Systems and Procedures
A Division of The Corporate Controller's Office

Procedure CR2015 - Labor Distribution

Office of the Corporate Controller

Policy Steward facilitating procedure: Associate Vice President for Finance and Corporate Controller

Table of Contents:


This procedure provides general guidelines on the distribution of labor. All departments distributing labor to sponsored projects must use the Pay and Effort system to perform the distribution, with the exception of the Defense-Related Research Units (Applied Research Laboratory and Electro-Optics Center), which have their own audited labor distribution systems.

The Pay and Effort System was designed using the Plan - Confirmation method of charging direct salaries and the payroll distribution method for wages, as noted in the University's Cost Accounting Standards Board Disclosure Statement (CASB DS-2) for Educational Institutions certified on 11/4/96 as well as subsequent amendments. These methods of charging direct salaries and wages are in accordance with the Uniform Guidance 2 CFR 220 (Also see "Plan Effort Confirmation" below).

All salary charges to federally sponsored projects, as well as any distribution to multiple accounts (general or restricted) and charges for departmental administration must be charged through a clearing account to properly distribute the charges. Distributions to restricted accounts through the Pay and Effort system are to be made only upon the direction of the principal investigator (PI) of the project or, for non-federal funds, the budget administrator or appropriate delegate of the account. Wages must be directly charged and appropriately approved through the WAGC form (IBIS form being decommission 12/10/17) .

Departmental administration is defined in the Uniform Guidance as effort "incurred for administrative and supporting services that benefit common or joint departmental activities or objectives in academic deans' offices, academic departments and divisions, and organized research units. Organized research units include such units as institutes, study centers, and research centers." ( 2 CFR 200 Appendix III B 6).

Therefore Departmental Administration is performed in supervising or managing activities of the department related to budget, personnel, space and equipment needs, purchasing, safety and security, faculty workloads and committee assignments, including clerical work in support of these activities. In addition, clerical functions for sponsored program proposals or reports or preparation of departmental releases to scientific or technical journals that have not been directly charged to a sponsored program are considered administrative. Work related to teaching, course or curriculum development, academic advising, departmental research, or creation of course materials, outlines, class handouts, tests, reading lists, etc. which are instructional in nature is considered non-administrative. Departmental administration only applies to staff exempt and staff non-exempt personnel paid on general funds in colleges or interdisciplinary research programs at University Park and Hershey. Budget administrators and Financial Officers (or their authorized delegates) are responsible for updating departmental administration for affected general funds.

Questions about the applicability of departmental administration can be directed to Cost Analysis in the Corporate Controller's Office. Departments should review distributions for faculty in their areas to assure that the balance of the distribution for teaching and other assignments versus research are appropriate given the individual's teaching load and/or outreach duties during the semester.

The Financial Officer's role in distribution of labor is in the control and management of inputs into the Pay and Effort system. The Financial Officer controls access to the Pay and Effort system, is responsible for managing the entry and update of the planned distributions in the system based on direction from the principal investigator or budget administrator or appropriate delegate, delegates authority for updating to the Finance Office staff or others appropriately trained on the Pay and Effort System, and assures University policy and procedures are followed. It is the responsibility of the principal investigator, budget administrator, or appropriate delegate to assure that the amount of salaries charged to a particular account is appropriate given effort expended and the specific terms and conditions of the particular grant or contract.


The University is required by federal regulation to periodically report on 100% of the effort of employees who perform services chargeable to federal grants and contracts and/or who have a portion or all of their earnings chargeable as departmental administration on University general funds. Current practice is to charge effort monthly based on the Plan Confirmation labor distribution method and confirm effort annually. The University's vehicle for monthly charging and annual confirmation of effort is the 1002 Salary Clearing Account. The main function of the Clearing Account is to charge employee effort in the month it is earned, which is not necessarily in the same month it is paid.

Individuals who perform services chargeable to federal funds, and/or departmental administration on University general funds, must have their entire regular salary and Supplemental I compensation charged by the Payroll Department to the Clearing Account. The payroll charge will be made to the administrative area's assigned clearing account. These charges represent the actual payrolls and do not represent effort performed by the employees.

