Research Administration Office

University of California

Memo Operating Guidance

No. 93-13

July 14, 1993

Subject: Effect of Salary Cuts on Proposal Budgets

In a Reply Requested letter dated June 7, 1993, we distributed a draft "Question and Answer Sheet" that addresses potential questions that might be relayed to your office from Principal Investigators and others in departments concerning the effect of salary cuts on those who are in whole or pan supported by extramural funds.

We have finalized this sheet based on comments from campus and Lab Contract and Grant offices and the Office of the President office of Employee and Labor Relations. It is enclosed for your guidance.

We also asked for comments on the possibility of sending the sheet to major sponsors who might have questions about how the salary cuts will affect award budgets. Based on comments received, we have decided not to do this. You may, of course, share it with others as you see fit.

Refer: Bill Sellers (510) 987-9847

Subject Index: 06, 08, 07

Organization Index: U-115

David F. Mears

Director

Research Administration Office

Enclosure


SOME QUESTIONS AND ANSWERS REGARDING THE IMPACT OF SALARY REDUCTIONS ON EXTRAMURAL AWARDS AND PROPOSALS

Question: Who will be affected?

Answer: Detailed information on this question may be found in the 1993-94 Salary Plan issued July 1, 1993 (see enclosed). According to this "Cut/CAP" plan, most University employees who are active members of the University of California Retirement Plan (UCRP) will have their base salaries reduced by an average of 3.5% during the fiscal year 1993-94 (i.e. from July 1, 1993, through June 30, 1994). Exceptions are:

Employees who are not members of UCRP (e.g. members of the State retirement system

(PERS); casual or visiting appointees; members of other UC-supported retirement systems;

Employees who have prior written agreements regarding salaries (e.g. contract appointees and TRIP participants) for the duration of their agreements..

DOE Lab employees (LBL, LLNL, LANL).

Employees in titles or positions designated for students.

Because of business necessity due to market conditions, employees in certain occupations (e.g. A& PS health care professionals; Registered Nurse unit, Patient Care unit; Skilled Craft and Printer rifles).

Question: How long will the salary reduction last?

Answer: Current plans are for the Cut/CAP reduction to be in effect only during fiscal year 1993-94. There will be a 5% cut during the period July 1993 through October 1993 and then a 2.6% from November 1993 through June 1994. Beginning July 1, 1994, salary rates are expected to return to their FY 1992-93 levels plus any approved range adjustments and merit increases.

Question: Will the cut in salary rates apply to employees who are entirely on "soft" money?

Answer: University policy does not permit extramural sponsors to determine salary rates paid to University employees, and so the Cut/CAP reduction applies to State-funded as well as extramurally-funded employees. In addition, federal rules under OMB Circular A-21 state:

J.8. Compensation for personal services.

J.8.a. General. Compensation for personal services covers all amounts paid currently or accrued by the institution for services of employees rendered during the period of performance under sponsored agreements .... These costs are allowable to the extent that the total compensation to individual employees conforms to the established policies of the institution, consistently applied, ...[emphasis added]

Thus the University must treat all employees consistently regardless of fund source. The federal rules go on to require that:

Charges for work performed on sponsored agreements by faculty members during the academic year will be based on the individual faculty member's regular compensation for the continuous period which, under the policy of the institution concerned, constitutes the basis of his salary. Charges for work performed on sponsored agreements during all or any portion of such period are allowable at the base salary rate. In no event will charges to sponsored agreements, irrespective of the basis of computation, exceed the proportionate share of the base salary for that period. This principle applies to all members of the faculty at an institution.

Question: Does the cut apply to a PI's summer

Answer: Yes, if the PI is not in one of the exempt categories listed above. The rate of pay for additional summer compensation would be the rate of pay in effect at the time the work is performed, which in the summer of 1993 would be a 5 % reduction. The salary reduction plan goes on to state:

Each campus has established policies for summer compensation, and such policies should remain in effect for the 1993 summer period and should not be modified in any way to maximize earnings for this summer only. The 3/9ths limit is based on 57 days of work and the maximum earnings should be calculated accordingly.

Question: How should base salary be estimated in contract and grant proposals?

Answer: Salaries should generally be estimated based on employees' projected salaries during the time they work on the project. However, because most proposal budgets will be for periods after the temporary reduction has been restored, salaries to be earned beginning July 1, 1994, and thereafter should be estimated based on the employees' FY 1992-93 base (not the reduced 1993-94 base) salary, plus any approved FY 93-94 merits, and then escalated based upon anticipated FY 94-95 merits and range adjustments. Guidance on the projected FY 94-95 merits and range adjustments will be provided via Contract and Grant Memo; a preliminary version of that guidance is enclosed.

Question: If reduced salary rates paid under in-place awards result in freeing up funds originally budgeted for higher salaries, does this money have to be returned to the funding agency?

