Grant Budgets
Direct vs Indirect Costs in Grant Budgets, With Examples
Grant Writing Service Editorial Team
June 12, 2026 · 5 min read
Table of contents
Key takeaways
- A cost is direct when it can be identified with one specific award with a high degree of accuracy; otherwise it belongs in the indirect pool.
- The same kind of cost must be treated the same way on every award, and never charged as both direct and indirect.
- The 2024 Uniform Guidance explicitly allows some traditionally indirect costs, such as cybersecurity and program evaluation, to be charged directly when they relate to a specific award.
Direct costs are costs you can identify with one specific grant, or assign to it easily and accurately, such as the salary of a project coordinator or the supplies used in a workshop series. Indirect costs are costs incurred for shared purposes that benefit several projects or the whole organization, such as the finance office, the executive director and shared rent, so they are pooled and recovered through an indirect cost rate instead of being itemized. Federal rules put it in one sentence: the association of a cost with a federal award determines whether it is direct or indirect (2 CFR 200.413(b)).
Side-by-side examples
The same type of expense can land on either side depending on whom it serves. These are the usual placements for a nonprofit or research organization.
| Area | Typically direct | Typically indirect |
|---|---|---|
| People | Program coordinator, case managers, research assistants, the share of the principal investigator's salary spent on the project | Executive director, finance, human resources, development staff |
| Benefits | Fringe on project salaries | Fringe on administrative salaries |
| Space | A field office or lab used only for the project | Headquarters rent, utilities, building maintenance |
| Technology | Software licenses bought for project staff, a data system built for the project | Organization-wide network, email, help desk |
| Supplies | Curriculum materials, lab reagents, participant kits | General office supplies, copier paper |
| Services | External evaluator, subaward to a partner, specialized testing | Annual financial audit, legal counsel, general liability insurance |
| Travel | Site visits, data collection trips, a required grantee meeting | Board travel, staff travel for general fundraising |
Most of the right-hand column is listed in 2 CFR 200.414(b) as typical nonprofit indirect cost: depreciation, facility operation and maintenance, and general administration such as executive salaries, personnel administration and accounting.
For-profit recipients, including many SBIR and STTR awardees, usually use the Federal Acquisition Regulation cost principles in Part 31 rather than 2 CFR 200, and tend to talk about overhead and general and administrative expense rather than an indirect cost rate. The direct versus indirect logic is the same.
What the 2024 revision moved toward direct
The Uniform Guidance revised effective October 1, 2024 spells out that costs normally treated as indirect may be charged directly when they relate to a specific award. Section 200.413(b) now lists examples:
- extraordinary utility consumption
- materials supplied from stock and services from specialized facilities
- cybersecurity
- integrated data systems and asset management systems
- performance management costs
- program evaluation costs
This does not make cybersecurity or evaluation automatically direct. It means that when, for example, a project needs a dedicated evaluation or a data system built for that award, you can budget it as a direct line, provided you treat the same cost the same way everywhere else.
Administrative and clerical salaries
These are the most common gray area. Section 200.413(c) says administrative and clerical salaries should normally be indirect, and may be charged directly only when all three conditions are met:
- the services are integral to the award
- the individuals can be specifically identified with the award
- the costs are not also recovered as indirect costs
A data entry clerk hired to process intake forms for one program passes. A shared receptionist who also answers calls for that program does not. When you charge an administrative person directly, name the role and the effort in the budget line items and explain why the work is integral in the narrative.
Settling the gray areas
| Cost | Default | Can be direct when |
|---|---|---|
| Rent | Indirect | Space is used solely for the project and the cost is charged the same way on all awards |
| Phones, internet | Indirect | A line or device is dedicated to project staff or participants |
| Information technology staff | Indirect | Specific, documented work builds or runs a system for one award |
| Office supplies | Indirect | Items are bought for and consumed by the project, and itemized |
| Small recurring project costs | Direct | A minor amount may be treated as indirect for practicality, if treated the same way for all purposes (200.413(d)) |
The deciding question is never "which treatment helps this budget." It is "how do we treat this cost everywhere." Section 200.413(a) requires costs incurred for the same purpose in like circumstances to be treated consistently, and 200.403(d) repeats the point: a cost cannot be charged directly to one award if the same kind of cost is allocated as indirect elsewhere. An organization that charges phone lines directly on a grant with a low indirect cap and through the pool on a grant with full recovery is creating an audit finding.
The fix is a written cost allocation policy that lists which costs you charge directly and which you pool, adopted once and applied to every award. It also gives you a clean answer when a reviewer asks why a line is direct.
Why the split changes how much you recover
Direct costs are itemized, justified line by line, and paid as budgeted. Indirect costs are recovered as a percentage of a base, and that percentage may be capped. Federal programs generally pay your negotiated rate or your elected de minimis rate of up to 15 percent of modified total direct costs. Foundations set their own policies, and some pay little or no indirect.
That gap is exactly why consistency matters. Where a funder limits indirect costs, you may legitimately budget a cost directly only if it truly is direct under your policy, not because the indirect line is small. Moving pool costs into direct lines to get around a cap is double charging if your rate already includes them.
When you have placed every cost, list the direct ones in the budget table, explain each in the written budget justification, and apply your rate to the correct base. Our step-by-step guide to grant budgets shows how the pieces fit, the Uniform Guidance overview covers the cost principles behind these rules, and our explainer on the federal single audit shows how auditors test them after award.
