Departments are charged a benefit rate and a leave rate for their employees. These rates are evaluated and adjusted each year based on benefit premiums and market fluctuations.
The benefit rate, comprised of a per-person component and a pay-based component, helps fund the university's portion of benefits related benefit-eligible employees (e.g., subsidize insurance premiums, match retirement contributions, etc.). The benefit rate is levied on all benefit-eligible employees.
A separate leave rate (effective Jan. 1, 2024), levied only on leave-eligible employees, funds the qualified leave plans (short-term disability, parental leave and caregiver leave), as well as unused leave paid at separation (campus units only). This rate is separate from the benefit rate because not all benefit-eligible employees are eligible to participate in the leave program.
Benefit and Leave Rates
| Benefit and Leave Rates per Fiscal Year | ||||||||
|---|---|---|---|---|---|---|---|---|
| Universities and UM System central office | Hospital | |||||||
| Benefits rate per-person component (annual) | Benefits rate pay-based component | Leave rate (Jan. 2024)* | FICA | Benefits rate per-person component (annual) | Benefits rate pay-based component | Leave rate (Jan. 2024)* | FICA | |
| FY24 Rate | $10,200 | 16.15% | 2.6% | 7.65% | $9,500 | 16.45% | 2.0% | 7.65% |
| FY25 Rate |
$10,400 | 16.15% | 2.6% | 7.65% | $9,900 | 16.45% | 2.0% | 7.65% |
| Account | 710010 | 710025 | 710027 | 710050 | 710010 | 710025 | 710027 | 710050 |
*The Leave Rate will be charged on the first bi-weekly pay period of 2024 which will pay January 17, 2024.
Note: Consult the breakdown of current and historical benefits rate (PDF, 1.4MB) for additional information.
Per-Person Component
The per-person component pays for those benefits that are not tied to salary, such as medical and dental premiums. The annual amount is prorated over each pay period for benefit-eligible employees (please note, departments with faculty who have nine-month contracts will be charged over nine months for those employees). The per-person component amount is consistent for each benefit-eligible employee regardless of the medical insurance plan in which the employee may be enrolled, or if the employee waived coverage. For employees whose salary is split-funded, the per-person component will also be split based on the percentage of the employee's total pay allocated to a given chart field.
Benefit-eligible employees are those faculty and staff whose primary position is at least 75% of a full-time equivalent (FTE) position and have an indicated appointment duration of at least nine months, as defined by University policy HR-101: Employee Status. The annual amount for the per-person component does not differ for employees with FTE between .75 and 1.0.
The per-person component is largely impacted by the change in medical premiums. Medical premiums increase due to increasing medical claims cost caused by employee and dependent healthcare consumption, increasing cost of healthcare services, and specialty drugs. Generally, any decrease in the per-person component is a result of changes in medical plan designs and/or cost share of the medical premiums. The University's benefits and finance offices continue to evaluate plan designs and cost control opportunities to achieve an affordable cost trend while maintaining a competitive benefits package.
Pay-Based Component
The pay-based component pays for benefits that are tied to employee salary, such as retirement, life insurance and long-term disability insurance. A percentage of pay is charged on wages with an earn code that is pension-eligible (PEN). Consult the earning code distribution table (Excel, 206KB) for more information as to which earn codes are marked "Y" for "PEN".
The pay-based component is mostly driven by the required contribution to the University’s defined benefit pension plan which is highly reliant on investment returns. As the pension plan’s unfunded liability continues to grow, the need to increase contributions will be critical for the plan’s sustainability.
Leave Rate
The leave rate pays for the costs of qualifying leaves, including short-term disability (and related top-off pay), parental leave and caregiver leave, as well as unused payable leave at separation for campus units (up to 80 hours PTO or vacation balance). Like the pay-based component, the leave rate is charged as a percentage of pay, however it is only charged for employees eligible for the leave program.
The rate is charged even if an employee is not utilizing a qualifying leave, however, employees taking qualifying leave receive pay paid by a central pool and departments are not charged for payroll or benefits for the duration of the approved qualifying leave period. If the employee uses PTO, vacation or banked sick to extend their time off beyond the qualified leave period, the department is charged those costs.
Payroll confirmation dates and approval timing for short-term disability, parental or caregiver leave will impact the pay period for which the pay and benefits are drawn from the central pool. Departments should not create a payroll correcting entry (PCE) to move this cost. The payroll system will correct the funding source on the following pay period if corrections are necessary.
| Department Pays | Central Pool Pays (funded by leave rate) |
|---|---|
|
|
Vacation transition payouts (annual payout over three years) related to the leave program transition (vacation to PTO) is not covered by the leave rate. Please reach out to your campus finance office for more information about how the vacation transition payout is funded for your unit.
