Does Simple IRA Limit of $10.5K Exclude The Employer Contribution?

In 2007 and 2008, an employee who participates in a Simple IRA plan may contribute up to a maximum of $10.5K to the plan, and $13K if they are over

1. Are these limits all calculated prior to adding in the employer contribution of 3% dollar-for-dollar? If yes, the employer contribution might push them over the .5K limit. I want to make sure the employee doesn't need to back out the the employer contribution when calculating their own contribution.