Use of the 1002 Salary Clearing Account is not restricted to those situations already mentioned. Its use is required for employees with multiple distributions. Any employee, whose pay is charged as salary, whether monthly or biweekly, may be charged to and cleared from the Clearing Account, even if the distribution is only to a single account. Those employees who have regular or Supplemental I compensation chargeable to federal funds, and/or as departmental administration, must have 100% of all effort from this compensation charged to and cleared from the Clearing Account, including overtime payments.

Services performed as wages or Supplemental II compensation may neither be charged to nor cleared from the Clearing Account.

Because Supplemental II compensation does not fall under Institutional Base Salary (IBS), it is not permissible to pay an employee Supplemental II compensation chargeable to federal funds unless specifically provided for within the agreement or approved in writing by the sponsoring agency.

In general, the Clearing Account works by allowing the temporary distribution of an employee's salary to it. An annual salary schedule is developed for the employee and entered into the Pay and Effort system by the Financial Officer, or staff in the Finance Office or trained staff in a department authorized through the Financial Officer. Distributions are entered by pay period to build a salary schedule. Each month's earnings are automatically cleared at the end of the month to the various accounts on which the employees have worked, at which time clearing payroll vouchers are prepared for distribution. If the standing appointment plan is less than 48 weeks, and the employee is added to the clearing account at some time other than the beginning of a fiscal year, it may be necessary to go back to the beginning of the year (or date of hire, if more recent) and transfer all or a portion of the previous salary payments to the Clearing Account in order to equate the amount paid from the Clearing Account with the total being cleared.

DRRU (ARL/EOC): Given that the Applied Research Laboratory and Electro-Optics Center do not use the Pay and Effort system, any charges to be distributed to ARL or EOC accounts from other units should be charged to the ARL or EOC Clearing Account based on the estimated percentage of effort. This estimated percentage of effort shows on the ARL or EOC clearing account. ARL or EOC is then responsible for distributing the charges to the appropriate accounts based on their time-sheet methodology.

Exceptions to this procedure may only be approved by the Corporate Controller or authorized delegate.



Use of the Pay and Effort system is a requirement for using the Clearing Account. Manual clearing is not an option.

Responsibility for entering an individual's earnings into the system lies with the Financial Officer in the area of the individual's home budget. That Financial Officer will be able to update the entire record for an individual and see all distributions regardless of method of payment or fund charged. The Financial Officer may delegate this responsibility to Finance Office staff or other individuals properly trained in Pay and Effort, which will be referred to as authorized delegates.

To distribute salary payments for individuals by using the 1002 Salary Clearing Account, their pay must first be temporarily charged to the clearing account either through their initial appointment or through NEWP (New Pay Information) (IBIS form being decommission 12/10/17) . Each year, those employees who had been distributed to the Clearing Account the previous fiscal year will automatically be distributed there in the new fiscal year. An individual cannot be processed through more than one 1002 in any given month.

All regular salary payments and Supplemental I compensation payments must be charged to and cleared from the Clearing Account. All Supplemental I compensation payments, regardless of the area in which the 1002 Clearing Account Procedure service is performed, must be paid on the Clearing Account of the individual's home budget area. Overtime, holiday time and holiday overtime paid on the account will be charged as salaries, not wages. Supplemental II compensation must be charged directly (not to the Clearing Account) and, unless specifically provided for in the contract, cannot be charged to federal funds. Summer Session Graduate Assistants who are paid wholly or partially from University general funds may not be appointed on the Clearing Account.

At the beginning of each year, or upon initial appointment, a salary assignment schedule or equivalent is prepared for each employee charged to the 1002 Clearing Account. The salary assignment schedule specifies the planned distribution of the employee's effort over the course of the appointment, or for standing appointments, the fiscal year. At a minimum, the salary assignment schedule must include employee name, Penn State ID number, and salary distribution by month, including dollar amounts and accounts to be charged. For initial appointments or reappointments, documentation of the planned distribution in the notepad of the appropriate IBIS form is considered the equivalent of a salary assignment schedule. Upon completion, the budget administrator or appropriate delegate or principal investigator approves the salary assignment schedule or equivalent and it is forwarded to the Financial Officer or authorized delegate. Salary assignment sheets or equivalents should be retained per University retention guidelines.

Salary Assignment Sheets can be signed by an authorized person in the Principal Investigator's (PI) department, but the PI's approval must be documented in either an email or other document showing authorization of the distribution and retained in the department.

