16.6 Other Employment Benefits

Employers also offer many incentives and benefits to their employees while they are still employed. Some benefits, such as vacation time, may be required by law while other benefits, such as paid sabbaticals, may not be. When determining the accounting treatment for these types of benefits, it is important to understand whether the benefits vest or not. When employment benefits vest with service, they should be accounted for in a similar manner to pension plans (i.e., the amount of the future payment should be estimated and accrued). In the case of short-term benefits, such as annual vacations, the amount is not usually discounted. These types of benefits were covered in more detail in Chapter 12: Current Liabilities. For long-term employment benefits, such as paid sabbaticals, the treatment is also similar to that of pension plans, except that remeasurement gains and losses are accounted for in net income, and not in other comprehensive income.

For employment benefits that do not vest, the accounting treatment is simpler. An example of a benefit that does not vest is a monthly sick leave allowance. An employee may be allowed a certain number of sick days every month, but these do not accumulate if they are not used. In this case, an expense is recorded when the benefit is actually used by the employee, but no accrual is made for any unused amounts. This type of benefit was covered in more detail in Chapter 12.