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UW Policy Directory

APS 33.2 – Institutional Overhead Policy

Table of Contents

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(Approved by the Provost and Executive Vice President by authority of Executive Order No. 4)         

1.  Overview

This policy applies to overhead charges on cash income from sales of supplies and services and rental income from self-sustained budgets.

Operating costs have two categories: direct, and indirect or overhead. Direct costs are those charged to the benefiting function or organization. Costs generally applicable to a function, but not charged directly to that function, are referred to as indirect or overhead costs. Typically these are costs which benefit more than one function or organization and for which there is no convenient unit of measure to allocate the cost to the benefiting functions or organizations.

Overhead costs are legitimate costs of conducting the business of the University of Washington. Failure to recognize and properly apportion overhead costs results in hidden subsidies to some programs or users. While the University may wish to subsidize certain programs as a matter of policy, these subsidy decisions should be explicit and considered in the biennial budget process. Grants Information Memoranda 13 applies to overhead charges on sponsored agreements.

2.  Scope

This policy applies to the academic and administrative functions of the UW Seattle campus and the UW Tacoma campus, except where noted otherwise in the policy. The UW Bothell campus does not charge institutional overhead.

3.  Overhead Costs to Be Recovered

The University intends to recover the following types of overhead costs:

  1. Physical Plant Operations and Maintenance – This category includes the following:
    • Maintenance of buildings, roads, and grounds
    • Custodial services
    • Utilities
    • Support services such as facilities planning, energy management, environmental health, and security services
  2. Institutional Support – This category includes the following:
    • Executive management
    • Fiscal services
    • Support services such as central data processing, risk management and compliance, and human resources
    • Logistical services such as communications, purchasing, and equipment inventory control
    • Community relations

4.  Method of Recovering Overhead Costs

The standard method of recovering overhead costs is by charging a campus-wide rate to the unit’s revenue from sales of goods and services to cash customers. Overhead is not charged on internal billing transactions between campus units using the Cost Transfer Invoice (CTI) or the Internal Sales Document (ISD). In special cases, an alternative method may be considered by determining a fixed amount of overhead to charge or by direct charging for specific overhead services.

5.  Overhead Rates

Overhead rates are calculated by the Office of Planning and Budgeting based on the proportion that the costs to be recovered bear to total University costs. The calculation produces a University-wide rate which will apply to revenue received by all campus units unless specific exemptions are provided. Special rates will be calculated for those units which provide their own overhead services or reimburse the University for those services.

6.  Overhead Exemptions

The Budget Office will determine the appropriate rate for self-sustaining enterprises when the new budgets are established. The full on- or off-campus overhead rate will apply to each self-sustaining budget unless the Budget Office approves a formal request for an exemption that meets the exemption requirements of the overhead policy. The burden of proof is on campus units to show that they should be granted an exception. Exceptions will be considered in the following areas:

  1. Exemptions for Health Sciences Clinical Training Programs and Services – Institutional overhead will not be charged to health sciences clinical training programs and services that are an integral part of the educational mission of the health science schools. Examples and explanations include, but are not limited to:
    1. The WWAMI Regional Medical Network Billings for out of state participants in the WWAMI program are at a contracted rate; 100% of the revenue collected is dedicated to but does not recover the full cost of program delivery.
    2. Clinical Services/Laboratory Medicine Services Income from clinical services and laboratory medicine activities that directly support clinical training.
    3. Resident Income (Schools of Medicine, Dentistry, and Pharmacy) Income from the Medicare program supports the medical, dental, and pharmacy residents; however, under the federal Medicare program, only direct salary and benefit costs can be reimbursed, leaving the unrecovered costs as the responsibility of the school.
    4. Health Sciences Required Fees (All Schools in the Health Sciences) Fees charged for training required by regulatory agencies and necessary for participation in a program. For example, fees collected to pay for immunizations that are required for all students who train or practice in clinical settings will not be charged institutional overhead.
  2. Exemptions for Student Government and Course Fees
    1. Student Government Institutional overhead will not be charged on revenues from student government that are transferred to departmental budgets for projects and services. Examples include, but are not limited to, Campus Sustainability Fund, Associated Students of the University of Washington, and Graduate and Professional Student Senate.
    2. Course Fees Course fees associated with certain courses in the regular academic program are exempt. Course fees are regulated by Executive Order No. 44, User Fee Approval Policy, and by policy can only recover specified costs associated with academic courses.
  3. Administrative Exemptions The following support services that function for the benefit of University students, faculty, staff, and departments will not be charged institutional overhead:
    • Graduation ceremonies
    • The student health insurance program
    • Counseling and career services
    • The ePayables and card services program
    • Tax Office operations
    • Payroll Office operations for processing garnishment requests
    • Real Estate operations
    • Campus Master Plan
    • Key deposits: these are received at point of sale, then returned at the end of the quarter or academic year. These budgets have no expenses and no accumulation of revenue.
  4. Legal Restrictions Prevent Imposition of Overhead Charges Under this exception a general overhead charge would not be assessed if clearly legally prohibited. Temporary exemptions may be granted to units which have rates fixed by contract or agreements with external parties. Where legal or other conditions constrain overhead charging, the option of charging specific transaction and/or service fees (e.g., an amount charged per payroll check) may be considered.
  5. Special Exemptions Approved by the Provost The Provost may approve special exemptions to the institutional overhead policy for a particular budget or a group of budgets.
  6. Partial Exemptions
    1. Non-Student Conference Budgets Non-student conference budgets will be charged a nominal overhead rate. This rate will be charged to all budgets for conferences, consortiums, symposiums, and workshops presented by departments for professional organizations or employees.
    2. Student Conferences Student conferences collect revenue from students for attendance either as a student or a representative of student government. Conferences are short term (less than one week), may be educational but are not mandatory. Student conferences cannot be part of the academic curriculum, completion of assignments or test results cannot be a required outcome, and participation cannot be a requirement for credits or graduation.

7.  Overhead Application

UW Seattle schools and colleges are notified of the applicable overhead rate by the Budget Office at the time a budget is established and thereafter when changes occur. UW Tacoma schools and departments are notified by the Finance and Administration Office on that campus of the current overhead rate and new rates as changes occur. That rate is to be added to the unit’s costs in determining fees charged to users or customers.

Overhead will be charged on cash income from sales of supplies and services, and rental property. The following revenue classes contain this type of cash income:

  • 9402—Income from property
  • 9420—Sales of supplies, materials, and services
  • 9423—Room, board, and meals
  • 9424—Tuition and fees
  • 9430—Dedicated student fees
  • 9431—Miscellaneous student fees
  • 9433—UW Professional and Continuing Education course fees
  • 9499—Other revenue.

Revenues received in account code “9424—Tuition and fees” are those from fee-based programs. Tuition paid by students in state-supported programs are recorded in operating fee and building fee account codes and are not charged institutional overhead.

Quarterly, the Budget Office will prepare a Journal Voucher (JV) to charge (or adjust) institutional overhead based on the revenue received by self-sustaining budgets in the previous quarter.

8.  Overhead on Agency Accounts

The full University-wide overhead rate is charged on expenditures in agency accounts. Student-, faculty-, and staff-related agency accounts may request an exemption from overhead charges. Exemptions are normally granted for scientific and professional journal editorship accounts.

April 1993; June 21, 2016.

For related information, see:

  • Executive Order No. 44, “User Fee Approval Policy”