Answer: That depends on the terms and conditions of the award (and, of course, any local campus restrictions there may be on rebudgeting actions). Under Federal Demonstration Project grants and other federal awards subject to OMB Circular A-21, rebudgeting within or out of the salary category is generally permitted unless specifically prohibited by the terms of the award and so long as the expenditures specifically benefit work on the sponsored project. The following instructions from the PHS 398 Grant Application kit provides a good rule of thumb here:

[Unless specifically restricted], the grantee institution is permitted to rebudget within and between budget categories in the approved total direct cost budget of the project to meet unanticipated requirements or to accomplish certain programmatic changes. In using this authority, grantees must ensure that they exercise proper stewardship over Federal funds and that all costs charged to the awards are allowable, allocable, and reasonable.

If the funds are not needed to further project objectives or the award terms will not permit them to be rebudgeted, then the money will be returned to the funding agency. [NOTE: the salary reduction plan calls for concomitant amounts to be added to retirement benefits; however, payments to the employee's retirement account will come out of the retirement system and not out of extramural funds.]

Some awards are made solely for salary support of the Principal Investigator. In these instances a request may be made to the agency for permission to use any freed-up salary amounts on non-salary items. If the agency denies this request, the money must be returned to the agency.

Question: Employees covered by collective bargaining agreements are subject to a 5 % reduction in time for the period July 1, 1993, through October 28, 1993. If such an employee has a less than full time appointment on various extramural projects, will there be a 5% reduction in the appointment?

Answer: Yes, the Systemwide payroll program will automatically reduce each appointment by 5 % of the appointment in the affected job titles. For instance, if a person has an 80 % appointment, the payroll program will reduce him/her to a 76% appointment (5% reduction times 80% total equals 4 % reduction). If a person has an 80% appointment, 60% for one project and 20% for another, the reduction to 76 % would be prorated to 3 % to one project and 1% to the other.

Question: Can the automatic prorated 5% reduction be changed, so that some fund sources take more of the reduction and other take less?

Answer: Yes. The payroll system will automatically calculate the reduction and prorate it to all fund sources supporting the pay. However, the Principal Investigator(s) can initiate a PAF that would redistribute the reduction in a different manner among the fund sources, assuming that such is a more realistic estimate of the projects upon which the person will work.

Question: Can the percent appointment be increased in cases where the individual has a less than 100 % total appointment and additional effort is required for the project?

Answer: Yes. Because there are usual fluctuations in percent appointment against various fund sources, it is acceptable to change the percent appointment to either increase or decrease the appointment during the period of the temporary reduction in time, as long as the total percent appointment does not exceed 95%. Even though the automatic payroll program will reduce each partial appointment, a new PAF can be initiated to increase the percent appointment to a higher level as long as the total does not exceed 95% and the funds are available.

Question: will there be an exemption for staff on federal, state, and city contracts, particularly for contracts providing essential services (usually community services) where the University has been hired to perform a service in a fixed period of time?

Answer: No. The University does not make a distinction between essential services supported by extramural funds versus intramural funds, and it continues to be a University policy that personnel programs are applicable regardless of fund source. Exceptions by location, job category, and, possibly, some other "exceptional circumstance" category yet to be defined, may be considered, but a blanket exception based on source of funds is not contemplated.

Question: Is the normal procedure for authorizing and compensating for overtime still in place? For example, on a 100% appointment where the employee was reduced to 95 % and the standard work week is then 38 hours, how would the first two hours of overtime be compensated if the employee works 40 hours in the week?

Answer: The normal procedures for authorizing and compensating overtime have not been changed. Time and one-haft pay is earned for hours in excess of 40 hours per week; thus, time worked up to 40 hours per week is compensated at the straight time pay rate, or the straight time overtime pay rate, regardless of whether it is the hours of the regular appointment or the authorized overtime.


SALARY PROJECTIONS***

July 1. 1993 Merits

Academic.................Staff...................Exec,MAP,AP& S

+5%*.....................Deferred to 1/1/94......Deferred to 1/1/94

January 1. 1994 Merits

Academic.................Staff...................Exec,MAP,AP& S

---......................+5%*....................+2%**

July 1, 1994 and beyond#--Merits

Academic.................Staff...................Exec,MAP,AP& S

+5%*.....................+5%*....................+6%**

July 1, 1994 and beyond#--Annual Range Adj.

Academic.................Staff...................Exec,MAP,AP& S

+4%......................+4%......................**

#Contingent on State budget.

*Merits only provided when applicable.

**Exec, MAP, AP& S have merit pool that is the sum of both merit and range adjustment.

***For selected personnel, the University will implement a temporary salary reduction of 5% for the period 7/1/93 - 10/31/93 and a 2.6% reduction for the period 11/1/93 - 6/30/94. Since few proposal budgets will cover this period, it is acceptable to budget salaries as if the temporary reduction has not occurred. However, if budgets are prepared based on the actual salary rate in effect 7/1/93 - 6/30/94, then the temporary reduction should be restored 7/1/94 for employees subject to the cut before estimating future range and merit increases. The following table could be used to make precise estimates, if desired, of salary reductions/restorations independently of merit and/or range adjustments,' where at each date the adjustment up or down is figured on the rate in effect during the immediately preceding month:

ALTERNATIVE TABLE FOR

PROJECTING TEMPORARY SALARY REDUCTIONS/RESTORATIONS FOR AFFECTED PERSONNEL

July 1, 1993.................................-5 %

November 1, 1993.......................+2.53 %

July 1, 1994.................................+2.67%


July 1, 1993

CHANCELLORS

Dear Colleagues:

Implementation of 1993-94 Salary Plan (Cut/CAP) for Nonrepresented Employees

We are writing to confirm that the University is proceeding with the July 1, 1993 implementation of Cut/CAP for employees who are not represented by exclusive bargaining agents. Collective bargaining is underway for exclusively represented employees.

