EMPLOYEE BENEFITS

IAS 19 AND CHAPTER 11 OF INTRODUCTION TO IFRS

1 LECTURE 2: SHORT TERM ABSENCES
 EMPLOYEE BENEFITS
2
PURPOSE AND OBJECTIVE

The purpose and objective of this session are to help you

 Identify the categories of employee benefits.
 Identify, recognise, measure, and disclose all short term employee benefits, and
especially provision for leave benefits and bonuses.
 Apply the theory in discussion questions.

CONTENT MATERIAL

Content material
 Introduction to IFRS: Chapter 11 Sections 2 - 4.
 A guide through IFRS: IAS 19: Par 9 – 25 (Par 1 – 8 only as far as it relates to short-
term employee benefits.)
Please note that only short-term employee benefits falls within the scope of this
module. Therefore, all references to Post-employment benefits, other long-term
employee benefits and termination benefits are excluded for this year.
3 SHORT-TERM COMPENSATED ABSENCES
(LEAVE) Introduction to IFRS
Chap 11 Par 4.1.2
One of the items classified as a short-term employee benefit is paid annual and sick leave.
(This means that the employee still gets his salary and all fringe benefits while he/she is on
leave).
Full time employees are entitled to the abovementioned leave. The number of leave days are
depending on the employment contract.
Leave may either be:
➢ non-cumulating – that means if you do not take the leave that you are entitled to this year,
you lose it and it may not be taken it future.
or
➢ accumulating – that means that if you do not take it in the current year, it will be transferred
to the next year. There may be a limit on for how long you can accumulate your leave.
Employment contracts may specify that cumulating leave can either be paid out or it can be
taken in future years.
 IAS 19
4 ACCUMULATING PAID LEAVE PAR 13 -16

Accumulating compensated absences (e.g.

leave) may be classified as: Introduction to IFRS
Chap 11 Par 4.1.2

Employees are entitled to a

Vesting cash payment upon leaving
the entity.

Employees are not entitled

Non-vesting to a cash payment upon
leaving the entity.
 See also Introduction to IFRS
5 MEASUREMENT Example 11.4

• Use Gross salary

PAID OUT
IN CASH

• Use Cost to company

LEAVE
TAKEN

Cost to company = Gross salary

+ Employer contributions
6 ACCUMULATING PAID LEAVE: IAS 19 PAR
13 -16
PAID OUT (VESTING )
When an employee did not take leave during the year and it will be paid out in the future, it
creates a liability for the employer.
The journal entry will thus be:

Dr Short-term employee benefit cost (SPL) xxx

Cr Leave pay accrual (SFP) xxx

The leave that is paid out will be calculation on the gross salary of the employee.

The calculation of the amount of the liability is often challenging for most students. We will
do an example in the next few slides.
Introduction to IFRS
Chap 11 Par 4.1.2
 EXAMPLE: ACCUMULATING PAID LEAVE:
7
PAID OUT (VESTING)
Van Ltd (Van) has a 5 day work week and gives their staff 21 paid holiday days per annum. Staff are allowed
to carry forward their untaken holiday days at the end of a year to the next year and it will be paid out at the
31 December of the next year.
The Human Resources Manager has a prepared a schedule of staff salaries and outstanding holiday days at
the end of the current year – 31 December 20.19.

Number of days holiday

Grade Number of staff Salary per month per staff member
outstanding per staff member
R
A 21 4 000 3.8
B 46 6 500 9.5
C 50 9 200 7.6
D 25 11 600 4.3
E 6 22 400 1.6
Each staff member has to contribute 1% of the above salary for the unemployment fund and 12,5% to the
company’s pension fund. The company contributes equal amounts to the abovementioned funds.
After a period of negotiations, agreement has been reached between the company and the staff, and an
increase of 8% will be paid to all staff on 1 January 20.20
REQUIRED:
Calculate the amount of the accrual for leave pay at 31 December 20.19.
 EXAMPLE: ACCUMULATING PAID LEAVE:
8
PAID OUT (VESTING)
Suggested solution:
Use only Grade A employees for example.
➢ Calculate the number of working days in the year (if not given in a question):
52 weeks x 5 days per week = 260 days per year.
➢ Total gross salary per year :
R4 000 x 12 = R48 000.
➢ Total gross salary 20.20 when leave will be paid out:
R48 000 x 1,08 = R51 840
➢ Average pay per day
R51 840 / 260 days = R199,38 (rounded)
➢ Leave pay accrual for grade A employees: See also Introduction to
IFRS Example 11.3 and 11.4
R199,38 x 3,8 days x 21 employees = R15 910,52
9 EXAMPLE: ACCUMULATING PAID LEAVE:
PAID OUT (VESTING )
Complete the following table (Use excel if you have access):

