What Are Salary Encumbrances?
Salary encumbrances are commitments for labor that are not yet actual, or have not yet been incurred. You can encumber salaries on grants to assist in planning expenditures over the life of the grant.
Encumbered salaries reduce the amount of available budget, which makes automatic budget edits more accurate. When you process payroll, the salary encumbrance for each grant is reduced and the actual salary cost for the pay period is incurred. This allows you to accurately track encumbered salaries, actual salaries, and available budget at any point during the life of the grant award.
To create commitments for labor, you must assign a labor distribution template to the employee. You create a labor distribution template for an employee and optionally for a pay code, job code, or position. The distribution lines are approved by a manager or Principal Investigator (PI). Finally, you run Salary Encumbrance Processing (GM110) to create the commitment transactions.
Salary encumbrances are relieved when the payroll cycle is closed and labor distribution transactions are posted in Project Accounting and General Ledger.
You usually need to create encumbrances at the following times:
-
At the start of a funding period
-
When you hire new employees
-
When you reassign employees to different grants
-
When other changes in funding or employee status occur
Example
Noel is a Principal Investigator (PI) with an annual salary of $120,000. She is paid monthly through payroll, with a separate pay period for each calendar month of the year. She makes $10,000 per pay period.
She works concurrently on two grants. Grant A will pay 75 percent of her salary in 2004, and grant B will pay 25 percent. The following table illustrates the expected salary encumbrance amounts for Noel for the first quarter of 2004.
| Pay Period Start Date | Pay Period End Date | Grant | Salary Encumbrance |
|---|---|---|---|
| 01/01/2004 | 01/31/2004 | A | $7,500 |
| 01/01/2004 | 01/31/2004 | B | $2,500 |
| 02/01/2004 | 02/29/2004 | A | $7,500 |
| 02/01/2004 | 02/29/2004 | B | $2,500 |
| 03/01/2004 | 03/31/2004 | A | $7,500 |
| 03/01/2004 | 03/31/2004 | B | $2,500 |