Horizon Europe has made significant changes in the calculation of personnel costs compared to Horizon 2020. The reason behind this was to simplify reporting requirements and reduce administrative burdens. However, one may question whether these modifications truly resulted in an improvement. A long-awaited new release of the Annotated Grant Agreement (AGA) has made things even more complicated, rather than making them simpler as expected. Our expert Alicja Grzegorzek Carrascosa has already shared some thoughts on this matter.
However, let’s try to shed some light on the 3 key novelties in Horizon Europe:
- Personnel cost calculation is now based on a daily rate that replaced the hourly rate and the hour as a unit.
- The calculation is done per reporting period or alternatively per calendar year*, not per financial year as it was in the previous programme.
- When calculating max declarable day-equivalents (max days to be declared), two capping rules must be applied at the same time: a Horizontal ceiling of 215 day-equivalents per calendar year and a reporting period ceiling of a maximum number of days the person can work in each reporting period.
*This new option has been briefly introduced in the latest version of the EC guidelines – Annotated Grant Agreement published in April 2023.
How to calculate a daily rate
Companies have 2 options to calculate daily rates in HE.
OPTION 1: To calculate eligible cost per person, the first step is to calculate the Daily Rate of an employee for the reporting period and then multiply by Day-equivalents worked in the project in the same period.
This can be achieved by taking the salary for the person during the months that fall within the reporting period and dividing it by the maximum declarable day equivalents for that same period.
Once the Daily Rate is calculated, it can be multiplied by the number of day-equivalents worked by the person in the project during that specific period. For more information, check our article on the blog: How to calculate personnel costs in Horizon Europe.
OPTION 2: Alternatively, the calculation may be done separately for each calendar year within the reporting period. In that case, you need to adjust formulas and instead of the ‘number of months within the reporting period’ you will need the ‘number of months of the respective calendar year that are within the reporting period’.
This means that when you have reporting period that spans 18 months, let’s say from October 2022 to March 2024, you will need to calculate three separate daily rates for each year that falls within the reporting period.
Now, before assuming that both options give the same numbers or the second one is better and gives higher costs – let me clarify that you are mistaken 😉 The results will either be similar or, in most cases, less favourable — almost never identical!
It’s important to note that only one option can be selected to report the costs of employees. Furthermore, the option based on the calendar year was not adequately explained or supported with any examples, so there is always a risk of making a mistake.
Anyway, let’s assume you have chosen the simpler option, number 1. Now you probably wondering how to determine the maximum declarable day-equivalents for the given period.
Hold on tight because this is where things get a bit tricky.
The number of max declarable day-equivalents in HE is fixed at 215 days per calendar year or consecutively for a period of 12 months.
While it may appear to be a simple process at first glance, real challenges arise when dealing with certain scenarios. These include cases where the person is employed part-time, the working time factor changes multiple times throughout the year, the person joins the project during an ongoing month, departs before the reporting period concludes, takes parental leave for several months, or allocates time to multiple EU-public-funded projects. Each of these situations requires adjusting the maximum declarable day-equivalents using specific and sometimes complex formulas. This makes the calculations a bit more complicated and trickier to figure out.
And what happens if the hourly rate is already specified in the employment contract? Should we still calculate the daily rate according to the EC formulas?
According to the rule, we should use the hourly rate stated in the contract and multiply it by the actual number of working hours. Then, to obtain the daily rate, we divide the result by 8. It may seem not complicated, but we have discovered some limitations in this methodology. Get in touch with us to verify and discuss further: firstname.lastname@example.org.
When it comes to freelancers (such as those operating as one-person companies) and company owners without employment contracts, the situation appears to be more straightforward.
For freelancers, the best option is to establish a fixed daily rate in the contract or determine a monthly rate with a specified number of working days per month. This approach allows for the avoidance of complex calculations and for determining maximum declarable days.
In case of company owners who do not have an employment contract, the European Commission (EC) has already established a daily rate that varies based on the country. However, there are still some exemptions, for example, indirect shareholders are excluded.
Lastly, it is worth noting that in most countries, companies typically track hours rather than days. Therefore, you probably may wonder how to calculate the daily rate if you are recording hours instead of days.
We’ve got the answer to that, but we’ll cover it in another article.