Overhead Charges on External Grants and Sponsored Research Agreements



Research conducted on campus is comprised of direct and indirect costs, both of which play an important role in the research life cycle. The direct costs, which are usually the responsibility of the researcher, include aspects such as trainee salaries, research supplies, and travel expenses. Overhead (also referred to as indirect costs) are incurred by the University to sustain the necessary research infrastructure. These indirect costs cover a wide range of items, including, but not limited to, heating, lighting, space maintenance, HR, IT and research administration. 

While the direct costs of the research are covered through applications for external funding, the overhead rate must be recovered by the University. Generally, these charges are specified through program guidelines, but may also need to be negotiated with the partner for sponsored research agreements or contracts. The minimum rate for overhead at the University of Toronto is 40% of the total direct costs. Exceptions occur only when sponsors have their own published overhead rate, in which case the University will defer to the sponsor's maximum allowed rate. Other programs, such as Tri-Council grants (except for NSERC Alliance) do not require overhead. 



Faculty are advised to notify the Office of the Vice-Principal Research and Innovation (OVPRI) early in the process of establishing a research agreement to confirm the required overhead rate. OVPRI staff can assist in clarifying any uncertainties about overhead charges or rates. Overhead waivers will not be granted because a sponsor does not want to pay for indirect costs or because additional funds are needed for the direct cost. 


Overhead Calculation:

  1. Total the direct costs of the project and multiply by the overhead rate percentage applicable for the sponsor.  For example, if a sponsor is contribution $20,000 to the direct funds, an additional $8000 will be required for overhead.  $20,000 x 40% = $8,000
  2. If the program has a cap on available funding, with an embedded overhead rate, the overhead should be calculated by the maximum total amount (direct + indirect costs), divided by the maximum allowable overhead rate. For example, with a total allowable funding amount of $20,000 and an allowable overhead rate of 40%, the available funding that can be applied to direct costs would be $20,000/1.4 = $14,286 with the difference of $5,714 allocated to overhead.

For more information on the overhead guidelines or how to apply overhead rates, please contact the OVPRI staff.