Training and Education Cost Allowability

Efficient and effective execution of duties is dependent on a well-trained staff. However, there are some training and training-related costs that are not allowable. Know these rules to maximize recovery, avoid penalties and preclude findings of accounting system inadequacy.

The Federal Acquisition Regulation (FAR) 31.205-44 addresses training and education costs. Costs of training and education that are related to the field in which the employee is working (or may reasonably be expected to work) are generally allowable. As with any cost, the amount must also be reasonable. However, there are some training and training-related costs that are expressly unallowable.

After Hours or During Working Hours?

Overtime compensation (the overtime premium) paid to employees for attending training is not allowed.

The cost of salaries paid to employees for attending undergraduate level classes or part-time graduate level classes during working hours is also unallowable unless unusual circumstances do not permit the employees to attend classes outside of regular working hours.

What Else is Not Allowed?

Grants to educational or training institutions, scholarships and fellowships are considered contributions and are unallowable. This includes the donation of facilities or other properties to these institutions.

Training or educational costs for other than bona fide employees are generally not allowed, unless the employee is working in a foreign country and suitable public education is not available. In these cases, the costs of primary and secondary level studies for the employee’s dependents are allowable and can be included in the employee’s overseas differential pay.

Contributions to college savings plans for employee dependents aren’t allowed.

You can send an employee to pursue full-time graduate level education and incur allowable costs for tuition, fees, training materials, textbooks, subsistence and salary. However, any portion of the program that exceeds two school years or the length of the degree program, whichever is less, is not allowed.

What Happens in an Audit?

Auditors will scrutinize your incurred training costs for appropriate documentation, evaluate whether the costs are allowed and verify that you have excluded any unallowable amounts. Failure to segregate the unallowable costs could result in application of penalties for their inclusion in your incurred cost indirect rate submissions and disapproval of your accounting system.

Tips

  • Maintain documentation that relates to an employee’s attendance at a specific training course to the field in which the employee works or may reasonably be expected to work.
  • When compensating employees for attendance at undergraduate level courses during working hours, maintain sufficient documentation demonstrating that circumstances don’t permit the operation of classes or attendance at classes after regular working hours.
  • If your training costs are significant, then maintain well-defined training request and reimbursement policies and procedures.
  • Identify and segregate training and training-related costs that are expressly not allowed.

For more information, consult with your government contracting adviser.

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