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How to Budget a Direct Spend Project

An Economic Impact how-to guide for organisations funded by ESIF

ESIF programmes also do not provide the money at the start of the programme; each quarter projects will submit monitoring and a claim form, they will receive the money that was spent the previous quarter. This will mean that projects funded through the EU must have some financial security to be able to deliver services before the first payment comes through.

This guide will help you prepare your organisations to create a budget to run a European funded project and how to calculate your staffing costs accurately.

Navigate the guide

1. Direct vs Indirect Spend
2. Simplified Cost Option
3. Salaries
4. The 1720 Method
5. 1720 method (pro rata)
6. Demonstrating hourly rate calculations
7. Support and guidance

1. Direct vs Indirect Spend

When creating your budget to submit with your application you will need to divide your costs between direct and indirect costs.

Direct costs

Direct costs are the costs directly related to the running of the European funded project. You will have to provide evidence for all of these items if you wish to claim back the money. This will include:

    • Staff salaries for the hours directly spent on the project
    • Recruitment costs
    • Staff training
    • Staff/volunteer expenses
    • Participant costs/incentives
    • Room/venue hire
    • Training delivery costs
    • Marketing and promotion
    • Communications materials
    • Equipment purchase
    • Equipment hire

Indirect costs

Indirect costs are the costs that cover your overheads and office costs that cannot be directly related to the ESF project. The total amount of money you have to spend on indirect costs will only be 15% of your direct staff costs and will form part of the total project costs. For example:

Direct staff costs total x 15% = Total indirect costs
£100,000 x 15% = £15,000

You do not need to provide evidence for items that are included in your indirect costs. These items will include:

    • Copier
    • Printing
    • Stationary
    • Office rent (unless solely used for ESF related activity)
    • Utilities
    • Telephone
    • Insurance
    • Central staff costs (HR/management)
    • IT Support

2. Simplified Cost Option

All ESF funded programmes will now need to use the Simplified Cost Option (SCO) when working out their direct and indirect costs.

15% Simplified Cost Option

Most programmes will follow the 15% SCO, which as described previously, is made up of:

  • Total direct staff costs
  • Total other direct project costs
  • Indirect costs (15% of total direct staff costs)

40% Simplified Cost Option

Another option could be the 40% SCO which only has two parts to it:

  • Total direct staff costs
  • Indirect costs

The indirect costs make up all other costs of the project and is 40% of direct staffing costs. For example:

Total indirect costs = Direct staff costs x 40%
£40,000 = £100,000 x 40%

Total project cost = Direct staff cost + Total Indirect costs
£140,000 = £100,000 + £40,000

This method is useful if most of your project expenditure is staffing costs and there are not many other direct project costs associated with the project. It will allow you to cover more of your indirect costs than the 15% option, but you will have limited funds to cover other direct project costs.

When deciding which is best for your organisation, it is best to try both methods and seek advice from the Economic Impact team.

3. Salaries

You can claim for any time an individual works on and ESF project. Staff costs can include salaries and add-on costs (employer National Insurance and employer pension contribution). You will also need to factor in any potential annual salary increases for employees involved.

How much to claim

If an individual will be working 100% of their working time on the project, you will claim for their whole salary and add on costs. If an individual works part of their working time on the project, you will need to use the hourly rate calculator to work out the amount that you can claim for their time on the project.

They will also need to produce detailed timesheets of what hours they have spent on the project and what activities they were completing.

4. The 1720 Method

The hourly rate is calculated by dividing the gross pay of an individual’s salary by 1720.

This deducts holiday and sick pay as it is expected that someone would continue with the work if the named individual is off. The 1720 method calculates that a full time salary is 33 hours a week which should overcompensate to cover the extra costs.

There are two ways of calculating the 1720 method, for full and part time members of staff.

Below is an example of a full time member of staff who is working part time hours on an ESIF Project.


Full time member of staff working 17.5 hrs on an ESIF Project:

Net Pay + Employee NI + Employer Pension = Total Gross Pay
£19,722 + £1,610 + £1,183 = £22,515

Hourly salary cost = £22,515 ÷ 1720 = £13.09

To work out the monthly claim you would multiply the hourly rate with the number of hours worked a month.

Total monthly claim = Hourly Rate x Monthly Hours
£992.66 = £13.09 x 76

To work out the total yearly claim for the salary you would multiply the number of hours spent on the project per week with the hourly cost rate and then by 52 e.g.

Yearly Claim = (Hourly Rate x Weekly Hours) x 52
£11,912 = (13.09 x 17.5) x 52

5. 1720 method (pro rata)

Some individuals may work part time for your organisation and spend a few hours a week on the ESIF funded project.

If this is the case, then you will need to calculate the pro rata rate of 1720. The formula below gives you an example of how to work this out.

1720 pro rata rate = (Staff member’s weekly contracted hours ÷ Organisation’s weekly contracted hours) x 1720

Once the pro-rata rate has been calculated you follow the same procedure as before by dividing the gross annual pay with the new 1720 rate and then multiply it by the number of hours worked in a month.


Part time member of staff working 17.5 hrs on an ESIF project:

Staff member’s weekly contracted hours (25) ÷ Organisation’s weekly contracted hours (35) x 1720 = 1,229

Net Pay + Employee NI + Employer Pension = Total Gross Pay
£19,722 + £1,610 + £1,183 = £22,515

Hourly salary cost = £22,515 ÷ 1229 = £18.31

Total monthly claim = Hourly Rate x Monthly Hours
£1391.56 = £18.31 x 76

6. Demonstrating hourly rate calculations

The table below shows how to lay out all staff costs for a monthly claim. It provides examples of staff working 100% of their time on the project, full time staff work part of their time on the project and part time staff working part of their time on the project.

Example Staff Costings Spreadsheet (PDF)

As mentioned previously, where someone works their full working time on the European funded project, their monthly salary would be claimed for.If you need any advice or help on how to calculate the hourly rate costings for your organisation, please contact the Economic Impact Team.

7. Support and guidance

If you need additional support with budgeting for your direct spend project, you can contact James Smalley, Development Officer for Economic Impact team, directly at:
0116 2575025

You can also access the Economic Impact Project via:

  • The e-newsletter, which will give you up-to-date information on new calls for applications, upcoming events and the occasional insightful blog.
  • Quarterly Economic Impact Forums, which will give you the opportunity to learn new skills regarding EU funding, receive information from the LLEP and network with other voluntary groups, paving the way for collaborative bids.
  • A Read & Review service of any European funding applications you are thinking of submitting. We can give you guidance and suggestions on how to improve your organisation’s bid.