Guidance

Simplified Cost Options Guidance

Updated 21 March 2022

What are Simplified Cost Options (SCOs) ?

In the England ESF Operational Programme, SCOs are standard methodologies which can be used to calculate specific costs associated with ESF Project delivery.

SCOs are designed to simplify administration and, where used, they must be applied in line with EU Common Provisions Regulations (CPR) and associated EU SCO guidance and ESF regulations.

In the ESF programme, SCOs can currently be used for:

• calculation of indirect costs (for ESF Direct Bid projects only) – known as ‘Flat Rate Indirect Costs’
• calculation of direct staff Costs using a standardised 1720 hourly rate calculation; and or
• calculation of Direct Staff Costs using a fixed percentage methodology

In addition to the SCO’s above the Managing Authority can also use the following SCOs if it is appropriate for ESF projects - standard scales of unit costs and lump sums.

Flat Rate Indirect Costs (ESF Direct Bid Projects Only)

Costs associated with delivery of ESF Projects can fall into two categories: indirect costs and direct costs.

For ESF Direct Bid Projects only, where indirect costs are applicable to the delivery of that project, EU Regulations allow for those indirect costs to be calculated and claimed on a ‘flat rate’ basis.

As explained in the ESF Eligibility Rules and Programme Guidance published on GOV.UK, indirect costs are shared organisational costs, which cannot be directly linked to project activity because it is difficult, or impossible, to quantify a precise amount attributable solely to a single operation/project. Indirect costs may cover (as an example):

• premises costs
• recruitment expenses
• accountancy costs
• cleaning costs
• telephone
• utility charges

Indirect costs are shared organisational costs, which are difficult to calculate in terms of the amount that can be attributed to the project.

Where costs (such as premises, staff, utilities for example) can be easily calculated as direct costs then these may be claimed as direct costs.

The above list is not exhaustive because every organisation is different and it would be impossible to describe all the possibilities in a guidance document.

In accordance with Article 68(b) of the Common Provisions Regulation and Article 14(2) of the ESF Regulation referred to above, where the implementation of an ESF project gives rise to indirect costs, there are two SCO methodologies available for ESF Direct Bid projects to choose from to calculate their ‘Flat Rate Indirect Costs’:

• Option 1: ESF Direct Bid Projects can choose to calculate their Flat Rate Indirect Costs at a rate of 15% of their ESF Direct Staff Costs. Where a project chooses to use this option, they may also claim ESF Other Direct Costs over and above this
• Option 2: ESF Direct Bid Projects can choose to calculate their Flat Rate Indirect Costs at a rate of 40% of their ESF Direct Staff Costs. However, when selecting this option, the ESF Project cannot then claim any additional ESF other direct costs for their project

The choice of which flat rate indirect cost option to use is up to each individual ESF Direct Bid Project. The rate should be chosen at the ESF funding application stage and, unless there are exceptional circumstances agreed by the ESF Managing Authority (MA), the chosen methodology will usually remain the same throughout the life of that project.

Some ESF Direct Bid Projects may not incur indirect costs. Where this is the case, it is acceptable for that project to only claim ESF Direct Staff Costs and/or ESF Other Direct Costs.

Flat rate indirect costs are also not applicable to ESF Co-Financing Projects as there is a different approach to calculating management and administration costs for these projects, as set out in the ESF Eligibility Rules and Programme Guidance published on GOV.UK.

The following worked examples show how each of the two standard Flat Rate Indirect Cost calculations work in practice, to help ESF Direct Bid Projects when considering which option to choose.

Project Example A

Option 1

Using a calculation of 15% of staff costs to calculate indirect costs and then adding all other direct costs. For example:

Total Staff Costs - £256,000

Other Direct Costs - £12,300

The calculation is 15% of £256,000 (£38,400) which is then added to staff costs and other direct costs to produce:

Total project costs £256,000 (staff costs) + £38,400 (indirect costs) + £12,300 (other direct costs) = £306,700

Option 2

Using a calculation of 40% of staff costs only (other direct costs are not included). Total Staff Costs - £256,000

The calculation is 40% of 256,000 = £102,400 (indirect costs) which produces:

Total project costs £256,000 (staff costs) + £102,400 (indirect costs) = £358,400.

