A labor clearing fund is an activity that uses a recharge methodology to redistribute personnel and related costs to multiple funding sources in circumstances which otherwise would require complex, split-funded payroll transactions. A typical labor clearing fund involves investigators and technicians whose effort from month to month directly benefits numerous contracts and grants in varying amounts. Labor clearing funds can be used by departments to expedite and provide an equitable allocation of salaries, benefits, and related costs.
Prior to the establishment of a labor clearing fund there must be a regular and continuing need, within a specific department, to fund salaries, benefits, and related costs such as network telecommunication access fees from multiple fund sources in amounts that vary from period to period. The costs and the number of funding sources must be significant. It must be demonstrated that the advantages of establishing a labor clearing fund significantly outweigh directly charging the cost to the multiple sources. The typical labor clearing fund avoids the need for complex split-funding of personnel and related costs.
There must be an annual operating plan which includes at a minimum, the projected annual volume of personnel and related costs to be recorded in the labor clearing fund and the methodology to be used. These documents are referred to as a proposal. Although a labor clearing fund is not a recharge activity, it does distribute costs using a unique rate methodology. A labor clearing rate proposal must be submitted and approved at the proper levels prior to the start date of the new labor clearing activity. However, in some instances the proposal may be retroactively approved to a date not preceding the beginning of the fiscal year.
A proposal must be submitted and approved at the proper levels prior to the start date of a new rate or activity. In some instances the activity may be retroactively approved to a date not preceding the beginning of the current fiscal year.
Recharge rates will be based on allowable costs, which for labor clearing funds are only the personnel and related costs to be cleared. In a typical labor clearing fund, rate methodology will provide separate, unique rates for each person in the group. The labor clearing fund must be charged only the personnel and related costs.
Fringe benefits in the form of regular compensation paid to employees during periods of authorized absences from the job, such as annual leave, sick leave, military leave, and the like, are allowable provided such costs are distributed to all university activities in proportion to the relative amount of time or effort actually devoted by the employees. Fringe benefits may be assigned to cost objectives by identifying specific benefits to specific individual employees or by allocating on the basis of university wide salaries of the employees receiving the benefits. When the allocation method is used, separate allocations must be made to selective groupings of employees, unless the university demonstrates that costs in relationship to salaries and wages do not differ significantly for different types of employees.
Severance (termination) pay is compensation in addition to regular salaries and wages which is paid by the university to employees whose services are being terminated. Costs of severance pay are allowable only to the extent that such payments are required by law, by employer-employee agreement, by established policy that constitutes in effect an implied agreement on the university’s part, or by circumstances of the particular employment. Costs of leave of absence by the employees for performance of graduate work or sabbatical study, travel or research are allocable provided the university has a uniform policy on sabbatical for persons engaged in instruction and persons engaged in research. Such costs will be allocated on an equitable basis among all related activities of the institution.
Labor clearing funds will be operated on a no-gain/no-loss basis. Any surplus or deficit occurring in any one year will be corrected by adjustment of rates in the succeeding year to achieve a break-even balance at the succeeding year end. Labor clearing funds should have a zero balance at fiscal year-end.
Revisions must include an annual operating plan which includes at a minimum, the projected annual volume of personnel and related costs to be recorded in the labor clearing fund and must have the same approvals as a new activity.
Rate changes due to HR approved payroll adjustments, such as merit, reclassifications, cost of living, range and equity adjustments, and UCRP contributions are automatically approved. The department will notify, via email, BFS-GA of the rate changes and be able to provide the rate calculation worksheets in the event of an audit.
A labor clearing fund will have a specific fund number. Each activity will be assigned a unique fund number in the appropriate COA series by BFS-GA. Either an existing organization code or a new organization code will be established. Generally, a program code of 44xxxx is used. An index code will be associated with the above COA elements, a.k.a. IFOP, Index, Fund, Organization and Program codes. Generally unique expenditure account codes will be established to credit the fund and debit the charges to the appropriate funds.
A budget must be established for each labor clearing fund activity in accordance with the Budget Office procedures. An “xxxBDxx” index is required and can be obtained from the Budget Office.
When payroll is processed, labor costs are initially charged to the clearing funds with the respective expenditure account codes for payroll costs. Subsequently, the costs are transferred to the various funds using the unique account code to zero out the fund and to transfer the charges to the appropriate funds. The distribution of expenses is based on the employees' daily or monthly accounting of their efforts on specific projects/activities. The expenditures in the labor clearing funds are generally debited for payroll and related costs and credited when distributing the costs to the specific projects/activities.
During the year, the cash balance of all UC funds participate in the Short-Term Investment Pool (STIP). Distribution of the interest earned (surplus balances) or charged (deficit balances) will be in accordance with the procedures set forth in Business and Finance Bullet-in A-60, Short-Term Investment Pool Distribution of Income. Current campus procedures dictate that the STIP be recorded in the respective Vice Chancellors' STIP funds.
There may be fiscal closing entries that are required. An instruction document is prepared each fiscal year, “Recharge & Other Income-Producing Activities Fiscal Closing Special Items Instructions”. The document is available by the end of April in BLINK. All labor clearing funds must refer to this document for entries that may be required for the activity.
When an activity is no longer in operation, the activity must notify BFS-GA to coordinate the closing of the fund(s). The funds need to zero-out prior to inactivating the index and fund numbers. It is imperative to close the funds to avoid additional charges.