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“The estimated monetary liability for employees annual accrued leave benefits at the balance sheet date is recognized as an expense accrual.”
I do not understand why it is necessary for accrued leave benefits to be provided. Lets say an employee joined the company on 2nd Jan 2014. If he hasn’t taken any leave as at 31/12.14, why does a provision need to be made for his leave benefits. I mean the company owes him 21 days off. Does this statement above only apply when the employee plans to sell his leave in exchange for an entire months salary? Its like he would be paid twice for the month, or a similar arrangement?
If he was entitled to 20 days holiday and he took none of those days then, when he does take them next year, he will be being paid for time when he isn’t working.
It possibly means that he will take 40 days holiday in year 2 where nominally he is entitled to only 20
I’m not sure that that explains it but it’s perfectly clear to me!
Are you ok with it?
So lets say, he joined in January 2014 and then he had decided to take the entire leave next year in January 2015, assuming he did not take any leave in 2014. Then of course, there would be no need to make any provision right, as the Gross Salary A/c in January 2015 would reflect his salary anyways.
Or, should we make the provision, eg:
31/12/2014: Dr. Other staff costs $xxx
Cr. Accrued leave provision $xxxThen reverse it in January. does that make sensE?
Yes, that makes perfect sense.
Next year, in 2015, we shall have to pay for days when our employee is not working and those non-working days (non-productive) relate to 2014.
Imagine that the work performed by our employee HAS to be continually performed and, when the employee takes a holiday, we have to pay someone else to come in and carry on the task.
That person coming in will have to be paid but we are still having to pay our employees who is away on holiday.
In effect, for every employee that is entitled to two weeks holiday each year, because we have to employ a temporary replacement for those two weeks, we are having to pay 54 weeks’ pay for each employee.
Is that better?
Hmm. Still subjective.
Let’s say that the season in January wasn’t too busy and no ancillary services needed to be solicited, in that case, there wouldn’t be any need for a provision then right. It seems to me that the leave isn’t really a benefit, but if the employee is given something extra to that leave, eg. Paid holidays then, the accrual would have to be made, right.
The additional employee was brought in to try to explain the reasoning! Please don’t throw back the “What if …”
The fact is that if a person is entitled to two weeks holiday per year but the employee doesn’t take any of that holiday time, instead delaying it until the following year, the employer needs to accrue as an unpaid expense those two weeks holiday costs
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