Does anyone account for "unvested" vacation accrual for hourly employees

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vest and unvested vacation accrual accounting treatment

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Proformative Advisor
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You should accrue compensated absences for both vested rights and accumulated rights, as both present a future liability.

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Here are a few differences between the two and also unvested represents an amount that will be granted in future periods based on what is earned. If it is not earned then there should be no liability-

The difference between vested rights and accumulated rights is
a Vested rights are normally for a longer period of employmentthan are accumulated
rights.
b vested rights are not contingent upon an employee's future service.
c vested rights are a legal and binding obligation on the company, whereas
accumulated rights expire at the end of the accounting period in which they arose.
d vested rights carry a stipulated dollar amount that is owed to the employee;
accumulated rights do not represent monetary compensation.

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Topic Expert
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I second the answer provided by Mr Quinn which is clear and concise. Yes, you should accrue for unvested vacation rights.

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You may only need to record a portion of the unvested vacation rights if the employee has already lost the right (no longer employed) by the time of the audit or a high turnover rate makes it reasonable to estimate that a portion will never vest.

Also, make sure you understand the state laws regarding vacations. In some states such as Wisconsin, all unused vacation must be paid by the end of the year for hourly employees. Check whether you are allowed to have unvested vacation in your state.

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The relevant GAAP is at 710-10-25-1 through -3. The specific discussion of unvested rights is as follows:
"Individual facts and circumstances must be considered in determining when nonvesting rights to compensated absences are earned by services rendered. The requirement to accrue a liability for nonvesting rights to compensated absences depends on whether the unused rights expire at the end of the year in which earned or accumulate and are carried forward to succeeding years, thereby increasing the benefits that would otherwise be available in those later years. If the rights expire, a liability for future absences shall not be accrued at year-end because the benefits to be paid in subsequent years would not be attributable to employee services rendered in prior years. (Jury duty and military leave benefits generally do not accumulate if unused and, unless they accumulate, a liability for those benefits shall not be accrued at year-end.) On the other hand, if unused rights do accumulate and increase the benefits otherwise available in subsequent years, a liability shall be accrued at year-end to the extent that it is probable that employees will be paid in subsequent years for the increased benefits attributable to the accumulated rights and the amount can be reasonably estimated."
So, as others have suggested, the answer depends on both your company's vacation policy and relevant state laws.

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Topic Expert
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the other piece is how the benefit is communicated to the employee: at each accrual or at the vesting trigger? this will likely be displayed on the paystub.

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