Do you Know How the Executive Compensation Limit for 2024 Affects Your Government Contracting Business?

At a Glance

• The main takeaway: The executive compensation limit for government contractors for the year ending December 31, 2024, is $646,000.
• Impact on your business: Contract costs and labor allocations are substantially impacted by these limitations.
• Next steps: The cap applies to both executives and contractor employees, limiting their reimbursement and compensation costs.

Connect with Aprio today for assistance with your government contracting and compliance needs.

The full story

What is the executive compensation limit for government contractors in 2024?

The Executive Compensation limit for government contractors, as established by Section 702 of the Bipartisan Budget Act of 2013 (BBA; Pub. L. 113-67, December 26, 2013), for the year ending December 31, 2024, is $ 646,000.

How should government contractors calculate the executive compensation cap for 2024?

The calculation for the allowable compensation limit is based on the Prior Year’s Compensation limit times the change in the Employment Cost Index prepared by the Bureau of Labor Statistics (BLS), illustrated by the formula and calculations below:

Executive Compensation Cap for Government Contractors (Based on the 12 months ending September 30th and rounded to the nearest thousand)
Per the Bureau of labor Statistics (BLS) – Employment Cost Index (ECI), Table 4, for the 12 months ended September 30 and rounded to the nearest thousand.
Fiscal Year	Current Year Comp Limit		(CY over PY ECI)		BLS Employment Cost Index
Jan 1 – Dec 31 2022	$ 589,000.00	X	1.0504		2022	154.1
Jan 1 – Dec 31 2023	$ 619,000.00	X	1.0435		2023	160.8
Jan 1 – Dec 31 2024	$ 646,000.00	X

Current FY Cap Amount = Prior FY Cap Amount x CY ECI/PY ECI for all workers as per BLS table 4.

The fiscal year (FY) for the statutory formula cap amount as determined by the Office of Federal Procurement Policy (OFPP) is the calendar year. If the contractor’s fiscal year does not coincide with the FY for the statutory formula cap amount, the benchmark compensation amount must be adjusted by prorating the statutory cap for each of the two calendar years straddled by the contractor’s fiscal year.

How will auditors apply 2024 executive compensation limits?

Auditors will evaluate Contractors’ compensation costs to ensure no amounts are claimed in excess of the cap. 

The compensation cap amount provided by statute does not limit the compensation paid to executives or employees. The compensation cap only limits the cost claimed by Government Contractors for reimbursement through their indirect rates. Without regard to the compensation cap amount, the allowable compensation costs for each affected executive or employee are still subject to the Federal Acquisition Regulation (FAR) cost principles and the Cost Accounting Standards (CAS), as applicable and appropriate to the circumstances, e.g., reasonableness and allocability.

What about additional limits on direct compensation imposed by certain agencies?

There is a special note to consider for those who work with certain agencies, such as USAID and NIH, where there may be additional limits on direct compensation for employees.

For Contractors operating within the USAID and HHS space, there are additional Direct Salary limitations they must adhere to on their contracts.  These limitations, such as USAID 2024 Direct Salary cap on contracts is $204,000, which equates to a maximum daily rate of $784.62. HHS/NIH’s 2024 Direct Salary cap $204,000, $221,900 or $246,400 on contracts with an Executive Level III, Level II or Level I respectively, can impact contract costs and labor allocations.

This means that on your contracts, that some Direct employee’s salary cost cannot be claimed in excess of this limit.  The remainder becomes a non-billable Direct Labor costs.  The Fringe and any other indirect cost allocation that follows that labor is also non-billable direct costs.

A final word

If you have further questions about Executive Compensation or Incurred Cost Submissions, please connect with Aprio’s Government Contract Compliance team today.

Resources

Office of Management and Budget

BLS ECI Table 4

Unveiling Alliant 3 Draft RFP No. 2: Your Guide to What’s Inside!

Unlocking the Mystery of Provisional Billing Rates: Why They Matter!