Governmental Accounting Standards Board (GASB) 101: Understanding Compensated Absences

By Kimberly Price

Everyone can love and appreciate the common employee benefit of compensated absences; however, it is common for employers to record a compensated absences balance based upon the termination liability and not based upon what the employee will utilize during their employment. The question then becomes how can this liability be more accurately reflected?

Before delving into the nuances of GASB 101 reporting requirements, it is important to define what is a compensated absence. Compensated Absences refer to leave earned through their service for which an employee would be paid either in cash when it is utilized, paid out at termination, or through noncash settlement, like a conversion to defined benefit post-employment benefits. Common examples of compensated absences include vacation leave, sick leave, personal leave, parental leave, or various other leave options provided by the employer.

That is a great question! The goal of GASB 101 is to ultimately provide more transparency and financial consistency for comparability, to be a liability that reflects when an obligation is incurred, and to assist in decision making. Although the initial roll-out will require additional effort to determine implementation and how to update on an ongoing basis, the reward will be a more robust presentation showing the full impact of payout when an employee is terminated.

GASB 101 is effective for all fiscal years beginning after December 15, 2023, and for all accounting and financial reporting periods thereafter.

This standard applies to all leave that accumulates and carries forward which was earned or relates to services already rendered (they had to earn it) AND for which the employee would receive payment through cash or non-cash means.

The standard details methods to utilize for calculating the liability amount for the unused and unpaid leave balances that employees could use in the future or for which they could receive some form of compensation. This process will involve the use of employees’ historical leave usage patterns to estimate the liability and future cash outflows.

GASB 101 requires that compensated absences must be reported on an accrual basis and the expense should be matched with the period in which the employee earns the benefit, NOT when they are compensated.

GASB 101 requires that compensated absences disclosures provide detailed information regarding the nature, measurement methods, and underlying assumptions for the estimates.

All leave will be included in the liability, regardless of vesting requirements, while the current approach only includes the leave when fully vested.

At CSH our priority is to build valued relationships with our clients, and we recommend that you reach out to talk about how GASB 101 will impact you. If you want to prepare for that conversation, then we also recommend familiarizing yourself with GASB 101 reporting requirements to ensure prompt compliance and implementation. Remember to take a deep breath – we can get through this implementation together!