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Vacation Accrual - how to account for the liability?

 
 
JG Garabito
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      02-14-2004, 04:10 AM
I need your advice on "How I should record vacation accruals"...
I recently took over the grant mgmt/fund accounting for a non-profit and I
have some employees who's salaries are "Grant Funded" and am stumped on how
to record the vacation accruals under the grants. Currently there is some
(50 hrs) vacation time earned in the grants and it is not recorded in any
way. Shouldn't it be an entry every month to show the accrual liability?

any insight will be appreciated.


 
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Paul A Thomas
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      02-14-2004, 02:28 PM

"JG Garabito" <(E-Mail Removed)> wrote
> I need your advice on "How I should record vacation accruals"...
> I recently took over the grant mgmt/fund accounting for a non-profit and I
> have some employees who's salaries are "Grant Funded" and am stumped on

how
> to record the vacation accruals under the grants. Currently there is some
> (50 hrs) vacation time earned in the grants and it is not recorded in any
> way. Shouldn't it be an entry every month to show the accrual liability?
>
> any insight will be appreciated.



I suppose it would depend on the entity's accounting method and whether or
not the vacation pay is contractual in that it must be paid (not that it
might be paid) at some future date. Example: Employees must take their
vacation by 12-31 or they'll be paid for it. Then book the vacation pay.
Otherwise, it probably should fall as an expense when/if the employee takes
it, because it's likely that an employee would or could leave employment
without ever taking their accrued vacation.


--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net


 
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Tony
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      02-14-2004, 04:51 PM
Paul A Thomas said:
>
>
>"JG Garabito" <(E-Mail Removed)> wrote
>> I need your advice on "How I should record vacation accruals"...
>> I recently took over the grant mgmt/fund accounting for a non-profit and I
>> have some employees who's salaries are "Grant Funded" and am stumped on

>how
>> to record the vacation accruals under the grants. Currently there is some
>> (50 hrs) vacation time earned in the grants and it is not recorded in any
>> way. Shouldn't it be an entry every month to show the accrual liability?
>>
>> any insight will be appreciated.

>
>
>I suppose it would depend on the entity's accounting method and whether or
>not the vacation pay is contractual in that it must be paid (not that it
>might be paid) at some future date. Example: Employees must take their
>vacation by 12-31 or they'll be paid for it. Then book the vacation pay.
>Otherwise, it probably should fall as an expense when/if the employee takes
>it, because it's likely that an employee would or could leave employment
>without ever taking their accrued vacation.
>


Paul,

This is an area that I have been struggling with, and received different advice
from CPAs here in California. The State, in its infinite wisdom, has decreed
that Sick Time/Personal Time Off is a "benefit", and can be subject to a "use
it or lose it" policy, if it is clearly stated in the employee manuals.

However, accrued vacation is considered "earned but unpaid compensation". As a
result, you *have* to pay it out at termination. I cannot count the number of
arguments I have gotten into with owners over this one, but the law is
extremely clear.

To respond to the OP, we usually book it on a monthly basis to a Vacation
Accrual "Other Liability" account, classed by employee. It is a pain in the
butt, but it also helps the HR person track outstanding vacation.

Tony
Is someone messing with your credit?
Need a plan to get out of debt?
http://www.kestlewealth.com

 
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Paul A Thomas
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      02-14-2004, 05:47 PM

"Tony" <(E-Mail Removed)> wrote
> This is an area that I have been struggling with, and received different

advice
> from CPAs here in California. The State, in its infinite wisdom, has

decreed
> that Sick Time/Personal Time Off is a "benefit", and can be subject to a

"use
> it or lose it" policy, if it is clearly stated in the employee manuals.
>
> However, accrued vacation is considered "earned but unpaid compensation".

As a
> result, you *have* to pay it out at termination. I cannot count the number

of
> arguments I have gotten into with owners over this one, but the law is
> extremely clear.


If you "have" to pay it out, then you know the amount to book, it's actually
a liability that the business owes.


> To respond to the OP, we usually book it on a monthly basis to a Vacation
> Accrual "Other Liability" account, classed by employee. It is a pain in

the
> butt, but it also helps the HR person track outstanding vacation.


Yup. Mostly lots of AJE's and such to move it from line to line as it's
earned and as it's used.


Oh yeah, I'm damn glad I don't live in California.