The above examples suggest that the 40% option can be the best approach for projects with a high proportion of staff costs. The following examples illustrate a project where the overall other direct costs are higher than would be repaid using the 40% flat rate.

Project Example B

Option 1 (15%)

Total Staff costs - £577,800

Other Direct Costs £446,000

15% of £577,800 = £86,670 (indirect costs).

Total project costs are £577,800 (staff costs) + £86,670 (indirect costs) + £446,000 (other direct costs) = £ 1,110,470

Option 2 (40%)

Total Staff costs - £577,800

40% of 577,800 = £231,120 (indirect costs).

Total project costs are £577,800 (staff costs) + £231,120 (indirect costs) = £808,920.

Project Example C

This example contains more detail of how SCO works:

Option 1: 15% of Direct Staff Costs (15% Flat Rate Indirect Cost (FRIC)) – available to all Structural Funds

Example

Total project costs £128,799

Of which

Total staff costs £100,763

Of which

Salaries (internal) £60,895

Internal staff travel costs £622

Internal staff subsistence £104

Salaries (external) £39,143

External staff travel costs £0

Participant costs £0

Other direct costs £13,009

A – Direct staff costs are £60,895+£39,143 = £100,038

B – Indirect costs = 15% of direct staff costs = £100,038x15% = £15,006

C – Other direct costs are £13,009+£622+£104 = £13,735

Total eligible costs after 15% FRIC applied is A+B+C = £128,779

Option 2: 40% of Direct Staff Costs – (40% Flat Rate Indirect Cost FRIC’)

Example

Total project costs £140,053

Of which;

Total direct staff costs £100,038

Of which

Salaries (internal) £60,895

Salaries (external) £39,143

A Direct costs are £60,895+£39,143 = £100,038

B Indirect costs = 40% of direct staff costs £100,038x40% = £40,015

Total eligible costs after 40% FRIC applied is A+B = £140,053 If using this option, no other costs can be claimed as they are included in the 40% calculation

ESF Direct Staff Costs – Simplified Cost Option Methodologies

This section of the guidance covers the current, acceptable ESF methodologies which can be used to calculate ESF Direct Staff Costs.

Existing ESF Direct Staff Cost Methodology 1 (100% of contracted time on ESF)

For staff working full time or part-time and who spend 100% of their contracted / assigned hours on the ESF operation then costs will be claimed based on annual gross employment costs.

Example

If College A employs Ms Smith on a part time basis (15 hours per week) and she spends 100% of her assigned time (all 15 hours per week) on ESF Project A, then the college claims actual salary costs.

Existing ESF Direct Staff Cost Methodology 2 (1720 calculation)

This methodology applies where staff are working part of their time on an ESF Project but for variable hours each month and where the applicant responded to an ESF open call published on or after 17 March 2016.

This methodology can also apply where:

• the applicant submitted their ESF Technical Assistance (TA) application as part of a joint ESF/ERDF TA operation and the ESF Managing Authority agreed the applicant could adopt the new 1720 hourly date calculation

• the applicant submitted an ESF (stage 2) Community Led Local Development (CLLD) application as part of an ESF and ERDF multi-fund operation or where a mono-fund application was submitted

Under this methodology, staff who are required to work less than 100% of their contracted hours on an ESF operation - but whose hours of work on ESF will vary each month should have their hourly wage rate calculated based on a set annual gross employment costs figure, using the 1720 calculation method described below.

Use of 1720 Hourly Rate – Initial Agreement in Principle

At the Full Appraisal stage for each ESF Full Application, the Managing Authority undertakes a full review of all ESF Direct Staff Costs proposed by an ESF applicant and the methodologies they intend to use in support of those costs – this includes the use of any 1720 Hourly Rate Calculations.