Grant-Paid Positions
Grant Benefit Rate
The federal government requires that the benefit rate for federal grants be a percentage of salary. Therefore, in lieu of the two components described above, all University grant funds (2100-2299) are charged the federally negotiated benefit rate in account 710015 through a process generated by the finance software system.
Grant Leave Rate
A separate grate leave rate will begin Fiscal Year 2026 for the costs of qualifying leaves (short-term disability, parental leave and caregiver leave), vacation transition payments and unused payable leave at separation. The federal government requires actual costs be incurred before allowing recovery of the cost through the grant leave rate.
Pay and benefits an employee receives while out on qualifying leave will be paid by a central pool beginning Jan. 2024. The grant is not charged for payroll or benefits for the duration of the approved qualifying leave. If the employee uses PTO, vacation or banked sick to extend their time off beyond the qualified leave period, the department is charged those costs.
Payroll confirmation dates and approval timing for short-term disability, parental or caregiver leave will impact the pay period for which the pay and benefits are drawn from the central pool. Departments should not create a payroll correcting entry (PCE) to move this cost. The payroll system will correct the funding source on the following pay period if corrections are necessary.
| Benefits Rate per Fiscal Year | |||
|---|---|---|---|
| for Grant-paid Positions (all business units) | |||
| Percentage of salary | Grant leave rate (begins FY26) | FICA | |
| FY24 Rate | 24.30% | N/A | 7.65% |
| FY25 Rate | TBD | N/A | 7.65% |
| Account | 710015 | 710050 | |
Additional Resources
- Benefit Rate Sample Calculation Guide (PDF, 361KB)
- Grants Benefit Rate Guide (PDF, 318KB)
Frequently Asked Questions
How does this display in the General Ledger?
- Each pay period the two components will display as two separate “BEN” lines: one for the per person component in account 710010 and the pay-based component in account 710025.
- The per person component amount will be the sum of the annual rate divided by the number of pay periods for each group:
- Monthly – 12.
- Bi-weekly – 26.
- Nine-month faculty – 9 months.
- The pay-based component will be equal to the product of "PEN" wages and the pay-based component percentage.
- The per person component amount will be the sum of the annual rate divided by the number of pay periods for each group:
- Exception: Grant funds (2100-2299) will see the two components above hit the chartfield, be reversed out the same day and then charge the federally negotiated benefit rate for all benefits in account 710015.
Note: Match programs and cost share will still be charged the two benefit components, but an allocation will run to allocate the grant benefit rate to the appropriate program or project. The originally charged benefit components will not be reversed out.
What type of wages are considered pension eligible (PEN)?
Pension eligible wage is compensation for services regularly rendered which include, but are not limited to: regular pay, shift differential, contract pay, sick, personal and vacation days, and summer session pay. Non-eligible wages include, but are not limited to: over time, incentive payments, prizes/awards, allowances, moving expenses, transition assistance, tips, and commissions. For more information, please see the University’s retirement plan documents, section 530.010.D.1.
Why are there two components of the benefit rate?
Two components were developed to allow for the proper allocation of costs based on what drives those costs. Some benefits are the same regardless of salary, while others, such as retirement, are a function of salary. The costs included in the rate have different behaviors. In order to charge costs to more accurately reflect where the costs are actually being incurred, two components were developed depending on the type of benefit offered.
What are the two components of the benefit rate?
The first component is the per-person charge, which charges medical and dental costs based on the number of benefit eligible employees for a department. The second component is the percentage of pay charge, which charges retirement and the remaining benefit charges based on the salaries of the employees who are benefit eligible.
Should benefits just be charged based on the actual plan selected by the employee?
Prior to current benefit rate structure, the University charged each department for the actual premiums by employee. In some cases, departments could not afford to hire employees with families versus employees who only needed single coverage. Under the current methodology, the same rate per person is used for medical and dental benefits, eliminating this consideration for departments.
How is the benefit rate calculated?
The benefit rate is calculated by summing the total actual cost of the benefit plans and dividing by the driver of those costs (benefit eligible employees for per person benefits, benefit eligible salaries for salary based benefits). The benefit rate reflects the actual cost of delivering the University’s benefit program.
Why does the benefit cost increase?
High growth in benefit costs is a national problem. The University’s aggregate benefit costs continue to outpace growth in revenues, and the University maintains $1.2 billion in unfunded benefit liabilities. Cost increases require the University to contribute more funds toward sustaining benefits programs for the employees and retirees who receive them.
The University’s leadership team in concert with the Total Rewards Advisory Committee continues to evaluate the overall cost and structure of benefit programs to continue delivering a competitive total benefits package.
