Overhead, also called ‘indirect research costs’ or ‘facilities and administrative costs’, provides cost recovery for the indirect costs of sponsored research activities at the University. This includes the use of space and services, utilities, library, central computing, insurance, common equipment, health and safety, security, custodial, financial, and administrative services, among other things. Also refer to Policy 26 - Provision for University Overhead in Sponsored Research Activities (grants, contracts, and other research support).

Direct research costs include expenses that are specific to a particular project or activity and are allowed by the sponsor. It is important to carefully review the program guidelines of the sponsor organization, but direct costs typically include salaries and benefits, materials and supplies, equipment and maintenance, project-related travel and publication costs.

Some other terms that may be found in certain program guidelines:

Total direct costs – the sum of all direct research costs

Modified total direct costs – the total direct costs minus items that are ineligible/excluded from overhead calculations.

Overhead rates

The University of Waterloo requires that all project budgets include both direct and overhead (indirect) costs whenever allowed by a sponsor. The overhead rate to use in a research budget is the maximum rate allowed. If a maximum rate is not specified, the standard University of Waterloo overhead rate is 30%.

The table below shows some common overhead rates for on-campus activities, including the cost categories for which the rate is applied. For off-campus rates, contact a Research Manager for the program. Examples of overhead calculations are shown following the table.


On campus rate

Cost category

Standard rate (including industry)


Total direct costs

Non-profit sponsors

30% or sponsor's limit


Tri-Agency (NSERC, SSHRC, CIHR) including Networks of Centres of Excellence (NCE)



New Frontiers in Research Fund (NFRF)


Total direct costs




Public Works & Government Services Canada contracts**


Staff salaries & benefits

30% (with approval)

PDF, student GRS/GRA or salary



Ontario Research Fund - Research Excellence (ORF-RE) and Early Researcher Award


Total direct costs

Ontario Centres of Excellence (OCE)

Program specific - contact Jennifer Ranford

Total direct costs

National Institutes of Health (NIH)


Total direct costs less equipment

US Government contracts

(rate for May 1/2021 - April 30/2024)


Salaries & benefits only

* Overhead is not allowed on funds received from the Tri-Agency (NSERC, CIHR, SSHRC) or NCE. Instead, the federal government provides indirect cost support to Canadian post-secondary institutions through an annual grant called the Research Support Fund.

** Overhead rates apply only to the direct cost categories listed, there is no overhead on other budget categories. Allowable overhead costs are set out in the PWGSC Supply Manual Chapter 10.40 (Research and Development Contracts with Universities and Colleges). The practice at UW of reducing the overhead rate from 65% to 30% on PDF and student salaries is subject to approval by the Chair and Dean.

Overhead calculations

  1. Standard approach for calculating overhead
    1. Overhead is typically calculated as a percentage of the eligible direct costs. For example, if the direct research costs for a project are $50,000 and the overhead rate is 30%:

      Overhead amount would be calculated as $50,000 X 0.3 = $15,000

      The total project amount (direct and overhead costs) provided from the sponsor would then be $50,000 + $15,000 = $65,000
    2. Using the above example, overhead can also be calculated using the total project amount. Given the total project amount of $65,000 and an overhead rate of 30%:

      Overhead amount would be calculated as ($65,000 X 0.3)/1.3 = $15,000

      The direct research costs would then be calculated as $65,000 - $15,000 = $50,000
  2. On occasion, a sponsor will require overhead to be calculated as a percentage of the total project costs. In this case, please contact a Research Manager associated with the program for guidance.

Overhead distribution

The University of Waterloo distributes overhead amounts to the Faculties, affiliated and federated Institutions, and university-level research institutes and centres.

How to request a reduction in the maximum overhead rate

The project PI should discuss with their Department Chair in advance of proposal submission, followed by approval by the Dean, in accordance with Faculty policies. Note that overhead waivers are not commonly given as these funds are essential to University operations.

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