Contractors looking for updates to the statutory allowable cost limits on employee compensation may be looking in the wrong place. But what was once lost can easily be found, at least for the moment, by simply navigating to a different website.
The Cost Principles and the Compensation Cap
FAR 31.205-6(p)(4) governs the allowable compensation of contractor and subcontractor employees. It promulgates section 702 of the Bipartisan Budget Act of 2013 (“BBA”), which set an initial limit on allowable contractor and subcontractor employee compensation costs at $487,000 per year. “Compensation” is defined broadly to include the total amount of wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans. According to the BBA, the cap is to be adjusted annually based on the Employment Cost Index calculated by the Bureau of Labor Statistics. The BBA repealed the prior existing formula for determining the relevant compensation cap under 41 U.S.C. § 1127 and applies to contracts awarded on or after June 24, 2014. It also provided agencies with the authority to establish “one or more narrowly targeted exceptions” for certain specialists.