It is a mandatory requirement that each ESF applicant sets out the details of these costs in their Granular Budget document, submitted to the ESF Managing Authority as part of their Full Application.

The Staff Costs Master List tab in the ESF Granular Budget Sample Template on GOV.UK sets out the details required in support of ESF Direct Staff Costs.

An applicant may choose to use their own Granular Budget template, however the same level of detail must be provided, as per the Staff Costs Master List tab, in such cases (if not, the MA may refuse to use their example).

As part of the wider Full Appraisal, the Appraiser will check to ensure the proposed ESF Direct Staff Costs are eligible, have been calculated correctly and are based on the correct calculation methodology. If the Full Application is approved, the ESF Direct Staff Costs – including any associated 1720 Hourly Rate costs – will then be agreed in principle as part of that approval.

For each approved Full Application where 1720 Staff Hourly Rate costs are included, there will also be a standard post-Funding Agreement condition. This condition will confirm that the ESF Direct Staff Costs included in the ESF Project granular budget have been approved in principle as part of the Full Appraisal and this includes any hourly rate or fixed rate information set out in your granular budget. However, the Grant Recipient must ensure that, when their Project Inception Visit is undertaken by ESF Managing Authority, they must confirm whether there have been any changes to any of the staff costs recorded in their granular budget at the application stage.

If there have been any changes to any of the ESF Direct Staff Costs listed in their granular budget, they must provide an updated ‘Staff Costs Master List’ to the Contract Manager in advance of the Project Inception Visit to ensure accurate, timely checks can be undertaken prior to submitting their first financial claim to the ESF Managing Authority. The ESF Contract Manager can provide a standalone ‘Staff Costs Master List’ template for the Grant Recipient to complete in such cases.

Clarification of information to support the 1720 Staff Costs Hourly Rate numerator

The 1720 calculation method is:

hourly staff cost = latest documented annual gross employment costs ÷ 1720

• gather evidence of individual’s latest documented annual gross employment costs. The evidence for this may include letter of appointment, contract of employment, job description, pay scales, payroll system reports or similar HR document

• using the information detailed above, identify the latest documented annual gross employment costs for the individual. This should include basic pay, employer’s national insurance contributions, employers pension contributions, non-consolidated pay awards and other costs directly linked to salary payments in line with the employer’s usual employment policies

• once the latest documented annual gross employment (numerator) amount is identified, divide this amount by 1720 to calculate the hourly rate. Evidence to support the hourly rate calculation should be retained for verification and audit purposes. This hourly rate amount should be used to calculate direct staff costs. Annual salary increases will be taken into consideration at the review point, the date of which should be agreed with the Managing Authority at the Project Inception Visit

• records documenting the member of staff’s time spent working on managing, delivering or administering the project should be used to establish the number of hours to be claimed for the individual. Evidence should be retained for verification and audit purposes

• to calculate the amount to be claimed, multiply the hourly rate by the hours worked. It is important to remember that any annual leave should not be claimed as direct staff costs in these circumstances

• the hourly rate should be set at 2 decimal places (to reflect both Pounds and Pence). This is an audit requirement

When staff are working less than Full Time Equivalent (FTE), the hourly rate should be calculated by either:

• increasing the current annual gross employment costs to a FTE (1.0) on a pro-rata basis and then dividing that salary by 1720 to determine the hourly rate (see Example A calculation below)

OR

• by reducing the 1720 hours on a pro-rata basis (based on percentage of FTE worked) and then dividing the current non-adjusted annual gross employment costs by the `reduced hours’ figure (see Example B calculation below)

There are different ways in which the above calculations can be made. The examples below are illustrative.