What is included in the leave rate?
The leave rate includes the costs of qualifying leaves, as well as payouts of unused leave at separation, including
- Short-term disability, including leave used for top off (i.e. sick, vacation or PTO)
- Parental leave
- Caregiver leave
- Unused vacation or PTO paid at separation for campuses only (does not include the vacation transition payout)
Why is there a separate grant leave rate?
Grants cannot be charged for indirect costs until there is actual experience to estimate the charge. Since there are no payments for the new leave program until Fiscal Year 2024, grants cannot be charged for these costs until Fiscal Year 2026 due to a two-year look back on federal rate setting.
Are the vacation payouts that are scheduled to occur over a three-year period included in the leave rate?
The payouts scheduled to occur in 2024, 2025 and 2026 for employees with accrued vacation balances at the time of transition to the new leave program are not included in the leave rate. Each campus/unit has a plan to cover the costs of the vacation transition payout. Please contact your campus finance office to learn more on how it will be handled at your campus.
Can grants be charged for the vacation transition payouts scheduled to occur in 2024, 2025 and 2026?
No, grants cannot be charged for this expense directly. The grant leave rate, beginning in Fiscal Year 2026, will include the costs of the vacation transition payments to allow for grant costs to be recouped.
How will regular PTO usage impact a department’s financials?
There is no change to how the department is charged. Regular PTO usage is charged to departments when it is used by the employee. The use of PTO as top-off for short-term disability is included in the leave rate and will follow the same method as the qualifying leave.
Is leave used during the elimination/waiting period for short-term disability qualification included in the leave rate?
No, leave that an employee uses during the elimination period is not included in the leave rate. Meeting the elimination period is required before the employee qualifies for payment through short-term disability. As such, leave taken during this period is treated as incidental usage of leave, which is charged to the department at the time of usage.
What is the impact to budgets/financials when employees take short-term disability, parental or caregiver leave?
When an employee goes out on a qualifying leave, such as short-term disability, parental or caregiver leave, their pay during the leave is paid by a central pool. Department budgets will not pay for the employee's pay for the duration of the qualifying leave period approved (up to 20 weeks for short-term disability, up to 4 week for parental leave or up to 2 week for caregiver leave). Once the employee’s approved leave period is over or the employee returns to work, the department begins to pay the employee again. Processes in the HR and Finance systems will automatically charge qualifying leaves to the central pool. No JED changes or PCEs are necessary.
What happens if an employee is approved for a qualifying leave but takes off more time than the leave covers? How is the extra time paid for?
The central pool funds qualifying leaves (short-term disability, parental leave and caregiver leave) for the duration of the approved qualified leave (up to 20 weeks for short-term disability, up to 4 week for parental leave or up to 2 week for caregiver leave). Any time an employee takes off beyond the qualified leave period, it is paid for by the department, provided the employee has available accrued time off. For example, if an employee is approved for two weeks of caregiver leave, the central pool will pay for their leave during that time. However, if the employee takes paid time off beyond the two weeks covered under the caregiver leave policy and uses PTO, vacation, banked sick or personal days, the department pays for that usage of hours.
When will the new leave benefit rate be assessed to my budget?
The new leave rate will be charged with the first payroll cycle in Jan. 2024 that contains time worked in Jan. This will occur with the Jan 17, 2024, biweekly pay date.
What happens on the financial side for accrued PTO above the 10 day/80 hour payout threshold when an employee separates from the University?
Payout of leave upon separation is included in the leave rate and is paid by the central pool at separation. Any unused and unpaid hours of PTO over the 80 hours maximum payout at separation results in a reduction of the liability recorded.
Which earnings are considered leave eligible and subject to the leave rate?
The leave rate is charged as a percentage of salary similar to the pay-based component. Employees who are eligible for leave (HR Elig Field 1 value of EXVAC, FLSAG, NEVAC, NURSES, EXPTO, FLSPTO, NEPTO, NRSPTO, EVCSRS or EVFERS) and have pension-eligible earnings (PEN) will be charged the leave rate. Consult the earning code distribution table (Excel, 206KB) for more information as to which earn codes are marked "Y" for "PEN".
Will the pay-based and leave rate be combined into one rate?
No, the rates are separate because of the different types of employee on which the two rates are assessed. The pay-based component is charged on all benefit-eligible employees (eligible for retirement, life insurance, etc.), while the leave rate is charged on leave-eligible employees. Many benefit-eligible positions are also elgible for leave, however some, such as faculty positions, are not eligible for the leave program. Therefore, there are two separate rates for benefits that are charged as a percent of pay.
Reviewed 2024-03-15