Financial Management of Horizon Europe and Horizon Europe: Mastering Personnel Costs
Calculating eligible personnel costs is among the most complex aspects in the financial management of Horizon Europe and Horizon 2020 projects. Errors can have undesired consequences in the form of cost rejection, grant reduction or even administrative sanctions. Beneficiaries therefore need to master the distinction between different types of eligible personnel costs. The various options for calculating personnel costs offer beneficiaries room for strategic decisions. On the other hand, they are quite error-prone. All staff hours related to the action or work package need to be recorded correctly and in an auditable way. There are also country-specific regulations to consider.
1. Personnel costs in Horizon Europe or H2020: choosing the right calculation method
As universities, research institutes and SMEs participating in Horizon Europe and Horizon 2020 actions will probably agree, getting the financial management of personnel costs right can be a challenge. The eligibility criteria are complex and there are various options for calculating staff costs and the costs of specific types of personnel. A common headache is also how to record the time worked on the action in a correct and auditable manner.
⦁ Eligible personnel costs: It is important to note that personnel costs do not always equate employee costs. Eligible staff costs are classified under different cost category from A1 to A5 (under Horizon Europe) or A6 (under H2020). They are covering of course the employees but also the costs of natural persons working under direct contracts, seconded personnel or, in the case of SMEs, the costs of owners without salary. Similarly, the costs of beneficiaries (natural persons) not receiving a salary may be eligible. If an action involves the use of external research infrastructures such as a synchrotron, personnel costs associated with access to this facility may also be covered.
⦁ Calculating personnel costs: There are different approaches to calculating personnel costs between Horizon Europe and Horizon 2020.
⦁ Horizon 2020
As Article 6 on Eligible and Ineligible Costs of the Horizon 2020 Annotated Model Grant Agreement sets out, the basic remuneration of a beneficiary’s employees working on the action is eligible for Horizon 2020 funding. This covers salaries, social security contributions, taxes and other related costs. The exact elements of these costs vary, as there are country-specific regulations with regard to taxes, social security contributions and/or bonuses.
Horizon 2020 offers different options for the productive hours, e.g., on the basis of fixed (1720 hours), individual or standard annual productive hours. Additionally, beneficiaries may use annual or monthly hourly rates to calculate eligible personnel costs. But what is the best option to choose? This is strategic decision and the selection of the option might a negative impact of up to 15% of your personnel costs (+indirect costs)
⦁ Horizon Europe
Source: EU Commission, October 2020
As Article 6.2.A on Personnel Costs of the Horizon Europe Annotated Model Grant Agreement sets out, the calculation of the personnel costs. The 3 main novelties are:
⦁ Personnel costs are calculated through a daily rate,
⦁ The calculation is done per reporting period,
⦁ 3 options to convert the number of hours into days (conversion rate).
Regarding the basic remuneration, nothing changes between H2020 and Horizon Europe: are eligible the salaries, social security contributions, taxes and other related costs. The exact elements of these costs vary, as there are country-specific regulations with regard to taxes, social security contributions and/or bonuses.
The daily rate is calculated by dividing the actual salary of the reporting period with 215 (for a reporting period of 12 months).
The issue is now to convert the number of hours worked into days, and the Annotated Grant Agreement proposes 3 options:
⦁ Option 1) Fixed conversion rate: 8 hours per day
⦁ Option 2) Average Hours in the Contract
⦁ Option 3) The higher between 90% of the standard annual workable hours / 215 and the standard number of annual productive hours / 215
The selection of the relevant option is, here again, a strategic decision that each beneficiary must analyse.
Source: EFMC