Example A

• in this example, an individual’s total hours equate to 40% of a FTE (1.0) post (for example, 0.4)

• the annual gross employment costs for the person working 0.4 of a FTE post are £12,000

In order to convert the 0.4 of FTE annual gross employment costs on a pro-rata basis into the equivalent of a FTE (1.0) then the following calculation can be used:

• FTE annual gross employment costs = (1.0 / 0.4) x £12,0000

• 2.5 x £12,000 = £30,0000 FTE (1.0) annual gross employment costs

• £30,000 divided by 1720 = £17.44 (hourly rate)

Example B –alternative calculation / approach

An alternative approach (to Example A) is to reduce the 1720 hours on a pro-rata basis (i.e. in-line with the proportion of FTE) and then divide the annual gross employment cost of the person working less than 1.0 FTE with the reduced hours to obtain an hourly rate.

So, an alternative approach to calculating the hourly rate derived in Example A could be as follows:

• annual gross employment costs for member of project staff working 0.4 (40%) of FTE (1.0) = £12,000

• 0.4 x 1720 = 688

• £12,000 divided by 688 = £17.44 (hourly rate)

Latest Annual Gross Employment Costs

With effect from Quarter 4 2021 claims, all reviews of ESF 1720 hourly rate calculations should be based on the actual, latest annual gross employment cost figure in place for a given individual at the time the 1720 Staff Hourly Rate review calculation is undertaken by the applicant/Grant Recipient. The calculation should include any relevant on-costs listed below, clearly showing how each of the individual costs factor into the calculation.

Annual gross employment cost does not have to relate to a calendar or financial year (for example, it could be data relating to the period August 2021 to July 2022). What is important is that the gross employment cost covers a full 12-month period. It can be the 12-month period preceding the end of a reporting period (of the operation or the programme), 12 months before the grant agreement or 12 months of the previous calendar year.

In accordance with Article 68a (2)-(4) CPR and the European Commission’s updated SCO guidance 3.2.2, where data for a full 12-month period is not available, it may be derived from the available documented gross employment costs (for example, take the data relating to an employee for whom 4 months of data exists, and extrapolate this to an annual gross employment cost, taking account, where relevant, of issues such as statutory holiday payments).

Whichever approach is used, there must be payroll related evidence which demonstrates how the annual gross employment figure has been determined.

Please note, bonus and commission payments should not be included in this calculation.

Also, for clarity, Gross Employment Costs in the ESF Programme can include the following:

• basic pay

• employer’s national insurance contributions (the Employment Allowance should not be included in the Gross Employment Costs calculation if an employer is in receipt of it. Further details about the Employment Allowance can be found on GOV.UK

• employers pension contributions

• other taxable costs, included in the employees contract of employment, which directly link to salary costs. In cases where the contract of employment does not specifically mention provision of a specific allowance (but makes a general reference to allowances/taxable allowances) but there is evidence that the individual is in receipt of a specific allowance and that allowance is taxed and there is an audit trail to confirm it, then it is an eligible ESF cost

The annual gross employment costs can be based on the real employment costs of the person, or the average of the employment costs of a larger aggregate of employees, for example those of the same grade or some similar measures, which correlate roughly to employment cost level.

1. individuals – this means if 10 people are used in a project, they would each have their own hourly rate i.e. 10 individual hourly rates agreed and claimed.

2. group rates: there is no prescribed way to calculate group rates however all methods of calculation must be agreed by the managing authority and must be based on a reasonable and fair rationale. Calculations should not be deliberately structured in a way that the rate is artificially inflated. For example, an individual on a high salary working a small percentage of their time on the project must not be included in the same calculation as a number of individuals on significantly lower salaries as this would result in an artificially higher rate for the larger proportion of staff. If an applicant/grant recipient wishes to make use of a group calculation they need to demonstrate that a fair approach has been taken. Options include:

• (a) an average hourly rate for groups of staff in similar posts or with similar salaries – this means if a project uses 20 employees and 10 of them earn between £20-30k p.a. and 10 earn £31-40k p.a. then 2 average hourly rates can be calculated for the 2 groups of staff. The average would be calculated by adding up the gross employment costs of the individuals included in the calculation then dividing this by the number of people included. The rates would then be used to claim the cost of all hours worked on the project by all staff included in the calculation regardless of what their actual hourly rate would be. To determine the number of rates to be calculated it is recommended that the salary/pay bands for the groups encompass a variance of no more than £10k, for example £25 to 35k p.a

