Direct vs. Indirect Costs in Grants: Definitions, Examples, and How to Calculate Them
In general accounting, direct and indirect costs describe whether a cost can be traced to a product. In research administration the idea is the same, but the line is drawn by federal regulation and by your institution's rate agreement, and getting it wrong leads to disallowed costs.
This guide covers the definitions, examples from a typical research budget, the costs that cause confusion, and how the indirect cost line on a budget is calculated.
Direct and indirect costs side by side
| Direct costs | Indirect costs (F&A) | |
|---|---|---|
| Definition | Costs identified specifically with one project, with a high degree of accuracy | Costs that benefit many projects and activities and cannot be readily assigned to one |
| Research examples | Salaries and fringe of project staff, lab supplies, project travel, equipment, subawards | Utilities, building operations and maintenance, depreciation, libraries, departmental and central administration |
| How they are charged | Itemized in the budget and charged to the award as incurred | Recovered as a percentage of a direct cost base |
| Who sets the amount | The project budget, within sponsor rules | The institution's negotiated rate agreement, or the sponsor's own cap |
| On the budget | One line per category | A single F&A line |
Common direct costs on a research grant
- Salary and fringe benefits for the PI, postdocs, students, and technicians, in proportion to effort on the project.
- Laboratory supplies, reagents, animals, and small items below the equipment threshold.
- Equipment needed for the project.
- Travel to field sites, collaborators, and conferences to present project results.
- Core facility and service center charges, and publication costs.
- Subawards to collaborating institutions, and consultant or contractor services.
- Participant support costs and tuition remission where allowed.
Common indirect costs
- Building operations, maintenance, utilities, and custodial services.
- Depreciation on buildings and shared equipment.
- Libraries and shared research infrastructure.
- Departmental administration, sponsored programs offices, and central administration.
- General office supplies, routine phone and internet, and memberships that support the whole department.
The gray areas: administrative salaries and general costs
Administrative and clerical salaries are normally indirect costs. Under 2 CFR 200.413(c) they can be charged directly only when all four conditions are met: the services are integral to the project, the individuals are specifically identified with the project, the costs are explicitly included in the approved budget or have prior written approval, and the costs are not also recovered as indirect costs.
The same logic applies to general purpose costs like office supplies, postage, and local phone service. If a cost is the kind your institution normally treats as indirect, charging it directly needs a project-specific reason and documentation.
Whatever you choose, be consistent. A cost incurred for the same purpose in like circumstances must be treated the same way, as either direct or indirect, across all of your institution's awards.
How indirect costs are calculated
Indirect costs equal the F&A rate multiplied by the base. Your rate comes from your institution's Negotiated Indirect Cost Rate Agreement, and on most research awards the base is modified total direct costs: total direct costs minus equipment, tuition remission, participant support, patient care, rental costs, scholarships, and the portion of each subaward above a set amount.
For example, a project with $220,000 in MTDC at a 52% on-campus research rate recovers $114,400 in F&A. Equipment or a large subaward on the same budget raises total direct costs but adds little or nothing to the F&A line.
Organizations without a negotiated rate can use the de minimis rate instead: 10% of MTDC on NIH awards, or up to 15% under the 2024 Uniform Guidance for other agencies.
Common pitfalls
- Charging administrative salaries directly without meeting all four conditions in 2 CFR 200.413(c).
- Treating the same type of cost as direct on one award and indirect on another.
- Applying the F&A rate to total direct costs instead of the MTDC base.
Direct costs are traced to one project; indirect costs are shared and recovered through your F&A rate. Charge a normally indirect cost directly only with a project-specific reason, and treat like costs the same way every time.
Frequently asked questions
What are indirect costs in a grant?
Shared costs of running the institution that benefit many projects, such as facilities, utilities, libraries, and administration. They are recovered by applying the F&A rate to a base of direct costs.
What is the difference between direct and indirect costs?
Direct costs can be identified with one specific project, like project staff salary or lab supplies. Indirect costs are shared across many projects and are recovered as a percentage of direct costs rather than itemized.
Are administrative salaries direct or indirect costs?
Normally indirect. They can be charged directly only if the services are integral to the project, the people are specifically identified with it, the cost is in the approved budget or has prior written approval, and it is not also recovered as an indirect cost.
How do you calculate indirect costs on a grant?
Multiply your negotiated F&A rate by the base it applies to, usually modified total direct costs. For example, $220,000 in MTDC at 52% gives $114,400 in indirect costs.
What if an organization has no indirect cost rate?
It can use the de minimis rate: 10% of MTDC on NIH awards, or up to 15% under the 2024 Uniform Guidance for other federal agencies.
Track this in GrantsManager
GrantsManager surfaces every deadline, reconciles spend, and keeps effort and reporting in one place, so checklists like this stay out of your inbox.