As you know, the State budget signed by the Governor last night (June 30) provides some relief to the University, which will result in the annualized approximate equivalent of a 3.5% pay cut over the entire 1993-94 fiscal year rather than an overall 5% pay cut as previously proposed. In accordance with discussions at last week's Council of Chancellors meeting, current plans are to proceed with a 5% pay cut effective today for the months of July through October, 1993, and to implement an estimated 2.6% pay cut effective November 1, 1993 through June 30, 1994, subject to Regental action in July, as well as notice, consultation, and/or meeting and conferring as appropriate under the HEERA. As approved by The Regents last month, a first CAP allocation of 5.26% will occur on November 1, 1993, and plans are to provide a second CAP as of July 1994 estimated at 2.67%, pending approval by The Regents in July.

The attached model communication to employees is intended for local adaptation and issuance by the appropriate campus official to announce Cut/CAP implementation. We will keep you informed of further developments as they occur.

Please contact Associate Vice President Moore or Assistant Vice President Levin as appropriate if there are questions.

Walter E. Massey

Provost and Senior Vice President--

Academic Affairs

Sincerely,

V. Wayne Kennedy Senior Vice President--Business and Finance

Attachment

cc:

President Peltason

Members, President's Cabinet

Principal Officers of The Regents

Associate Vice President Moore

Associate Vice President West

Assistant Vice President Levin

Assistant Vice President Swartz

Assistant Vice President Switkes

University Controller Pastrone

Vice Chancellors--Academic Affairs

Vice Chancellors--Administration

Personnel Managers

Academic Personnel Coordinators

Executive Program Coordinators

Director Gilpin-Bishop

Director Kramp

Manager Cieszkiewicz

Manager Ackerhalt

Manager McLeod

Manager Walton

Coordinator Cheever

Coordinator Owen


MODEL COMMUNICATION TO EMPLOYEES

Cut/CAP Program to be Implemented July 1, 1993

On July 1, 1993, the University is proceeding to implement the 1993-94 salary reduction/CAP program ("Cut/CAP"), which President Peltason proposed to the Regents at their March 18, 1993 meeting, as a temporary measure to help meet the University's needs in response to the State's serious budget shortfall. The broad outline of UC's proposed 1993-94 Salary plan, which includes Cut/CAP, along with extension of the Time Reduction Incentive Plan (TRIP) through June 30, 1994, full-year merit increases for eligible academic personnel, half-year merit increases for eligible staff, and a third Voluntary Early Retirement Incentive Program (VERIP 3) approved by the Regents last month, was announced to employees and employee organizations for review and comment in early March as required by the Higher Education Employer-Employee Relations Act (HEERA).

Under Cut/CAP, the salaries of designated employees who are active members of the University of California Retirement Plan (UCRP) on and after this July 1st will be reduced on a temporary basis for 1993-94, with full salaries to be restored on July 1, 1994. The State budget signed by the Governor on June 30 provides some relief to the University, which will result in the annualized approximate equivalent of a 3.5% pay cut over the entire 1993-94 fiscal year rather than an overall 5% pay cut as previously proposed. This salary plan is subject to action by the Regents at their July meeting, as well as notice, consultation, and/or meeting and conferring as appropriate under the HEERA.

The specific salary plan is to proceed with a 5% pay cut as of July 1, but only for the months of July through October. On November 1, the 5% pay cut would end, and a smaller pay cut estimated at 2.6% would be implemented effective November 1, 1993 through June 30, 1994.

To mitigate the effects of the salary reduction under the above plan, it is planned that employees would receive two UCRP Capital Accumulation Provision (CAP) allocations which will approximate the amount of the salary reduction over the entire 1993-94 year.

Two allocations are planned to ensure equity among current, new, and retiring employees who may be subject to the pay cut for different periods of time during the year.

The Regents have approved the first allocation date to be November 1, 1993. The amount of the first allocation will be 5.26% of an employee's reduced salary (the 5% reduction). Pending approval by the Regents in July, the second allocation will be as of July 1994 in the amount of 2.67% of an employee's reduced salary (the 2.6% reduction). CAP allocations, which are credited with interest, are paid out when an employee retires or leaves UC employment and takes his or her benefit out of UCRP.

Participation in Cut/CAP (and TRIP-93) for exclusively represented employees requires concurrence through the bargaining process with the respective union bargaining agent.

Bargaining on this issue is currently underway with AFSCME for Clerical and Allied Services Unit employees and Service Unit employees, and with the American Federation of Teachers (AFT) for the Librarians and Non-Senate Instructional units.

For additional information, you may contact ----------