NOTE : If the distribution for an individual has no changes from the previous year, it is not necessary to prepare a new salary assignment schedule.

The Financial Officer or authorized delegate enters the distributions into the Pay and Effort system based on the approved salary assignment schedule or equivalent, or upon the prior year's distribution for those with no changes. The entry process includes provision for recording departmental administration charges for each pay period worked by the employee. The UPES screen is used to enter the initial distribution. These distributions then create encumbrance records for each month on the appropriate accounts in the IBIS system.

NOTE : See IBIS Online documentation for specific directions on completing Pay and Effort functions.

Authorized changes to the distribution are made by the Financial Officer or authorized delegate through the UPES screen. The distributions entered into the Pay and Effort system provide the input for clearing the 1002 account. A clearing account voucher is produced when the salary distributions for the month are cleared against the account. The clearing voucher is the accounting detail that records the dollar charge and the related percentages to the total salary cleared that month, for each account.


Inquiry access to an individual's entire record ( IPES ) will be available only to individuals with Financial Officer profiles or those authorized by the Financial Officer.


Once salary schedules have been established in the Pay and Effort System by the home budget Financial Officer or authorized delegate, the clearing process can begin. Immediately following the running of the final payroll for a month or for bi-weekly pay, several reports are run and posted to eDDs for review by the Finance Office and adjustments are made as necessary. These reports include Vouchers Not Posted, Voucher Warning Messages, Monthly and Bi-Monthly Crossfoot Error Messages, Pre-Clearing Error Messages and Expected Clearings. If no adjustments are made by the home budget Financial Officer or authorized delegate, these distributions will be automatically cleared to their respective accounts after the last working day of the month.

Between the date the Pre-Clearing Extract is prepared and the date of the actual clearing, the home budget Financial Officer or authorized delegate has four (4) days to make changes and corrections through the Pay and Effort system to insure proper end-of-month clearing. There will be no Pre-Clearing Extract produced for that Financial Officer if no errors are detected pertaining to his/her area of budget responsibility. The Expected Clearing should be received each month, as this lists all individuals on the clearing account and the accounts to which each individual is expected to be cleared. At the end of the month, AIS charges the various accounts according to the distributions entered into the Pay and Effort system by the home budget Financial Officer or authorized delegates and credits the clearing account.

Clearing payroll vouchers are prepared which reflect the transactions, and are distributed to the various administrative areas for review. The clearing account vouchers show the salary amount and the related percentage to the total salary cleared that month. The vouchers are distributed to administrative officers and/or principal investigators for informational purposes.

The budget executive, budget administrator or appropriate delegate or principal investigator should review monthly clearing account vouchers for each account within the month following the pay date. If the effort distribution is not correct, the person reviewing the voucher must report the corrections in writing by means of a memo or email, a notation on the voucher or by submission of updated salary assignment sheet to the affected account's Financial Officer or authorized delegate.

Corrections received from departments are to be updated in the Pay and Effort system as soon as possible after received from the department.


In compliance with Uniform Guidance 2 CFR 200 §200.430 Compensation - personal services, our internal controls include an effort confirmation process to review after-the-fact interim charges made to federal awards based on budget estimates. A summary for each account of salary amounts and related percentages to the total salary charged for each month is distributed to the administrators and/or principal investigators for confirmation of effort on an annual basis, and within 45 days after the end-date of each sponsored program . The Plan Effort Confirmation Statements will be produced by AIS after the end of the fiscal year for all accounts open during the fiscal year and must be signed and filed by September 30th each year. Exceptions can be granted by the Financial Officer due to extenuating circumstances, such as extended absence of the Principal Investigator, but should be documented in writing.

These statements will also be produced for individual accounts upon reaching the end-date of the sponsored program.

These are to be signed by the principal investigator and budget administrator or designated representative, per Policy RA64 . No individual may confirm his/her own effort, so in those cases where the budget administrator is also the PI, the confirmation must be approved by the Associate Dean for Research or budget executive, or designated representative. The statements must be signed by a responsible person with suitable means of verification that the work was performed. Therefore, responsibility for signing effort confirmation statements cannot be delegated except in cases where a designated representative has been specifically approved for an area by the Office of the Corporate Controller. Proxy signatures and/or signature stamps are also NOT acceptable.