• (b) a project team on varying salaries – where a project team includes staff employed within a similar salary range (as set out in option (a) or (c) then a single group rate can be agreed for all members of the team. Where a team comprises staff on a broader range of salaries a mixed approach should be used. For example a team clerical officer paid £20k, a team of advisors paid between £35k and £45k and a senior manager paid £60k. For this team a group rate could be used for the advisors and individual rates would be established for the outliers, the clerical officer and senior manager

• (c) an average hourly rate per grade – where an organisation has a grade structure with a defined salary band it would be possible to agree an hourly rate per grade. This could either be an average calculation of all staff within the relevant band with an average calculated, or the hourly rate could be simply calculated using the median point of the salary range, for example if a salary minimum is £20k and the salary maximum is £26k then the figure used to calculate the hourly rate would be £23k, regardless of whether the documented salary scale includes a point at £23k

• (d) an aggregate hourly rate covering a group where individuals cannot be identified in advance of delivery – this can be used for example where the grant recipient may draw upon a number of mentors/researchers etc. in assisting SMEs but do not know at the outset who these individuals might be as this would be informed by the needs of the beneficiary SME, a University for example may draw from a number of academics. In this case an average hourly rate of all the salaries – or groups of salaries if these vary widely could be agreed then used as and when individuals are needed to work on the project, alternatively individual rates can be agreed as and when the individuals concerned are identified

Annual Review of 1720 Staff Hourly Rate Costs

1720 Staff Hourly Rate costs will be reviewed on an annual basis by the ESF Managing Authority, where requested by the Grant Recipient. This revised arrangements will take effect Quarter 4 2021 claims.

As part of the Project Inception Visit, the ESF Managing Authority will agree and set a first ‘Staff Costs Annual Review’ date with the Grant Recipient – this first review should be arranged to coincide with any expected annual wage increases for the Grant Recipient organisation and any associated Delivery Partners - even if this is less than 12 months ahead. The date of the first review will be agreed with the Grant Recipient and will be documented in the final Project Inception Visit report. With effect from Quarter 4 2021 claims, it will be for the Grant Recipient to notify the Contract Manager in advance of the first review that they wish to go ahead with the review; if the Grant Recipient does not instigate the review at the review point, the Managing Authority will not pursue this.

Subsequent review dates will then be set on an annual cycle, allowing the Grant Recipient to revise their 1720 Staff Cost Hourly Rate calculations to take account of any newly increased annual gross employment costs. As part of each Annual Review, any new Staff Cost Hourly Rates will be checked by the ESF Contract Manager and, once agreed, will apply to any ESF Direct Staff Costs incurred from the annual review point onwards. Again, it will be for the Grant Recipient to notify the Contract Manager in advance of the review that they wish to go ahead with the review; if the Grant Recipient does not instigate the review at the review point, the Managing Authority will not pursue this.

The outcome of each Annual Review and the next annual review date will be recorded in a Staff Costs Annual Review Record document by the ESF Contract Manager – this document will then be made available to the Grant Recipient via ECLAIMS.

As Grant Recipients submit their financial claims to the ESF Managing Authority in arrears, it is critical that they ensure the correct 1720 Staff Cost Hourly Rate figures are used in each financial claim – particularly if a single claim includes expenditure incurred both pre- and post a Staff Costs Annual Review point.

