releasing our latest "Quick Guide to ____(COMING SOON)__" white paper and several helpful blogs and white papers covering Indirect Rates FAQ, SBIR Data Rights, SBIR Compensation and Payroll Guidance, and many more, in just the next couple of months.