The Office of Federal Procurement Policy (OFPP) updated the contractor compensation cap (often referred to as the executive compensation cap or compensation limit) to $646,000 for 2024, representing a $27,000 increase from the 2023 cap of $619,000. While the limitation on compensation determines maximum compensation, contractors must always be prepared to demonstrate that compensation is reasonable to support the allowability of all forms of compensation, including amounts below these thresholds.
The cap is escalated annually based on the Bureau of Labor Statistics’ percentage increase in the Employment Cost Index for civilian workers. The cap limits the allowable compensation government contractors can claim under FAR 31.205-6(p)—Limitation on compensation.
The cap applies to all contractor personnel compensation consisting of wages, salary, bonuses, deferred compensation, and employer contributions to defined contribution pension plans.1 Whether the wages are charged directly to contracts or included in indirect cost allocations, contractors must be diligent in identifying and excluding expressly unallowable compensation over this cap to avoid the risk of penalties under FAR 42.709—Penalties for Unallowable Costs.
Since this limitation affects highly compensated employees, many contractors believe that risks for unallowable compensation are limited to their general and administrative expenses, but any individual contractor employee exceeding this cap may require unallowable cost adjustments relative to where that employee labor resides, including home office cost pools.
Below are historical compensation caps for the past five years2:
For Costs Incurred | Escalation | Cap Amount |
|---|---|---|
| 1/1/24 - 12/31/24 | 4.3% | $ 646,000 |
| 1/1/23 - 12/31/23 | 5.0% | $ 619,000 |
| 1/1/22 - 12/31/22 | 3.7% | $ 589,000 |
| 1/1/21 - 12/31/21 | 2.4% | $ 568,000 |
| 1/1/20 - 12/31/20 | 2.8% | $ 555,000 |
The government contract consulting team at FORVIS has the knowledge and experience to assist contractors with supporting and evaluating the allowability and allocation of employee compensation costs. Contact us today to learn more.
- 1 The law provides that the head of an executive agency may wave the cap for one or more narrowly targeted exceptions for scientists, engineers, or other specialists upon a determination that an exception is needed to ensure that the agency has continued access to needed skills and capabilities. Any exceptions must be reported to Congress annually by the director of U.S. Office of Management and Budget.
- 2 This limitation applies only to compensation costs incurred during the referenced cost accounting period on contracts awarded on or after June 24, 2014. We do have some clients with contracts awarded before June 24, 2014—for those contracts, the cap on 2024 compensation cost would remain $1,144,888 and may only be applicable to the top five senior executives.