For example:

• a Grant Recipient submits a financial claim to the ESF Managing Authority in November, covering expenditure incurred between 1st July and 30th September. However, the Grant Recipient’s annual round of pay increases took effect from 1st August 2019 and the revised 1720 Staff Cost Hourly Rate figures were agreed at the time with the ESF Contract Manager

• the Grant Recipient should ensure that any ESF Direct Staff Costs up to 31st July 2019 are claimed based on the 1720 Staff Cost Hourly Rates in place up to and including this date. Only staff costs incurred since 1st August 2019 should be claimed at the revised, increased 1720 Staff Costs Hourly Rate

• 1720 Staff Hourly Rates should not be updated outside of the Annual Review cycle however, in exceptional circumstances, a Grant Recipient may request an interim review setting out their rationale – for example, an ESF Project vacant post is filled after the Project Inception Visit but before the first, scheduled staff costs review point and the annual gross employment costs for the new recruit are significantly different to the costs confirmed for that post at the Project Inception Visit or re-grading of an individual’s salary which significantly changes the numerator used for the current 1720 Staff Costs Hourly Rate calculation

In all cases, the decision on whether to accept the Grant Recipient request for an interim review will be for the Contract Manager to make.

It is likely that the hourly rate for staff employed under staff cost method 2 will appear to be higher than for staff paid under method 4 arrangements. However, it should be borne in mind that method 2 already factors- in annual leave.

Existing ESF Direct Staff Cost Methodology 3 (manual calculation)

This applies to staff working part of their time on an ESF Project but for variable hours each month and where the applicant applied for their original ESF Funding under Versions 1 and 2 of the ESF National Eligibility Rules.

This includes ESF Projects who responded to open calls published up to 16 March 2016 where they either do not meet the criteria for using the newer 1720 hourly rate methodology or have chosen to not use the methodology.

Under this methodology, if a staff member is working full-time but only working part of their time on ESF the following calculations should be used:

• gather and retain information of individual’s actual employment costs such as letter of appointment, contract of employment, job description, pay scales, payroll system reports or similar HR documents to identify the actual salary costs for the individual. Gross Employment Costs should include basic pay, employer’s national insurance contributions, employers pension contributions, non-consolidated pay awards and other taxable costs directly linked to salary payments in line with the employer’s usual employment policies

• establish how many hours the individual work in a year. This is 52 weeks multiplied by 5 days, less the number of days of annual and public holidays they are entitled to, multiplied by the number of hours they work each day

and

• divide the individual’s annual gross employment costs by the number of hours worked to establish their hourly rate

• multiply the established hourly rate by the number of hours worked on the ESF project by the individual to calculate the amount of direct staff costs and retain evidence to support the calculation

• include the amount calculated in the next claim for ESF

ESF Direct Staff Cost Methodology 4 (fixed percentage)

Article 68a (para 5) of the EU Omnibus Regulations (PE-CONS 13/18) explains that staff costs for those members of staff who work part of their contracted hours on an ESF project may have their staff costs calculated as a fixed percentage of their annual gross employment costs where they work a fixed percentage of time on the project per month.

Under this arrangement the employer has no obligation to establish a separate working time registration system (timesheet). However, the employer is required to issue appropriate documentation setting out the percentage of time that the individual will work each month. The ESF MA adopted this additional methodology with effect from Monday 1st July 2019 but it should be noted that use of the Methodology 4 is not mandatory.

For staff who fall into this category, a flat rate percentage of their actual gross employment costs per month can be claimed. This percentage has to be in line / consistent with the percentage of time spent each month on that ESF Project. In addition to the examples set out below, Annex A and Annex B set out action that needs to be taken at key stages of the project life cycle and key information that needs to be covered in HR documentation.

• ESF Provider C employs Mr X on a full-time basis but he works a fixed 50% of his time each month on the ESF Project. This means that Provider C can claim 50% of Mr X’s monthly gross employment costs as ESF Direct Staff Costs. His payslip shows that his monthly gross employment costs are £3,000

• 50% (fixed percentage of contracted hours/time spent on ESF Project) x £3,000 (total actual monthly gross employment costs) = £1,500 (total ESF Direct Staff Costs that can be claimed per month)

• ESF Provider D employs Ms Y on a part-time basis of 30 hours per week. Of this she works a fixed percentage of 40% of her time on the ESF Project. This means that Provider D can claim 40% of Ms Y’s monthly gross employment costs as ESF Direct Staff Costs. The payslip shows the monthly gross employment costs are £2,000

• 40% (fixed percentage of contracted hours/time spent on ESF Project) x £2,000 (total actual monthly gross employment costs) = £800 (total ESF Direct Staff Costs that can be claimed per month)

Under this methodology, timesheets do not need to be completed or submitted as evidence when making claims under this staff cost method.

