Should We Accrue Sabbatical Leave?
February 10, 2011
Vested rights are those that accumulate over time as earned but not yet used and are to be redeemed at a future point in time. They are not contingent on future service. There has been some ongoing confusion about whether sabbaticals accumulate in this nature due to their conditional nature.
There is guidance on this issue. The Emerging Issues Task Force (EITF) was established in 1984 by the FASB to provide assistance in resolving grey area accounting issues. The force’s main purpose is to identify emerging issues and resolve them with a uniform set of practices before divergent methods arise and become widespread. EITF is considered non-authoritative guidance, meaning authoritative guidance from standards will trump the EITF abstracts when specifically addressing issues. The EITF abstracts generally get into areas that are more specific and specialized and therefore not covered in detail in the standard, or areas that came to light as questions after the standard was issued and additional guidance became necessary.
EITF Abstract 06-2 addresses accounting for sabbatical leave in order to provide additional guidance on FASB Statement No.43 (superseded by codification 710-10-25).
A sabbatical is a planned compensated absence for time off that is earned after working for a specified period of time. During the sabbatical the employee may or may not be required to perform any duties for the entity while remaining a compensated employee.
How do you determine whether or not you need to accrue for sabbatical leave? There are several factors to consider that were discussed by the task force. Ultimately the task force determined that accruing depends on the following:
The purpose of the leave:
- If a sabbatical is to perform research or public service that serves to enhance the reputation or otherwise benefit the employer – leave should not be accrued as the compensation is not attributable to services already rendered. Essentially, the employee is still performing a service for the company for which he or she is being compensated.
- If the sabbatical is unrestricted time off, granted as compensation for past service, the payroll cost of the sabbatical should be accrued because the services have already been rendered.
And there are requirements before the leave is granted:
- If there is a condition requiring that the employee complete a minimum period of service;
- If the benefit is set and does not increase with additional years of service;
- If there are no direct or indirect services conducted on behalf of the company;
- If payment of the compensation is probable;
- If the amount of compensation is reasonably estimable.
If these requirements are in place, and the purpose is unrestricted then the leave should be accrued.
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