At times, effort cannot be properly calculated by the system due to special circumstances (effort appears as ** on statement). In these situations, the correct effort must be manually noted on the statement with an explanation. If the effort distribution is not correct, the person reviewing the effort confirmation statement must report the corrections to the Financial Officer or authorized delegate in writing by means of a memo or email, a notation on the statement, or by submission of an updated salary assignment sheet. The Financial Officer or authorized delegate is responsible for assuring that corrections are made in the system as well as printing a new plan effort confirmation statement reflecting the changes. This corrected statement should then be reviewed and approved by the appropriate person(s). These corrected statements must be returned by September 30th.

For accounts closing during the fiscal year, it is imperative that plan effort confirmation be done within 45 days after the end date of the contract , especially for federal accounts. Plan effort confirmation reports other than during the annual process will be through the review and approval of the printed report produced through IPED in IBIS. If a federal account has reached its end date and the 90 day closing period has elapsed, changes cannot be made without the expressed approval of the Administrative Contracting Officer for the Office of Naval Research.

When the effort is confirmed through appropriate signature, the approved plan effort confirmation statement will be returned to the Financial Officer. The Financial Officer will verify appropriate approval. For annual statements, the Finance Office staff will record that the plan effort confirmation has been returned on the provided control listing, and will file the approved plan effort confirmations locally.

NOTE : The Financial Officer may delegate these responsibilities to the Research Coordinator and staff, but is still responsible for assuring the process is completed per the outlined procedure.

Filing of plan effort confirmation statements should be in a separate plan effort confirmation file for the fiscal year, in account number order, for each administrative area. Copies of the signed statements can be placed in contract files, but the original should be kept in separate consolidated plan effort confirmation file. Retention of plan effort confirmation statements will follow the record retention guidelines in place for other financial documentation.

The Financial Officer will be responsible for follow-up with appropriate personnel regarding any missing plan effort confirmation statements and/or any statements that appear to be deviations from standard approval or include any additional comments, notes or attachments. By September 30th, the Financial Officer must confirm in writing (through email) to the Assistant Controller, University Financial Officers, that the plan effort confirmation is complete . A copy of the control listing, signed by the Financial Officer and indicating where the completed and approved plan effort confirmation statements are filed, must be scanned and returned to the Assistant Controller, University Financial Officers.

If the plan effort confirmation cannot be completed by September 30th, the Financial Officer must send an email indicating the reason(s) plan effort confirmation could not be completed, what steps are being taken to assure 100% compliance with the plan effort confirmation process, and an expected date for completion. Plan effort confirmation statements not completed by the September 30th deadline must be completed as soon as possible. When plan effort confirmation is 100% complete, a follow-up email will be sent to the Assistant Controller's Office indicating that the plan effort confirmation process is completed for the fiscal year, as well as a scanned copy of the control listing as indicated above.

The Assistant Controller's Office will be responsible for following-up with any Financial Officer who has failed to report on completed or in progress plan effort confirmation by September 30th.


If changes in the distribution are required, the salary adjustments must be communicated in writing to the Financial Officer or authorized delegate for adjustment in the Pay and Effort system. There are two distinct categories of adjustments: 1) a realignment of a previous estimate or 2) a labor transfer:

  1. A realignment of a previous estimate must be requested within the month following the month for which the estimate revision is needed if for a pay period already paid. The PI must request and approve the estimate revision. Estimate realignments may happen frequently and are an expected standard operational event given that the initial labor distribution process is done using the Plan - Confirmation method. The Financial Officer or authorized delegate then adjusts the Pay and Effort system as appropriate using either the UPES or UPET screen, depending on the status of the pay period (encumbered or paid). If the change is for a pay period already paid, a PYTR (Payroll Transfer Form) will be initiated by the Pay and Effort system upon completion of the UPET screen.

