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How do you account for potential forfeiture of PTO days in your PTO accrual? Do you use a forfeiture rate?

Answers

Topic Expert
Lee Andrews
Title: P/T CFO, Business Consultant
Company: Pacific Bag, Inc./Other Clients
(P/T CFO, Business Consultant, Pacific Bag, Inc./Other Clients) |

We run a month end accrual on vacation days liability by adjusting the accrual to the payroll report of "vacation days remaining" times base pay rate. That can carry over from year to year up to a maximum. Pretty simple.

For "PTO", which is our sick/personal day type benefit (use it or lose it by each year end) we don't bother accruing anything. Never sure who will/won't use it and variances are just not material to monthly reporting. By year end, doesn't matter -- no liability left.

Jeffrey Chalmers
Title: President, Financial Effectiveness Team ..
Company: Silicon Valley Accountants
(President, Financial Effectiveness Team Leader, Silicon Valley Accountants) |

I have never reduced the PTO accrual for potential forfeitures for two reasons:

Firstly, I assume that until the PTO is forfeited, it is not certain and GAAP precludes you from reducing a liability until it is certain.

Secondly, the benefit of doing this is not that significant. Most companies have caps on vacation accrual and you don't accrue beyond that cap. If someone forfeits their vacation, we would reduce the accrual in the month forfeited. Generally this is not significant enough to worry about.

A way around this whole thing is to not have a defined PTO rate, i.e. unlimited PTO. This works well for knowledge based companies and eliminates the need for a PTO accrual on the books.

Jeff

Stephanie Geurts
Title: CFO
Company: AH West Group
(CFO, AH West Group) |

We do not account for potential forfeitures. We recognize the change in the accrual when the actual forfeiture occurs.

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