Benefit rates charged to departments for their employees are levied in two components: a per-person component, a pay-based component. A separate leave rate (effective Jan. 1, 2024) funds the qualified leave plans for eligible employees. Rates are evaluated and adjusted each year based on benefit premiums and market fluctuations.
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.
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.
New for Jan. 2024: In conjunction with the new staff leave program, a new leave rate will be charged to departments to cover the costs of the qualifying leave types (short-term disability, parental leave and caregiver leave), as well as unused leave paid at separation (campus units only). This charge, called the "leave rate," is charged separately from the benefit rate's pay-based component as it applies only to employees eligible for the leave program.
Benefit and Leave Rates
| Benefit and Leave Rates per Fiscal Year | ||||||||
|---|---|---|---|---|---|---|---|---|
| Universities and UM System central office | Hospital | |||||||
| Per-person component (annual) | Pay-based component | Leave rate (Jan. 2024)* | FICA | Per-person component (annual) | Pay-based component | Leave rate (Jan. 2024)* | FICA | |
| FY23 Rate | $10,000 | 16.15% | N/A | 7.65% | $9,200 | 16.45% | N/A | 7.65% |
| FY24 Rate | $10,200 | 16.15% | 2.6% | 7.65% | $9,500 | 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.
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".
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) |
|---|---|
|
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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 | |
| FY23 Rate | 26.40% | N/A | 7.65% |
| FY24 Rate | 24.30% | 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.
Reviewed 2023-12-21