Direct vs. Indirect Costs

Why is classifying costs as direct or indirect important?

By classifying costs as either “direct” or “indirect”, it governs how they are allocated (2 CFR 200.412). For additional information, see Section 10a. Defining Direct and Indirect Costs of the Multifamily Housing Program Financial Management Toolkit.

Some examples of direct and indirect costs are as follows:

Looking for definitions of the common CoC and ESG Program terms referenced throughout the Virtual Binders?

Virtual Binders Glossary

Direct Costs

Direct costs are those that can be specifically identified with a particular award or activity relatively easily with a high degree of accuracy. Examples of direct costs are the salary and benefits paid to a case manager, a rental assistance check paid directly to a landlord and mileage reimbursement for staff making home visits.

Indirect Costs

Indirect costs are those that have been incurred for “shared” or “joint” objectives and cannot be readily identified with any particular activity. Examples of indirect costs are rent, utilities, maintenance and other expenditures related to a shared space; and administrative and executive team functions that support multiple program areas.

For more information about indirect costs, please refer to the CoC and ESG Indirect Cost Toolkit. The CoC and ESG Indirect Cost Toolkit was developed to assist recipients and subrecipients under the CoC and ESG programs to better understand indirect costs—such as facility or administrative costs—and how they can be calculated and charged under these programs. Recipients can use this toolkit to make an informed decision concerning the best method for computing and seeking reimbursement for indirect costs for their ESG and CoC funded programs.

How do you bill HUD for indirect costs?

To bill HUD for indirect costs, the grantee must first have a method for how they determine and allocate (e.g., receive reimbursement) for their indirect costs. The grantee’s indirect cost rate must reflect the Federal Negotiated Indirect Cost Rate or the de minimis rate.

Once determined, there are no HUD requirements for how indirect costs should be invoiced; however, it is best practice to bill the indirect costs under each approved activity type (e.g., Emergency Shelter Essential Services, Rapid Re-Housing (RRH) Housing Relocation and Stabilization Services, etc.). Indirect costs should be included each time the recipient or subrecipient bills for direct costs. Please see the CoC and ESG Indirect Cost Toolkit for more information.