However, projects must put in place the following documentation and be able to produce this as supporting documentary evidence against any ESF Direct Staff Costs claimed under this methodology as and when requested by the Managing Authority or other audit body.

A contractual document from the employer to the employee confirming the fixed percentage of time they will work on the ESF Project each month. Grant recipients should provide documents from the list below as requested by the Managing Authority.

• HR letter

• a job description

• a contract of employment or

• another contractual document issued by the employer to the employee

The contractual document must clearly explain the fixed percentage of time the staff member will spend on the ESF project per month (see Annex B).

If a staff member will be working for more than one ESF Project a single contractual document can be used to set out the fixed percentage of time the individual will spend on each ESF Project per month, ensuring the combined total does not exceed 100% of their total overall contracted hours.

Evidence of the actual gross employment costs used to calculate the monthly ESF Direct Staff Costs for that individual will need to be provided to the ESF Managing Authority and/or Auditors on request in each case.

ESF Projects may request adoption of this Methodology for relevant staff at any time from 1st July 2019 onwards (this methodology cannot be used for any period before this date). Requests to adopt this methodology should be made in advance of any claims being submitted as set out in Annex A below.

New ESF Applicants may include this option as part of their granular budget and ESF Project financial forecasts for new applications. Existing Applicants, with Full Applications already in appraisal, can make a request to include this option with the ESF Appraiser before amendments are made to any financial documentation.

Annex A

Fixed Percentage Staff Costs Methodology 4 – action to be taken at key stages of the ESF Project cycle

Fixed percentage staff costs methodology - action to be taken at key stages of the ESF project lifecycle.

The fixed percentage staff cost methodology has implications for key stages of the ESF programme. This guidance explains what action needs to be taken to implement this staff cost methodology at each key stage.

Project Application / Appraisal

In addition to the evidence and explanations needed for other existing staff cost methodologies, at the project application / appraisal stage the Managing Authority will need to understand:

• how any proposed fixed percentage staff costs have been calculated for job roles where that methodology applies

• the financial controls that the project has put in place to prevent any over-claiming of staff costs for individuals working across more than one ESF Project; and

• sample evidence of the contractual document that has been/will be put in place as supporting evidence for individuals where the fixed percentage rate methodology is to be used, ensuring this is compliant with the requirements in this guidance

Applicant projects will need to provide a sample of the contractual document to be used for any staff who will be subject to the fixed percentage methodology, as part of their supporting documentation for their application. All applicants will need to make sure that their HR letter and Job Description etc. meets requirements set out in Annex B. The checklist at the end of this Annex lists key information that needs to be covered in the HR documentation.

Project Inception Visit (PIV) Stage

In addition to the current checks undertaken at the PIV stage of the project lifecycle, with the introduction of the fixed percentage methodology the Managing Authority will also:

• check if a new project is expecting to retain or change any of the staff costs methodologies set out in their granular budget at the application/funding agreement stage. (If so, the MA will request a Master List of all job roles for the ESF Project with the relevant, up-to-date staff costs methodologies reflected)

• check that appropriate paperwork is in place that is likely to meet requirements under future audit

Where the fixed percentage methodology is being used for one or more job roles in that ESF Project, undertake a sample check of at least one case to ensure the fixed rate calculation is being applied correctly and is understood by the Grant Recipient.

Any findings relating to the use of the fixed percentage methodology should be documented in the PIV report and any issues identified addressed as part of the usual PIV action points resolution processes.

Claims Stage

As per current ESF Programme processes for financial claims, the Managing Authority will conduct Desk Based Evidence Checks (DBECs) based on the existing sampling processes.

