2.3. Entering into and amending employment contracts

When personnel costs are incurred to deliver projects, it must always be verified in advance that the expenses comply with the terms of funding in order to declare personnel costs as direct costs.

The project funding terms may lay down different detailed requirements for declaring personnel costs as direct costs. It is important that before starting the activities, the project manager makes sure under what conditions and on the basis of which documents (e.g. an employment contract, job description, timesheet, etc.) the personnel costs can be considered eligible.

If employees are involved in a project, the personnel costs are generally incurred based on an employment contract. In the case of a service contract (an authorisation agreement or a contract for services) the service is purchased and the requirements and thresholds laid down for procurement shall be followed.

In the case of the European Commission funded projects, authorisation agreements and contracts for services can be regarded as direct personnel costs only if the following conditions are met:
- labour hours are bought, not the result, and this has been laid down in the contract;
- the organisation of work and the salary level are similar to that of employees working under an employment contract;
- the results belong to the contracting party, i.e. the university.

In the case of authorisation agreements and contracts for services it is mandatory to fill in timesheets.

According to the internal rules of the university, no contracts under the law of obligation are concluded with the university staff.

Guidelines of the Human Resources Office and TalTech contract forms can be found on the intranet at https://portal.taltech.ee/wiki/show/et:dokumendid:personalitoo:toolepingute_vormid:main.

The work carried out under the project and support received by the project must be clearly stated in the employment contract, the financial allocation decision or the employee’s job description.

If a foreign expert who is not an Estonian tax resident is involved in the project and the place of work is in Estonia, which is why labour taxes are paid in Estonia, incl. under a short-term authorisation agreement or contract for services, it is important that with the help from the Human Resources Office the employment is entered in the employment register before the person begins actual work. You can turn to the contact person of the structural unit in the Human Resources Office.

The employee’s consent to work in projects must be agreed in the employment contract using the following fixed wording:

The Employee is required to perform his/her duties in a project funded from structural assistance or any other project provided that the duties correspond to his/her qualifications and skills. The Employee grants his/her consent to disclose information on the remuneration he/she has received and on the source documents related to it if the Employee performs his/her official duties in a project funded from structural assistance or any other project, where the Employer as the beneficiary is required to provide to an implementing or any other body proof of expenditure related to the project , including expenditure related to remuneration and the taxes payable, or on any other basis arising from law.

In the case of projects where it is necessary to prove the eligibility of personnel costs, the employee’s participation on the project, the project tasks and the distribution of remuneration between financing sources shall be laid down in the financial allocation decision.

The Rules for Remuneration set out the following requirements for financial allocation decisions:

• If a financial allocation decision contains financing sources, in which case the use of the source and performance of the relevant task must be supported by documentary evidence to prove eligibility, the financial allocation decision shall be submitted to the employee for information.
• If the employee receives remuneration, the eligibility of which must be proved, timesheets must be filled in for the period of performance of additional work if additional remuneration is paid to the employee. A timesheet replaces the project workload laid down in the financial allocation decision.
• If a timesheet is used to document an employee’s actual working time or no evidence of eligibility is required regarding the financing source specified in the financial allocation decision, the project workload need not be specified in the financial allocation decision.

In the case of employment contracts and financial allocation decisions it must be made sure that the total working time does not exceed the hours of full-time employment specified in the Employment Contracts Act, i.e. 40 hours a week.

The duration of short-term additional duties for which additional remuneration is paid shall not exceed 3 months, the remuneration for duties lasting longer shall be documented as the variable amount of basic salary. Additional duties and the remuneration to be paid for them must be agreed in writing before the additional duties are performed.

If an employee is paid additional remuneration based on a directive, a timesheet regarding the period must be filled in and attached to the report regardless of the distribution of work hours in percent of total work hours set out in the financial allocation decision.

The hourly rate paid for the project must correspond to that paid for similar work from other sources. The difference between the standard hourly rate and the higher hourly rate paid for similar work under a project is ineligible.

In Horizon 2020 projects, the university calculates personnel costs using the employee’s standard amount of annual productive hours (1720 hours / year). An employee’s average hourly rate is calculated as follows:

 Average hourly rate = eligible annual personnel costs of the person incurred (excluding bonuses– additional remuneration)/ annual productive hours

Annual personnel costs and productive hours must be calculated for the calendar year that ended. If part of the reporting period falls within the current year, the personnel costs for the current year shall be calculated based on the average hourly rate of the last calendar year that ended.

If the method of standard amount of annual productive hours is used, overtime worked must not be declared and only the time spent on parental leave may be deducted under certain conditions. It must also be taken into account that the total number of hours worked declared in grant schemes for a person for a year must not be higher than the number of annual productive hours used for the calculation of the hourly rate.

According to the Rules for Participation in Horizon Europe, the eligibility of personnel costs is determined based on the average daily rate. The average daily rate in HEU projects no longer needs to be calculated on the basis of the last closed financial year. The average daily rate shall be calculated separately for each financial year and, if the reporting period/project ends mid-year, the daily rate shall be calculated based on the wage fund for those months: personnel costs of the person incurred over the months worked / (215/12 * the number of months worked).

Additional remuneration is not used in HEU projects in the form as it was used in H2020 projects. In case of project-based funding, the level of salary that the person would be paid in national schemes is eligible.

In ongoing Horizon 2020 projects, the average hourly rate of the closed calendar year must be used to calculate personnel costs.

Calculation method

step 1 – determine the hours worked for the project
step 2 – calculate the average hourly (daily) rate based on the last closed calendar year, using the fixed hourly rate of 1720 productive hours or in the case of Horizon Europe projects the fixed daily rate of 215 days a year.
In the case of the fixed hourly or daily rate, days of leave and sickness shall not be deducted from the number of hours.
The basis for calculation is the remuneration earned during the last closed financial year, minus additional remuneration and bonuses/performance pay paid in addition to the remuneration laid down in the employment contract. To obtain the average hourly/daily rate, the base amount is divided by the fixed hourly/daily rate.

ONLY the actual time spent on parental leave or maternity leave must be deducted from the fixed hourly rate of 1720 productive hours when calculating the average hourly rate (from the fixed daily rate of 215 days in the case of calculating the average daily rate); the number of days absent from work due to any other type of leave shall not be deducted from the fixed hourly or daily rate.

(step 3 – calculate additional remuneration if possible/if necessary (additional remuneration – not possible under the internal regulations of Tallinn University of Technology)step 4 – step 1 * step 2 + step 3 = personnel costs to be declared.

NB! In the case of research grants, remember that the regulations of the Estonian Research Council set out a rule that states that the main executors can only be employees with a contract of employment, i.e. for example, also that emeritus professors can be involved in group grants as experts as a rule, not as the main executor. If an emeritus has an employment contract for an academic position at Taltech, he or she can also be involved as a main executor.