The all-new Horizon Europe Annotated Grant Agreement out on Fool’s day – are we fooled? - Part I.

Calculation of the personnel cost for employees, daily-rates

Author: Gábor Kitley

The 1st of April marks Fool’s Day in several countries, but from this year on, it also indicates the long-expected publication of the updated Horizon Europe Annotated Grant Agreement (AGA). Someone sarcastic like me would ask: Coincidence? 

Many of us (me, for sure) had high hopes and even higher expectations on this, as the now previous version had many issues and even conflicts with the legal text of the Grant Agreement (GA) – you know, the one it was supposed to explain. In addition to this, it was only a pre-draft, dated almost a year and a half ago. 

And now, the million-euro question: will the new, extended – but still draft (!) – version solve any of those issues that are well-known and probably first-hand experienced by all those of us who are having Horizon Europe projects to run? Spoiler alert: not really...

While doing the financial management of our new Horizon Europe projects, and also giving lots of courses on finances, both our participants and I have been perplexed by the same 3 topics for which either confusing and inconsistent descriptions, or no detailed explanation at all were found in the pre-draft. These “minor” topics are: 

  1. Calculation of the personnel cost for employees, daily-rates. 

  1. Time-keeping requirements, and how many hours make a day? 

  1. Internally invoiced goods and services. 

(yes, these are far from minor… they are rather the most important cost categories  – so let’s do them one-by-one) 

Part I - Personnel cost calculation 

I’m confident that many of you noticed the biggest inconsistency between the GA and the AGA: while the first one in the relevant article stated that the daily-rate for any employee shall be calculated by fiscal/financial years, the latter one explicitly mentioned that it must be calculated once for each reporting period (i.e., for every 12/18 or 24 months, as set in the GA). In addition to this, the “GA-version” could not even be used, as it didn’t specify anything on what to do in case of a fraction-year (e.g. the reporting period ends during the year, not in December). Needless to say, that these calculations would also result in different claimable amounts. 

So, has the new version solved this? Yes and no, as expected.  

First, a fun fact: the GA text is unchanged, so the text to what the AGA is giving the annotations to is still stating fiscal year based hourly rate.  

Then, the guide still says: one calculation per reporting period, so exactly the same as it was so far. To be exact, it says: 

“You must do these calculations normally once per reporting period (RP)6 for each person who worked in the action.“    

Please read it through once again, as it says: “…normally once per RP…”. For God’s sake, what is “normally”? Then, you may notice a footnote reference number here, which is new to this version of the AGA: 

Alternatively, the calculation may be done separately for each calendar year within the reporting period, if this is consistently applied. In that case, the ‘number of months within the reporting period’ referred to in the formulas is to be understood as the number of months of the respective calendar year that are within the reporting period.   

“Alternatively…”. What??? Instead of saying this, they could have said option 1: reporting-period-based calculation, and option 2: calendar-year-based calculation. But let’s say, we can live with this phrasing. 

Next thing you notice is that it looks similar to what we all had/have to do in H2020 when calculating the hourly rates (once per fiscal/financial year, when the year was over), but it is not the same. Firstly, it talks about calendar years. Secondly, it’s not the full year, just those months which belong to the relevant reporting period! 

To translate it to plain-English, it means that when one has a HE project’s reporting period set for M1-M18, while Month 1 is September 2022, then one either calculates: 

  • One daily-rate for the reporting period, by summing up all eligible salary costs in between September 2022 to February 2024 (M1-M18) and divide it by the maximum declarable day equivalent (MDDE) for the same period (the infamous 215 days a year modified to the length of the reporting period (here: 215/12*18));  

or alternatively…. 

  • 3 separate calculations: 

    • One daily-rate for the period September-December 2022 (summing up relevant salaries and dividing by relevant MDDE) 
    • One for 2023 (full year salary by full year MDDE) 
    • Finally, one for January-February 2024, summing up only the first two months salaries and making a daily rate with the respective MDDE 

Now, before you think that the second option is better or would always give higher claimable costs – you are wrong. I usually prove it on courses easily through examples that it is either a similar number, or worse – but never the same!  

It is also not what we used in H2020 – and not just because of using a daily-rate now. Here, we only calculate with the months included in the period of a year, while if the above example was H2020, for 2022 we should have included the full year salary, regardless of the actual start date of the project within the year.  

Don’t misunderstand me – my problem is not the multiple options or whether they result in less or more than each other, or in H2020. My problem is inconsistent and unclear phrasing. Words like “normally” does not sound too precise, and during audits these things like “normally”, “significant” or “usual” create most of the trouble, as they could and would be understood “differently” by EC auditors or by Project Officers. So, from this perspective, things do not look much better. 

To sum up, now at least we know that a beneficiary has 2 options to calculate daily-rates in HE when reporting employees’ actual salary costs: 1) the initial project-period-based calculation, and 2) the new – not so detailed option of doing it by calendar years, with the months included into the RP only. Each has benefits and disadvantages: different amounts and time spent on calculations. But since one must use only one of these – and that must be used consistently – make sure you choose wisely! A lot will depend on that! 

Next week, we will continue with the time-recording and problems on days versus hours!  

Did I mention courses? Join me for our exclusive Master of Finance and EC Audits in Brussels, on 15-17 May, where we dive into the depths of what I just wrote about and more! Check it out here



The all-new Horizon Europe Annotated Grant Agreement out on Fool’s day – are we fooled? - Part I.