The de minimis rate is an indirect rate that can be elected by Non-federal entities (State, local government, Indian Tribe, Institution of Higher Education or non-profit) that do not have a current negotiated indirect cost rate agreement (NICRA). The de minimis rate is addressed in 2 Code of Federal Regulations (CFR) 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, specifically 200.414(f).
Did we leave someone out? Of course, what about for-profit entities? As the Federal Acquisition Regulations (FAR) do not address the de minimis rate, for-profits do not get this option, so we will talk about for-profit entities in the section below.
The purpose of the de minimis rate is to recoup all or a portion of indirect costs and thereby reduce the administrative burden of submitting NICRAs. No documentation is required. Once elected, it must be used on all federal awards until such time as a NICRA is submitted/negotiated. We generally see the de minimis rate elected by an entity on its first grant or if they have minimal indirect costs. Non-profit companies that use the direct cost allocation principles generally have minimal indirect costs and commonly elect the de minimis rate. See our article on direct allocations, “What are the Benefits of 2 CFR 200.405(d) Direct Allocations?”
Has the De Minimis Rate Increased?
Yes, effective October 1, 2024, for new federal awards, 200.414(f) was revised so that recipients and subrecipients that don’t have a current Negotiated Indirect Cost Rate (NICRA) may elect a de minimus rate of up to 15 percent of Modified Total Direct Cost (MTDC). Prior to October 1, 2024, non-federal entities could elect to use a de minimis rate of 10% of MTDC. The prior regulation did not include the “up to” language.
It is our interpretation that the de minimis rate, if elected, is not automatically 15%, especially if your indirect costs are less than 15% of the MTDC. Recipients will need some justification to support the “appropriate rate” up to the 15% limit when the election is made.
Do the Regulations Allow For-Profit Companies to Elect the De Minimis Rate?
For-profit companies that receive grants follow all of the 2 CFR 200 requirements except for Subpart E, Cost Principles. While 2 CFR 200 does not make it clear as to the cost principles for for-profit entities, the FAR does. FAR 31.103 Contracts with commercial organizations require for-profit companies to follow the cost principles in FAR subpart 31.2. Since the election of the de minimis rate is in 200.414(f) Cost Principles in Subpart E, and this section is not applicable to for-profit companies that receive Federal awards, for-profit companies cannot elect the use of the de minimis rate.
DOE’s supplement has conflicting language that leads you to believe for-profit companies can use the de minimis rate. 2 CFR 910.510(b)(6) Financial statements state the financial statement notes should indicate whether or not the for-profit entity elected to use the 10% de minimis cost rate in 2 CFR 200.414. However, 2 CFR 910.352 Cost Principles states that For-profit entities must follow the Cost Principles in 48 CFR 31.2 in lieu of the Cost Principles in 2 CFR 200.400 through 200.476, which is where the de minimis rate election is addressed.
Based on our interpretation of 2 CFR 200 and agency guidance, for-profit companies must apply the FAR 31.2 Cost principles, in which case the de minimis rate election is not an option.
De Minimis is Not the Same as the 15% Indirect Rate Cap
Don’t confuse the 15% de minimis with the proposed 15% cap on indirect costs in National Institute of Health Grants and the 10% or 15% cap on DOE grants. At this time, there are legal challenges filed halting the enforcement of this guidance. See our three articles for more information: NIH Focuses on Indirect Costs, and DoD May Not Be Far Behind; DOE Expands Indirect Cost Limits to State and Local Governments, Non-Profits, and For-Profit Organizations; Changes Ahead for University Grants as DOE Limits Indirect Costs to a 15% Rate Cap.
Takeaways
As you know, the 2 CFR 200 regulations can be complicated, and this is especially the case with the use of the de minimis rate. Most grants just reference the 2 CFR 200 regulations, and you are responsible for complying with any regulation that applies to your grant (if you can find it). If you are using the 15% de minimis rate, make sure you have indirect costs that support it. Remember, the de minimis rate can be “up to” 15%. For-profit companies do not qualify for the de minimis rate since 200.414 is not applicable to for-profit grants.
Meeting Pre- and Post-Award Grant Compliance Requirements
Redstone Government Consulting, Inc. supports organizations in meeting grant compliance requirements both before and after award. Our team of experts assists with drafting and reviewing accounting and procurement policies, preparing and reviewing quarterly financial reports, and developing property management procedures. We also offer practical tools such as templates for contractor versus subrecipient determinations, risk assessment checklists, and monitoring documentation. For organizations managing subawards, we provide third-party subrecipient monitoring, help resolve audit findings and offer monthly accounting support or guidance in structuring compliant accounting systems. Additionally, our team of experts delivers training sessions on critical topics under 2 CFR 200.
