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Accounting for New Years Holiday Pay

Carl Texter's Profile

Like most companies, we provide paid time off for eight holidays per year.  One of these is New Years Day but since 1/1/11 fell on a Saturday, employees received a paid holiday on December 31.  Thus, there were actually 9 paid holidays in 2010 and will be 7 in 2011!

Question - should we expense the cost of the paid holiday on December 31 in 2010 or is it arguably related to 2011?

I have looked at FAS 43 but the only relevant reference there is "it generally does not require a liability to be accrued for future sick pay benefits, holidays, and similar compensated absences until employees are actually absent."

Thanks for any advice.
Carl Texter

Answers

Simon Westbrook
Title: CFO
Company: Aargo Inc.
( CFO, Aargo Inc.) |

HI carl,
I have never accrued for the cost of holidays whether to equalize them over the course of a year, or between years. Since they happen regularly, cant be accumulated or carried forward, and have no cash conversion value, I regard them as a cost of business in the period in which they happen!

Simon

Carl Texter
Title: CFO
Company: in transition
(CFO, in transition) |

thanks for taking the time to reply Simon. I appreciate your perspective.

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

Hi Carl. You have an interesting question. Under GAAP, had your company not made the payment until January 1st, the holiday pay would not have been accruable because it was not related to past services of the employee, as you quoted above. Because your company had to pay the amount in 2010, I would consider it to be a 2010 expense.

Carl Texter
Title: CFO
Company: in transition
(CFO, in transition) |

Good points, thanks for replying!

Pete DeWeese
Title: EVP & CFO
Company: Tanknology Inc.
(EVP & CFO, Tanknology Inc.) |

Not knowing your business it is hard to say, but I have only accrued holiday pay in one industry which was the hospital industry in which we decided to have a new years holiday on the Dec 31. Because we still had to staff on Dec 31 and we paid double time for holdiay's, we chose to back-out the overtime pay and related taxes from the prior year and recorded this as next year expense for consistency purposes.

The bigger problem you need to look at is what does your employee handbook say about how many holidays to you provide employees. Unfortunately a friend of mine had this same situation and when they fired an employee(unfortunately in California) they chose to sue as everyone who gets fired in CA does. The state made them pay all of our California employees for one additional day because they were shorted a holiday. The state did not care that they got an extra day the year before. Before you make any employee decisions make sure you handbook does not trip you up.

Paul Moore
Title: VP of Finance
Company: PC Helps Support, LLC
(VP of Finance, PC Helps Support, LLC) |

The employees were given a day off with pay in 2010, so it is a 2010 expense. A less-kind organization could have granted no time off due to New Year's falling on a weekend. In the absence of a union contract requiring a day off for New Year's, I see no reason to book it as a prepaid at 12/31/10.

Michael Ford
Title: VP & Controller
Company: in between
(VP & Controller, in between) |

We accrue V, H SL (vacation, holiday and sick lave) during the course of the year . But at year end we trued up the balance so that only the earned but not taken vacation which we could support to the auditors was left in the accrual and carried over to the next year. If the number of holidays varied from year to year we adjusted the accrual rate accordingly at the beginning og the year. Ina simpler environment I would accrue in the year paid. Hope this helps Mike

Jan Spiegel
Title: Owner
Company: Your Bookkeeping Matters, current
(Owner, Your Bookkeeping Matters, current) |

As the VP of Finance said (post made on 1/7 at 11:33 am) I tend to agree. First, I did work for a company that had the policy of any holiday falling on the weekend, there was no time off. We had only 6 holidays as it were. In my current company, if the holiday lands on Saturday, we have Friday off. If the holiday lands on Sunday, we have Monday off. Since this New Years’ holiday landed on Saturday, the company was closed on Friday. This was included in the pay period ended Saturday (1/1/11). My year-end accrual is for the full pay period of 10 working days (bi-weekly) of December 20 thru 31st.

Theresa Wilt
Title: Independent Contractor
Company: Multiple U.S. Clients
(Independent Contractor, Multiple U.S. Clients ) |

Jan - If your pay period ends on Saturday (1/1), isn't that also the last day of your period ending (1/1)? If your period ends on 12/31, then 1/1 is the first day of your next period. What am I missing here? What is the first day of period?

Theresa Wilt
Title: Independent Contractor
Company: Multiple U.S. Clients
(Independent Contractor, Multiple U.S. Clients ) |

Hi Carl-Looks like you got a variety of interesting replies here,some more or less to your point. In my opinion, regardless of whether 12/31 was a work day or paid holiday, at the end of the day on 12/31, just like every other Friday, the company has incurred the expense (and unless you are on a cash basis as was implied by one here who referred to the payment of the expense the same day), it is an accrued liability at 12/31/10, regardless of whether this holiday is normally celebrated on 1/1/11. This is probably no the answer you wanted since it gives you that uneven number of holidays with 9 in 2010 and 7 in 2011, but there is not much you can do to change the calendar. I think the only thing you
can do is be sure to review the calendar in your budgeting process rathe than to just assume 8 holiday seach year. At least then it won't be a late surprise.

With regard to the FAS you cited and those who commented on accruing holiday, I think that is a separate discussion from this one, because they are referring to accruing for FUTURE paid absences of holdiay and sickleave, although also an interesting topic that many are divided on, it is not the case you asking about.

As I said, you are referring to a past activity or in this case an expense that is incurred based on time, that being the day of 12/31. and as they say in our Accounting 101 classes, if you close your doors on 1/1/11, you owe those people their pay for 12/31.

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