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Accruing a liability for Sick Days

accounting for accrued sick leaveI joined a company where they are accruing a liability for sick days even though employees do not get paid for sick days if they leave the company. I always was under the impression that you only accrued for sick days (or vacation days) if there is an amount paid upon termination. Here there would not be. The sick day accrual may be significant (31%) of the total sick/vacation liability so reversing the sick day accrual would generate some "income". Comments?

Answers

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

Dear Anonymous--policy to pay unused time upon termination is not relevant. You need to record the liability because as a going concern you need to match the liability with the period in which it was earned.

Anonymous
(CFO) |

I am going to pay the employee the same amount of pay "regular" pay (we don't call it sick pay on the pay stub) no matter what. I don't think there is any additional liability. If the company shut down today, I would pay the accrued salary and accrued vacation and not the accrued sick days. In my mind we are, for management purposes only, using sick days as a management tool. It does not create an additional liability.

Bruce Ficks
Title: CFO
Company: Value Financial Group
(CFO, Value Financial Group) |

I agree with the idea that there really is not an additional liability incurred over and above the "regular" pay. Keeping track of sick days seems to be more a management tool than a benefit to be paid out.

Robert Honeyman
Title: CFO
Company: Advanced Predictive Analytics
(CFO, Advanced Predictive Analytics) |

The key question for financial reporting: does sick pay represent a contingency on the company at the end of a reporting period? There are two ways to look at this.

1. If an employee is off sick, does the company need to hire a temporary employee to cover the work? If so, you should track and report sick pay as a separate item. The amount to accrue is a function of the next consideration.

2 a. If at termination the employee is due any unclaimed sick pay, the company must accrue the entire amount due the employee.

2 b. If sick pay is use it or lose it, there is only a need to accrue an estimate of the amount needed to covered expected temporary coverage for employees out on sick leave. If the need to hire temps is rare, there is no need to accrue sick pay.

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