What a De Minimis Indirect Rate Covers

• What a De Minimis Rate Is
• What Counts as an Indirect Cost
• What the MTDC Base Leaves Out
• Why the Rate Moved to Fifteen Percent
• Who Can Elect It Without Negotiating
• What the Audit Threshold Change Did
• Why Small Organisations Feel This Most
• What a Negotiated Rate Offers Instead
• Where Community Funds Sit in This
• What to Check Before Electing It

What a De Minimis Rate Is

A de minimis indirect cost rate is a flat percentage an organisation may charge a federal award to cover overhead, claimed without negotiating a rate with any federal agency first. Under the revised Uniform Guidance the figure is up to 15 percent of modified total direct costs, raised from the 10 percent that stood before.

The word de minimis is doing real work here. The rate exists because negotiating a genuine indirect cost rate is a demanding exercise involving cost pools, allocation bases and an agency review, and an organisation running a single small grant would spend more on the negotiation than the difference could return.

So the rule offers a default. Take the flat percentage, skip the negotiation, and accept that the figure may be lower than the true cost of running the programme.

What Counts as an Indirect Cost

Indirect costs are the expenses that keep an organisation running without attaching to any single programme: rent, utilities, insurance, accounting, the executive director's time, the technology everyone uses. They are real costs of delivering the work, and they are the costs restricted grant money is least willing to pay.

The distinction is not about importance but traceability. A workshop facilitator's hours belong to the workshop and are a direct cost. The bookkeeper who processes the facilitator's invoice serves every programme at once, so no single grant can fairly carry the whole salary.

Neither is optional, and neither disappears when a grant declines to fund it. Under the revised guidance the flat allowance for all of it together is 15 percent of modified total direct costs.

Without a mechanism to recover them, those costs simply go unfunded. An indirect rate is the mechanism, and it is the most direct route by which restricted grant money becomes the flexible cash that keeps the lights on.

What the MTDC Base Leaves Out

Modified total direct costs is the base the percentage is applied to, and it is narrower than a grant's headline value. MTDC covers direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first 50,000 dollars of each subaward regardless of that subaward's period of performance.

What it excludes matters more. Equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of any subaward above 50,000 dollars all fall outside the base.

The practical effect catches people out. A grant heavy on equipment or participant stipends produces a much smaller MTDC base than its total suggests, so 15 percent of that base can be a modest sum against a large-looking award.

Why the Rate Moved to Fifteen Percent

The increase from 10 to 15 percent took effect on 1 October 2024 as part of a broader revision to the Uniform Guidance, and it was a direct response to years of argument that the old figure understated what overhead actually costs.

Ten percent had become a de facto ceiling rather than a floor. Funders anchored on it, organisations wrote it into budgets because asking for more invited questions, and the gap between the rate claimed and the cost incurred was absorbed by the grantee. Raising the default by half moves that anchor.

Timing carries a wrinkle worth knowing. Awards issued before 1 October 2024 continue under the previous version of the guidance unless an official amendment says otherwise, so an organisation can hold two awards running under two different rules at once.

Who Can Elect It Without Negotiating

Any recipient or subrecipient without a current federal negotiated indirect cost rate may elect the de minimis rate, including organisations that have never held one and those whose provisional rate has lapsed. No application is required and no agency grants permission.

The entitlement runs further than many grantees realise. A government agency using federal funds to engage a nonprofit must reimburse indirect costs at that organisation's negotiated rate, or, where none exists, at least at the de minimis rate. It is a floor rather than a courtesy, and it is frequently left unclaimed.

The 15 percent figure applies from 1 October 2024 for awards issued on or after that date, which means an organisation electing it now should check which version of the guidance its award falls under before writing the number into a budget.

Electing it is a choice with consequences. An organisation holding a negotiated rate cannot simply take the de minimis figure instead because it happens to be higher that year.

What the Audit Threshold Change Did

The Single Audit threshold rose from 750,000 dollars to 1,000,000 dollars of federal funds expended in a fiscal year, in the same October 2024 revision that lifted the de minimis rate. Only organisations crossing the higher figure now fall into the Single Audit regime.

The change matters to smaller grantees mainly as headroom. An organisation expending 800,000 dollars in federal funds sat inside the requirement before and sits outside it now, with the audit cost and the staff time that came with it.

Related thresholds moved as well. The figure for determining Type A programmes rose to 1,000,000 dollars where an organisation's total annual federal expenditure is 34 million dollars or less, up from a 25 million dollar cut-off.

Why Small Organisations Feel This Most

Smaller organisations carry the burden of low indirect recovery disproportionately, because the arithmetic works against them in several directions at once rather than one.

• Overhead is a larger share of a small budget, since a bookkeeper and an audit cost roughly the same at 200,000 dollars of turnover as at two million
• Unrestricted funding is scarcer, so there is less flexible money to absorb what grants decline to cover
• Reserves are thinner, leaving no buffer when a grant underpays its share of the rent
• Negotiating a rate demands finance capacity that a two-person organisation does not have spare

Each factor compounds the others. The organisations least able to negotiate a rate are the ones for whom the default rate falls furthest short of real cost, which is the mechanism behind what the sector calls the starvation cycle. Moving the default from 10 to 15 percent does not end that, but it narrows the gap for exactly the organisations that could not have closed it themselves.

What a Negotiated Rate Offers Instead

A federally negotiated indirect cost rate is calculated from an organisation's own audited costs and agreed with a cognisant federal agency, and it can land well above 15 percent where the underlying costs justify it. For organisations running substantial federal programmes it is usually worth the work.

The trade is administrative. Negotiation requires assembling cost pools, defending an allocation base, and maintaining the records to support both, then repeating the exercise as the rate comes up for renewal.

The rate is also portable across federal awards once agreed, which is what makes it worth having. An organisation with a negotiated rate carries it into every federal grant rather than re-arguing overhead with each funder, and agencies are obliged to honour it.

Where Community Funds Sit in This

Community-supported funds and small local funders operate outside the Uniform Guidance entirely, since that framework governs federal awards, and their grant terms are set by their own boards rather than by 2 CFR 200. That freedom cuts in both directions.

A local fund can choose to pay overhead generously, fund general operating costs outright, or ignore the distinction between direct and indirect altogether. Organisations such as Rianna's Fund, which supports education and family programmes at community scale, sit in exactly this space, where the terms are a matter of policy rather than regulation.

The federal figures still exert a pull. Private and community funders routinely anchor their own overhead allowances on the federal default, which is part of why moving that default from 10 to 15 percent matters well beyond the federal awards it formally governs.

What to Check Before Electing It

Electing the de minimis rate is straightforward but not automatic, and three things are worth confirming before a budget goes out. The first is the award date, because anything issued before 1 October 2024 may still sit under the 10 percent rule unless it has been formally amended.

The second is the base. Running the MTDC calculation properly, with equipment, participant support costs and the portion of each subaward above 50,000 dollars stripped out, gives a very different figure from 15 percent of the award total.

The third is consistency. The rate must be applied the same way across federal awards rather than selected grant by grant, and the documentation supporting it has to survive an audit that may arrive years later.