Sec. 21.09.01.16. Compensation for Personal Services

A. Compensation for personal services includes, but is not limited to salaries, wages, directors' and executive committee members' fees, bonuses (including stock bonuses), incentive awards, employee stock options, employee insurance, fringe benefits, contributions to pension, annuity and management employee incentive compensation plans, allowances for off-site pay, incentive pay, location allowances, hardship pay, and cost of living differential, paid or accrued, in any form.

B. These costs are allowable to the extent that total compensation of individual employees is reasonable for services rendered. Compensation is reasonable to the extent that the total amount paid or accrued is commensurate with compensation paid under the contractor's established policy and conforms generally to compensation paid by other firms of the same size, in the same industry, or in the same geographic area, for similar services.

C. Determination should be made that compensation to owners of closely held corporations, partners, sole proprietors, or members of the immediate families thereof, is reasonable for the actual personal services rendered, rather than a distribution of profits.

D. Bonuses and incentive compensation are allowable to the extent that the overall compensation is determined to be reasonable and the costs are paid or accrued pursuant to an agreement entered into in good faith between the contractor and the employees before the services were rendered, or pursuant to an established plan followed by the contractor so consistently as to imply, in effect, an agreement to make payment.

E. Deferred Compensation.

(1) Deferred compensation includes all remuneration, in whatever form, for which the employee is not paid until after the lapse of a stated period of years or the occurrence of other events as provided in the plans, except that it does not include normal end of accounting period accruals. It includes contributions to pension, annuity, stock bonus, and profit sharing plans, contributions to disability, withdrawal, insurance, survivorship, and similar benefit plans, and other deferred compensation, whether paid in cash or in stock.

(2) Deferred compensation is allowable to the extent that it is:

(a) Reasonable;

(b) Paid pursuant to an agreement between the contractor and employees before the services are rendered or pursuant to a plan established and consistently applied; and

(c) Deductible for the same fiscal year for federal income tax purposes.

F. Costs of fringe benefits, such as pay for vacations, holidays, sick leave, military leave, employee insurance, and supplement unemployment benefit plans, are allowable to the extent required by law, employer-employee agreement, or an established policy of the contractor.