Where the Managing Authority DBECs includes ESF Direct Staff Cost which relate to an individual where the fixed percentage methodology has been applied, the Grant Recipient will need to provide:

1. a copy of the contractual document which confirms the fixed percentage of time per month the employee is working on the ESF Project

2. a copy of the payslip and any other documents where necessary which show the actual gross employment costs which have been used to calculate the ESF Direct Staff Costs for the selected transaction line

As the fixed percentage methodology is a SCO, there is no requirement for defrayal evidence or timesheets for the specific cases.

Article 125 On The Spot Visit (OTSV) Checks

As per current ESF Programme processes, the Managing Authority will conduct On-The-Spot Visits based on existing processes and checklists.

Where the Managing Authority OSTV checks include ESF Direct Staff Costs which relate to an individual where the fixed percentage methodology has been applied, the Grant Recipient will need to provide:

• a copy of the contractual document which confirms the fixed percentage of time per month the employee is working on the ESF Project

• a copy of the payslip and any other documents where necessary which show the actual gross employment costs which have been used to calculate the ESF Direct Staff Costs for the selected transaction line

Again, as the fixed percentage methodology is a SCO, there is no requirement for defrayal evidence or timesheets for these specific cases.

Project Change Requests

If an existing Grant Recipient wishes to adopt the fixed percentage methodology for one or more of their current employees, the Grant Recipient will first need to email their ESF Contract Manager explaining which job roles they would like to switch over to the calculation and from which date. The Grant Recipient should provide a full, updated Master List of all job roles for their ESF Project as part of their email request – again, this document must list all job roles applicable to the ESF Project, including the specific ESF Direct Staff Costs methodology being applied to each individual job role for the ESF Project – across the lead Grant Recipient organisation and any delivery partners.

The Grant Recipient should also provide confirmation in the same email of the overall expected impact on their ESF Project costs – for example, will their overall total project costs increase as a result of the change and, if so, by how much?

The Contract Manager will then consider whether a formal Project Change Request (PCR) form needs to be completed by the Grant Recipient – for example, if the impact on total ESF Project costs is likely to exceed tolerances which will then trigger the need for a formal PCR or whether, if the proposed change is within tolerances, they can agree the changes via email.

In all cases, the Contract Manager must ensure the staff cost details in the updated Master List are correct and based on eligible and acceptable ESF Direct Staff Cost methodologies set out in this guidance and the ESF Programme Guidance.

Once all relevant change action has been taken, the Contract Manager must notify the Grant Recipient of the outcome of their request – either via the Funding Agreement/MOU Variation process if the change has been managed via a formal PCR or via an email if it is below PCR tolerances.

A copy of any revised ‘Master List’ should be stored in the Contract Manager files to support future claims and OTSV checks.

Annex B

Checklist: Key information that needs to be covered in the HR documentation.

• all staff must have a HR letter and job description or other contractual documentation

• either singularly, or as a combination, the documentation MUST state that:

  • the post is ESF-funded

  • include the date that the post is funded from

  • explain whether or not the person will be spending all or part of their time on the ESF project

• if the staff member is only spending part of their time on the ESF project, explain whether or not they will be working for:

  • a set percentage of time each month and state the percentage and number of hours this will be per month (this applies to Methodology 4 as described above) or

  • a variable amount of hours / percentage of time each month (this applies to either Methodology 2 or Methodology 3 as described above)

• the documentation must clearly state what other projects the person may be working on (if he/she is only working for part of their time on ESF) and confirm the total number of hours they will be expected to work on ESIF/EU programme funded projects

• the documentation must have the ESF or ESIF logo

• the Job Title in the documentation must match the job title in the latest organogram provided to the ESF Managing Authority for your project

• if your project is a YEI Project, the documentation must include a YEI specific strapline, as detailed in the Branding and publicity requirements for the 2014 to 2020 European Regional Development Fund and the European Social Fund published on GOV.UK.