What are indirect costs?

What are indirect costs?

Indirect costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the organization and the conduct of activities it performs. In theory, costs like heat, light, accounting and personnel might be charged directly if little meters could record minutes in a cross-cutting manner. Practical difficulties preclude such an approach. Therefore, cost allocation plans or indirect cost rates are used to distribute those costs to benefiting revenue sources.

Looking at it another way, indirect costs are those costs that are not classified as direct. Direct costs can be identified specifically with particular cost objectives such as a grant, contract, project, function or activity. Direct costs generally include:

1.

Salaries are wages (including vacations, holidays, sick leave, and other excused absences of employees working specifically on objectives of a grant or contract – i.e, direct labor costs).
2.

Other employee fringe benefits allocable on direct labor employees.
3.

Consultant services contracted to accomplish specific grant/contract objectives.
4.

Travel of (direct labor) employees.
5.

Materials, supplies and equipment purchased directly for use on a specific grant or contract.
6.

Communication costs such as long distance telephone calls or telegrams identifiable with a specific award or activity.