--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net


 
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Des Perado
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      02-14-2004, 05:57 PM
Tony, your experience is similar to mine.
Vacation pay is covered by law and is earned compensation. In the
Construction industry where employees move from job to job and from
employer to employer throughout the year, the Vacation Pay is usually
paid out on each paycheck. As a bookkeeper, this would be my
preferred way to do it. Pay it out each pay period rather than accrue
it, but then you would catch Hell from employees who had no money come
Vacation time because they didn't have the discipline to keep some of
their Vacation Pay for Vacation time. BooHoo, poor little darlings.
Sick time and personal time off are usually just Company Policy - not
legislated benefits and hence the 'Use it or Lose it' approach. In
large unionized workplaces, Sick time and personal time off usually is
described in the Union Contract and the Employer must follow those
rules.
This is always an area that causes problems for the Employer.
Employees are exceedingly clever at determining how they were cheated
on these things.
Des

"Tony" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> Paul A Thomas said:
> >
> >
> >"JG Garabito" <(E-Mail Removed)> wrote
> >> I need your advice on "How I should record vacation accruals"...
> >> I recently took over the grant mgmt/fund accounting for a

non-profit and I
> >> have some employees who's salaries are "Grant Funded" and am

stumped on
> >how
> >> to record the vacation accruals under the grants. Currently there

is some
> >> (50 hrs) vacation time earned in the grants and it is not

recorded in any
> >> way. Shouldn't it be an entry every month to show the accrual

liability?
> >>
> >> any insight will be appreciated.

> >
> >
> >I suppose it would depend on the entity's accounting method and

whether or
> >not the vacation pay is contractual in that it must be paid (not

that it
> >might be paid) at some future date. Example: Employees must take

their
> >vacation by 12-31 or they'll be paid for it. Then book the

vacation pay.
> >Otherwise, it probably should fall as an expense when/if the

employee takes
> >it, because it's likely that an employee would or could leave

employment
> >without ever taking their accrued vacation.
> >

>
> Paul,
>
> This is an area that I have been struggling with, and received

different advice
> from CPAs here in California. The State, in its infinite wisdom, has

decreed
> that Sick Time/Personal Time Off is a "benefit", and can be subject

to a "use
> it or lose it" policy, if it is clearly stated in the employee

manuals.
>
> However, accrued vacation is considered "earned but unpaid

compensation". As a
> result, you *have* to pay it out at termination. I cannot count the

number of
> arguments I have gotten into with owners over this one, but the law

is
> extremely clear.
>
> To respond to the OP, we usually book it on a monthly basis to a

Vacation
> Accrual "Other Liability" account, classed by employee. It is a pain

in the
> butt, but it also helps the HR person track outstanding vacation.
>
> Tony
> Is someone messing with your credit?
> Need a plan to get out of debt?
> http://www.kestlewealth.com
>



 
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Ron Todd
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      02-14-2004, 09:43 PM

>Oh yeah, I'm damn glad I don't live in California.


Odds are you eventually will be as California is the model of what a
very large group of people are working overtime to apply to the other
states.



Best Regards.

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Foods, Ontario & Quebec provinces,

Sometimes the only influence you have is to say, "No, I'm not buying."

For those who are unclear about the situation, California is the Clinton - Davis model for the rest of the United States of America.
 
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Angela Thornton
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      02-17-2004, 03:59 PM
"Des Perado" <(E-Mail Removed)> wrote in message news:<(E-Mail Removed)>...
> Tony, your experience is similar to mine.
> Vacation pay is covered by law and is earned compensation. In the
> Construction industry where employees move from job to job and from
> employer to employer throughout the year, the Vacation Pay is usually
> paid out on each paycheck.


I'm in the Indiana construction industry, and that's not the norm
here. Here we accrue it.


>As a bookkeeper, this would be my
> preferred way to do it. Pay it out each pay period rather than accrue
> it, but then you would catch Hell from employees who had no money come
> Vacation time because they didn't have the discipline to keep some of
> their Vacation Pay for Vacation time. BooHoo, poor little darlings.


You really could be a little nicer to them - they're earning your pay.


> This is always an area that causes problems for the Employer.
> Employees are exceedingly clever at determining how they were cheated
> on these things.


Have you been caught cheating them? Damn those clever bastards!

FWIW, we accrue per week. For example, if an employee is earning one
week of vacation per year, we accrue .769 of a day each week. (They
don't accrue if they are paid for less than 30 hours.) THe biggest
pain I have is adjusting when they receive a raise.

It isn't that much of a hassle to reconcile, really. I'd much rather
do that the the fixed assets.

Angela
 
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