Author: Gabor Kitley
Yesterday saw a quite shocking, out-of-the-blue development published on the redesigned Funding & Tenders portal: the all-new unit cost for personnel cost reporting. Apparently, this new reporting scheme would be available from 1st of May 2024 on, for any beneficiaries involved into any Horizon Europe project that hasn’t started yet (i.e. future proposals, projects still in GA preparation).
For those of you who are familiar with the cost reporting rules, you must feel perplexed, as there has been already a personnel cost reporting scheme called unit-based personnel cost. This is not connected to that one at all, it’s a brand-new procedure to presumably simplify the reporting duties and reduce the error rate. To add a sarcastic comment here - not bothering with changing hours to days, years to reporting periods from H2020 to HE would have kept the error rate low…
On the other hand, until the day before yesterday, there were already 3+1 main schemes to calculate and report the personnel cost to the project (in order of importance):
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Default: Actual personnel cost calculation, when you identify one-by-one and calculate the eligible salary cost of those employees who have worked on the project.
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Optional 1: Unit-based personnel cost calculation, when the Beneficiary could come up with (bullet-proof) average hourly rate(s) for its employees working under similar conditions, i.e. for more or less the same salary level. One beneficiary could have had any number of unit-based hourly rates, but typically not more than 5-6 (one for juniors, one for PhD students, one for senior researchers, etc.). This calculation was always checked very detailedly by EC auditors/officers to make sure that it is based on actual cost only, and no major deviations within the actual costs and the units.
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Optional 2: Unit-cost personnel for SME-owners and Natural persons – unlike the above one, this unit rate was set by the EC, and as obvious from the title, could (have) be(en) used by SMEs or Natural Person Beneficiaries exclusively.
Finally, there is the Lump Sum grant personnel cost reporting, in which you report no (personnel) cost, since the grant is paid based on work done, not on actual cost incurred.
So, in case you were still missing one more option here, your day has come! In a nutshell, this new unit cost for personnel method is as simple (?) as taking the historical data (probably the last closed fiscal/financial year, yet unknown) of your total accounted staff cost and divide it by the total full-time equivalent headcount. Period.
Isn’t this amazing?
The problem, as always, is hidden in the details.
First, and least importantly, there is a ceiling for this number, that is 9.816 Euro multiplied with your country coefficient (as set in MSCA programmes). Nevertheless, unless extremities, it is hard to imagine an organisation where the overall average of all staff members’ salary exceeds that.
Secondly, it is against everything the EC has communicated so far, or what the EC financial audits have been focusing on. When using the already existing unit-based personnel cost method, you had to prove – for a reason – that the average hourly rate is based on actual, eligible salary components only for those employees who are employed under similar conditions. I, myself, did many of these calculations from scratch for our clients, and have tried – mostly with success – to defend it during an EC audit afterwards. It was complex, but fair, and most importantly, it made sense.
Thirdly, we know nothing so far, since other than the decision, no other documents are available so far. Nevertheless, there are interesting sentences in this official document – for example, if during the audit it turns out that your unit cost for personnel is higher than the actual, they can withdraw your right to use it (what???), or that the unit cost cannot be adjusted, only every 2 years (why?? If it’s that simple as the total staff cost accounted divided by the FTE headcount, it takes 30 seconds to do it every year).
Last, but most importantly: since FP5 when we first got audited by the Commission, the main focus of any of these checks on personnel cost was to remove any and all non-eligible salary components: like project-triggered extra payments, success fee bonuses, commercial target bonuses, in-kind/fringe benefits based on arbitrary decision(s). It was complex and often very demanding to prove this, but logical. Now suddenly, will they accept all these? Since apparently setting the unit cost for personnel would be based on the total accounted staff cost without distinguishing whether it was a basic salary or a project bonus, it is impossible anyway. Very strange, to say the least.
Not mentioning, that your unit cost set like that could (or rather, we should say, it is going to be) differs significantly from your actual cost. I can guarantee that. Many will use this to charge more cost than they would have had with the actual cost method. So far it was called fraud. Now, it is called the simplified unit cost for personnel method.
“Yeah, we happy.”
Want to know more? Join me in Brussels, at the Master of Finance and EC Audits, on 15-17 May, and we will deep dive into all the issues stemming from both the old and newly introduced cost calculation methods, and more! Available seats are running out, so sign up here.
