Five Things to Know About the New Accounting For Paid Leave
Sep 23, 2022
This past June, the Governmental Accounting Standards Board (GASB) issued new guidance for reporting sick leave, vacation, paid time off (PTO), parental leave, military leave, and other forms of leave for which a government’s employees are compensated with cash payments or retirement benefits. GASB Statement No. 101, Compensated Absences, resulted from the first review of the standards since 1992. Here are five things everyone should know about the new Statement.
1. Why did the GASB do this?
A lot has happened in the past 30 years. Some governments provide PTO instead of multiple types of leave, and parental leave is far more prevalent today, but neither type of leave was addressed in the existing standards. For that and other reasons, those standards have been applied in different ways by governments, which reduces comparability. The GASB also saw an opportunity to reduce the related disclosure requirements.
2. What do the new standards do?
Instead of the old standards’ use of different accounting for sick leave and vacation leave, the new standards employ a single approach to measuring and reporting a liability for all but a few types of leave when employees earn it:
(accumulated leave × employee pay rates as of the date of the financial statements)
+ (salary-related payments, such as Social Security taxes)
For practical reasons, a simpler approach of waiting until leave starts to report a liability is applied to parental leave, military leave, jury duty, unlimited leave, and holidays.
Governments will continue to account for leave that is settled through conversion to defined benefit pensions or other post-employment benefits by following the standards for retirement benefits rather than the compensated absences standards.
3. Did you say the GASB reduced note disclosures?
It’s true. Governments may now disclose either separate increases and decreases in the liability for compensated absences (the prior requirement) or a single net increase or decrease. In addition, they no longer have to disclose the governmental funds used to liquidate the liability.
4. How much effort will it take to implement Statement 101?
Most of the work to apply Statement 101 will occur when it is implemented for the first time. It will be necessary to inventory the leave that is provided to employees. Much of that information should be available, considering that governments have been accounting for compensated absences since the early 1990s. Governments should review their policies for each type of leave to determine whether the leave meets the updated criteria in the new standards. Once implemented, the new standards will not likely require significantly more effort to apply than the existing standards.
5. Is help available to implement Statement 101?
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