  2. Labor transfers are adjustments that are requested more than 30 days after the pay period in which the labor was paid. Given that a timely review of monthly clearing account vouchers is required, labor transfers are expected to occur infrequently and must include detailed documentation as to why the transfer is required. The Financial Officer or authorized delegate then adjusts the Pay and Effort system as appropriate using either the UPES or UPET screen, depending on the status of the pay period (encumbered or paid). If the change is for a pay period already paid, a PYTR (Payroll Transfer Form) will be initiated by the Pay and Effort system upon completion of the UPET

The PYTR follows an approval path designated by the Financial Officer. The PYTR must be approved by at least two individuals, one being the Financial Officer or authorized delegate, as required by FN18 on GURU. If the Budget Administrator or Principal Investigator has not requested or approved the distribution change, he or she (or an individual authorized to serve in the role of Budget Administrator or Principal Investigator) must approve the PYTR . If the Budget Administrator or Principal Investigator requested or approved the distribution change and documentation is on file, it is not necessary for he/she to approve the PYTR form and the second approval can be a designated individual in the department or Finance Office.

Changes to distributions for pay periods already paid that charge federally sponsored awards or awards with federal flow-through funds (referred to as federal funds subsequently), should be made in the month following the pay period to be considered a realignment of a previous estimate. If the changes are made during a period later than the month following the pay period these become a labor transfer. If the labor transfer results in a charge to a federal fund or federal flow-through fund, the Pay and Effort System will automatically route the PYTR form to one of two Central desks for review and approval. If Hershey accounts are being charged, the PYTR will route to the Hershey Central Desk (&HYT); otherwise, it will route to the primary Central Desk (&PYT). Credits to federal funds do not require central approval. Changes to any distributions on accounts which have reached the closing date (90 days past end date) will not be permitted unless special approval is received from the Administrative Contracting Officer for the Office of Naval Research.

The individuals designated to approve as the Central Desk will approve the form only upon receipt of a letter of explanation or email, appropriately approved by or routed through the principal investigator/budget administrator (or authorized delegate) and Financial Officer( or authorized delegate). The explanation should document why the distribution change that resulted in the charge to federal funds was not made in the month following the pay period, resulting in a labor transfer. See Exhibit "A" for a sample memo to be used in this situation. Exceptions to this requirement are:

After effort confirmation has been completed for an account, payroll transfers for any time period already certified will not be permitted.

SPECIAL NOTE: If any costs are or have been questioned as a result of an audit, review or investigation, none of these costs shall be transferred between any federally funded accounts unless and until expressly approved by a Federal Contracting Officer after a formal Government determination as to the allow ability of those questioned costs.


Financial Officer - At the end of each fiscal year, it is the home budget Financial Officer's responsibility to insure that the 1002 Clearing Account balance is zero. Financial Officers must monitor the account continually, and process PYTR s promptly where they are necessary, to insure that the account is in proper balance.


The Financial Officer is responsible for ensuring that procedures pertaining to the accountability and safeguarding of all cash receipts, cash funds, and other assets are established and followed in accordance with approved University policies and procedures. Regular audits relating to advances, cash, travel, equipment accountability, and other expenditures provide a means to protect University assets. The Financial Officer is responsible for working with Internal Audit when audits are being performed in the administrative area.


Record retention must be managed in accordance with Policy AD35 - University Archives and Records Management , and records schedules approved by the Records Management Advisory Committee, Office of General Counsel, and Office of the President. These retention requirements are the University's retention criteria, either derived or based upon federal, state, and local statute or regulations, industry standards, and business needs. Retention beyond recommended time periods require justifiable reasons and warrant review by the Records Management Officer or designee. All documents must be maintained in such a manner so as to provide ease of access for review, and to provide a suitable audit trail for all transactions.

Upon expiration of a stated period of time, documents must be discarded and/or destroyed, unless permission granted by Records Management Officer or designee to retain the records. Archival records created more than 20 years prior to the current date must be reviewed before destruction. Units should also contact the University Archivist before discarding any document which may be of permanent or historical value to the University. To safeguard the privacy of individuals, documents that contain salary information, personally identifiable information (PII), or student records must also be shredded. See Policy AD53 - Privacy Policy and AD22 - Health Insurance Portability and Accountability Act for additional information regarding privacy and the protection of an individual's personal information. For documents that must be shredded, departments may arrange for Blue Bag service by contacting the Blue/White Shredding Program of the Office of Physical Plant. Exceptions to the practice are as follows:

Additional questions may be directed to the University Archivist or the Records Management Officer.



For questions, additional details, or to request changes to this procedure, please contact the Associate Controller.


Policy Status:

Date Approved: 3/24/16

Most recent changes:

Revision History (and effective dates:)