In this article, we will talk about Horizon Europe personnel costs, going into thorough calculation details and tips, as well as common errors that the companies can avoid. This article primarily focuses on personnel costs for successful projects that have already received the EU grant and are in the implementation phase. However, if you are still in the application stage and need guidance on estimating personnel expenses for your Horizon Europe proposal budget, you can also find helpful information here.
What are the personnel costs and their importance in Horizon Europe
First of all, we need to understand which expenses can be included in the personnel costs budget. For the Horizon Europe programme, the following four budget categories are eligible to be defined as personnel costs:
- Employees’ costs (including salaries/wages, bonuses, social security contributions – both for employer and employee, taxes, benefits, and any other expenses that may arise from national laws or the employment contract). This category refers to any cash compensation given to staff members (i.e., professionals hired by the company), and there is a respective payslip or similar proof.
- Seconded persons/staff – these arrangements involve an employee being temporarily assigned to another part of the company, a different employer within the same group, or, in some cases, a different employer altogether (such as a client or business partner). For example, companies might second staff to their customers or clients on a secondment basis for a period of time (typically between three and twelve months) to work within the client’s organization.
- Natural person under direct contract – this category covers the costs for in-house consultants and similar persons who worked on the project. It is essential to point out that this budget category is not for companies (such costs can be declared as subcontracting costs), but for self-employed natural persons (freelancers) working part-time or full-time on the respective project under a contract not governed by labour law.
- SME (Small and Medium-sized Enterprises) owners and natural person beneficiaries who are not receiving a salary under the Horizon Europe Framework Programme. Please be careful here, as dividends, consultancy contracts, service contracts, etc., are not accepted for calculating the costs of SME owners!
As we have mentioned in other articles, personnel costs is the category with the highest budget share in the majority of EU funded projects (they can constitute even more than 50-60% of the overall budget, especially in these IT projects where the significant development is about software elements – platforms, artificial intelligence, machine learning, data analytics, mobile applications – and thus, numerous expert professionals are required).
Main changes in Horizon Europe personnel costs calculation to Horizon Europe
In an effort to simplify and harmonise the overall approach of how companies calculate Horizon Europe personnel costs, the European Commission has conducted two significant changes compared to Horizon Europe:
- The first is that calculations will be implemented for the calendar year; thus, the ‘’last closed financial year’’ rule no longer applies.
- The second one is that hourly rates will no longer apply, replaced by a ‘single corporate daily rate’ approach. This means that if a company has personnel working on both Horizon Europe and Horizon Europe projects, the personnel costs calculation needs to be handled differently.
Personnel costs (PCs) calculation
As mentioned above, in the new Horizon Europe, personnel costs are calculated on the daily rate scenario. As such, the basic formula to calculate PCs in your project is the following:
Personnel costs = Daily Rate x Days worked in the project
The daily rate needs to be calculated per calendar year (thus, from January to December, both included), following the formula below:
Note 1: 215 is the official number of working days per calendar year, according to the EU (equivalent to 1,720 hours – 215 x 8 hours/day).
Note 2: A company cannot declare a) budgeted time; b) estimated time (guessing of PC needs), and c) time allocation (e.g., X% of the time of the respective person).
To calculate the days a person worked, you could either (i) use reliable time records (e.g., time-sheets) on paper or in a computer-based time recording system; or (ii) sign a monthly declaration on days spent for the action (the relevant template is still under development).
In case you need to report a full year (or month), the calculation is similar:
Be careful: the total amount of personnel costs declared (for reimbursement as actual costs) in EU grants for a person for a year CANNOT be higher than the total personnel costs recorded in the beneficiary’s accounts (for that person for that year).
It is also very common for companies to increase their employees’ salaries solely for a specific EU-funded project. However, if this takes places only for EU grants, these additional costs are not eligible, unless the company is under the Project-based remuneration. You can find more details about this policy in the following official Horizon Europe Model Grant Agreement (MGA).
Avoiding errors in declaring Horizon Europe personnel costs
Companies are often committing errors when they declare Horizon Europe personnel costs (and not only), mainly due to misunderstandings or a lack of attention to the rules and details of the grant agreement provisions, or sometimes unintentionally. Consequences can be pretty substantial, resulting from non-optimal use of funding resources, to financial recoveries and severe corrective measures by the European Commission.
These exact errors we aim to avoid in the current article, analysing in detail the norms and approaches the new Horizon Europe programme uses for personnel cost calculation. Nevertheless, we will share with you some additional insight that may be useful to avoid such errors:
- A general control objective must be to bring the residual error rate (the ratio of incorrectly declared costs that are not detected as such to the total number of declared costs) as close as possible to an acceptable level, namely 2%. Auditing services to assess the Legality and Regularity of Horizon Europe project payments will always be helpful.
- As the main detected errors are due to incorrect time working on the project, incorrect remuneration costs, and unreliable/missing timesheets, you need to make sure that your time recording is:
– Consistent with HR records;
– Properly dated and signed;
– Not in excess of your full-time employment;
– Sufficient in terms of information.
- Double-check your formulas. Be careful not to include ineligible items (more information about eligible/ineligible costs in this link) and expenses included in other budget categories (e.g., indirect costs) in your numerator, and ensure that the correct number of working days is in the denominator.
- Finally, make sure that (i) your time charged to the project is correct; (ii) time records meet the Grant Agreement’s (GA) conditions; (iii) personnel cost formula and transaction listing reconcile; (iv) employment Contracts are in place; and (v) you used the exchange rate stipulated by the Horizon Europe GA.
