FAR 31.205-6(m) states fringe benefits are allowable to the extent they are reasonable, required by law, employer-employee agreement or an established contractor policy. (Editor’s note. It is a good idea to make sure you can justify each fringe benefit element by, at least, one of these criteria.) Benefits are considered reasonable if the total allowable benefit package rate calculated as a percent of payroll does not exceed the average rate of the compensation survey data by more than 10 percent. Auditors are instructed to evaluate each element during their compensation review only if the average rate is higher than 10 percent. (Editor’s Note. Of course, individual elements may and often are audited as part of other audits such as forward pricing or incurred cost proposals. Findings from these reviews may be incorporated into the compensation review.) Note the guidance says allowable costs – other sections of FAR 31.205-6 may determine certain fringe benefit costs are unallowable. For example, severance costs (FAR 31.205-6(g), ESOP (31.205-6(j)(8), certain bonuses such as sign-on, relocation, retention bonuses and incentive compensation based on changes in the price of securities (31.205-6(f) may be unallowable.

{TAG_FORM_TITLE}