Calculating eligible personnel costs is among the most complex aspects in the financial management of Horizon 2020 projects. Errors can have undesired consequences in the form of cost rejection, grant reduction or even administrative sanctions. Beneficiaries, therefore, need first to master the distinction between different types of eligible personnel costs. In addition, 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. Under Horizon Europe handling personnel costs will, only in appearance, be simpler, and the complexities of the Horizon 2020 rules will prevail until related projects have been completed.
- Personnel costs in H2020: choosing the right calculation method
As universities, research institutes and SMEs participating in 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. The costs of specific types of personnel are split into 6 categories. A common headache is also how to record the time worked on the action in a correct and auditable manner.
Horizon 2020: Determining eligible personnel costs entails complex rules and error-prone calculations
Source: EU Commission, October 2020
- Eligible personnel costs: It is important to note that personnel costs do not always equate to employee costs (A1). Eligible staff costs under Horizon 2020 grants cover also the costs of natural persons working under direct contracts (A2), seconded personnel (A3) or, in the case of SMEs, the costs of owners without salary (A4). Similarly, the costs of beneficiaries (natural persons) not receiving a salary (A5) may be eligible. If an action involves the use of external research infrastructures such as a synchrotron, personnel costs associated (A6) with access to this facility may also be covered by the Horizon 2020 grant.
The contract between the beneficiary and the (physical) person working on the project will determine the allocation of the personnel costs to the correct cost category, therefore the wording in the contract is of most importance.
- Calculating personnel costs: There are different approaches to calculating personnel costs arising from Horizon 2020 actions. 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. 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 calculating staff costs, e.g., on the basis of fixed, individual or standard annual productive hours. Additionally, beneficiaries may use annual or monthly hourly rates to calculate eligible personnel costs. And there are two calculation methods for the monthly basic remuneration. But what is the best option to choose? This strategic decision depends on the individual circumstances and should be informed by expert Horizon 2020 advice.
- Specific types of personnel and eligible cost: Some actions involve work carried out by graduate or PhD students. The work-oriented time of their personnel costs may be eligible for Horizon 2020 funding. But time spent on training will not be covered by Horizon 2020 grants. The costs of interns may only be claimed if they have the necessary qualifications to contribute to the action and if their remuneration follows national law. Even the costs of teleworkers may be eligible.
- Personnel costs under Horizon 2020: Other eligibility criteria
It is important to remember that Horizon 2020 grants only cover basic remuneration, as set out in Article 6 Eligible and Ineligible Costs of the Horizon 2020 Annotated Model Grant Agreement. So, what elements of pay are covered? Grants usually cover an employee’s normal work in relation to the Horizon 2020 action or work package. This includes salary, social security contributions, taxes, and other costs according to national law/employment contract such as complimentary insurance or country-specific elements of pay. But there are personnel costs that EU grants do not cover, e.g., dividend payments to employees, arbitrary bonuses, bonuses based on commercial targets or fundraising. Bonuses based on overall financial performance may however be eligible.
To avoid errors in the financial management of Horizon 2020 grants, while claiming the eligible maximum, you should seek expert advice. Overstating personnel costs claimed, even in error, could result in cost rejection, grant reduction or even administrative sanctions. On the other hand, understating personnel costs by mistake could mean that you miss out on EU funding. Investing in financial management training to get the cost calculation and processes right will therefore pay dividends in the form of optimal EU funding and peace of mind that you are claiming the correct amounts.
- Reliably Recording personnel time
As set out in Article 18 of the Horizon 2020 Annotated Model Grant Agreement, time records must be kept either in paper or in a computer-based time-recording system (TRS). Paper-based timesheets must include the title and number of the Horizon 2020 action, show the full name, date and signature of the person working on the action and those of the responsible supervisor. The hours captured in the timesheets must match the records of annual leave, sick leave, other periods of leave and work-related travel held by the organization itself.
In a computer-based TRS, the person working on the Horizon 2020 action must be identifiable and be clearly linked to the project. It should also be possible to quantify the Horizon 2020 related tasks. Auditors may also check whether the TRS uses a password-protected electronic signature, a secure process for managing user rights and an auditable log of all electronic transactions. If a person works exclusively on the Horizon 2020 action, there is no need to keep time records. Instead, the beneficiary may sign a declaration, confirming that the person concerned has worked exclusively on the action.
Example of a time-recording sheet for Horizon 2020 actions meeting the minimum requirements
Source: EU Commission.
Nevertheless, in the practice, the minimum information required for eligibility of hours maybe not sufficient for the financial auditors in order to operate additional checks (e.g. confirming there is no double funding). Therefore, a more detailed TRS allowing the reconciliation of the total hours claimed on EU funded actions (and other activities) with the actual hours worked monthly would be recommended.
Mastering personnel costs in Horizon 2020 and Horizon Europe
It can be a challenge to identify eligible personnel costs in Horizon programmes. Recording the time worked on the action and calculating the correct personnel costs is also error-prone. The choice of available calculation methods requires a strategic decision that takes into account the wider context. If you seek financial management consultancy early on or invest time in financial management training you will be able to maximize eligible costs. At the same time, you will be able to avoid costly errors that might lead to cost rejection, grant reduction or administrative sanctions.
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