Salary per No of days Annual Average

Annual Total accrual
No of month per holiday salary No of daily
Grade gross for all grade
staff staff outstanding per after days salary
salary employees
member staff member increase 20.20
R
A 21 4 000 3,8 48 000 51 840 260 199,38 15 910,52
B 46 6 500 9,5 78 000
C 50 9 200 7,6 110 400
D 25 11 600 4,3 139 200
E 6 22 400 1,6 268 800
Total accrual
See also Introduction to IFRS
Example 11.3 and 11.4
10 CALCULATION OF TOTAL ACCRUAL
Number of Annual Average
Salary per Annual
Number days holiday salary No of daily Total accrual
Grade month per gross
of staff outstanding per after days salary for all grade
staff member salary
staff member increase 20.20 employees
R R R R R
A 21 4 000 3,8 48 000 51 840 260 199,38 15 910,52
B 46 6 500 9,5 78 000 84 240 260 324,00 141 588,00
C 50 9 200 7,6 110 400 119 232 260 458,58 174 260,40
D 25 11 600 4,3 139 200 150 336 260 578,22 62 158,65
E 6 22 400 1,6 268 800 290 304 260 1 116,55 10 718,88
404 636,45

Journal Dr Cr
See also Introduction
R R to IFRS Example 11.3
Dr Short-term Employee benefit cost (SPL) 404 636 and 11.4
Cr Leave pay accrual (SFP) 404 636
11 ACCUMULATING PAID LEAVE: IAS 19 PAR
13 - 16
TAKEN
When an employee did not take leave during the year and the outstanding leave days
are going to be taken in the future, it creates a liability for the employer.

The journal entry will thus be:

Dr Short-term employee benefit cost (SPL) xxx
Cr Leave pay accrual (SFP) xxx

The employee will still be getting all the fringe benefits during the next year when the
leave is taken, the calculation will thus be done of the basis of the cost to company.
 EXAMPLE: ACCUMULATING See also Introduction to IFRS
12 Example 11.3 and 11.4
PAID LEAVE: TAKEN
Van Ltd (Van) has a 5 day work week and gives their staff 21 paid holiday days per annum. Staff are allowed
to carry forward their untaken holiday days at the end of a year to the next year and a staff member have to
take the leave during the next year.
The Human Resources Manager has a prepared a schedule of staff salaries and outstanding holiday days
at the end of the current year – 31 December 20.19.
Number of days holiday
Grade Number of staff Salary per month per staff member
outstanding per staff member
R
A 21 4 000 3.8
B 46 6 500 9.5
C 50 9 200 7.6
D 25 11 600 4.3
E 6 22 400 1.6
Each staff member has to contribute 1% of the above salary for the unemployment fund and 12,5% to the
company’s pension fund. The company contributes equal amounts to the abovementioned funds.
After a period of negotiations, agreement has been reached between the company and the staff, and an
increase of 8% will be paid to all staff on 1 January 20.20

REQUIRED:
Calculate the amount of the accrual for leave pay at 31 December 20.19.
13 EXAMPLE: ACCUMULATING PAID LEAVE: TAKEN
Suggested solution:
Use Grade A employees only for example.
➢ Calculate the number of working days in the year (if not given in a question):
52 weeks x 5 days per week = 260 days per year.
➢ Calculate the cost to company:
Total cost to company (20.21 when leave is taken) R
Gross salary 51 840,00
UIF contribution 518,40
Pension fund contribution 6 480,00
58 838,40

➢ Calculate the cost to company per day:

R58 838,40 / 260 = R226,30
➢ Calculate the total leave accrual for grade A employees:
R226,30 x 3,8 days x 21 employees = R18 058,74
14 EXAMPLE: ACCUMULATING PAID LEAVE: TAKEN
Complete the following table (Use excel if you have access):

No of days Annual
No holiday gross UIF Pension Total Total accrual
Average daily
Grade of outstanding salary contribution contribution cost to for all grade
salary 20.20
staff per staff after of company by company company employees
member increase
R R R R R R
A 21 3,8 51 840 518,40 6 480 58 838,40 226,30 18 058,74
B 46 9,5 84 240
C 50 7,6 119 232
D 25 4,3 150 336
E 6 1,6 290 304
15 EXAMPLE: ACCUMULATING PAID LEAVE: TAKEN
No of days
Annual Average
holiday UIF Pension Total cost Total accrual
No of salary daily Cost
Grade outstanding contribution contribution to for all grade
staff after to company
per staff of company by company company employees
increase 20.20
member
R R R R R R
A 21 3,8 51 840 518,40 6 480 58 838,40 226,30 18 058,74
B 46 9,5 84 240 842,40 10 530 95 612,40 367,74 160 702,38
C 50 7,6 119 232 1 192,32 14 904 135 328,32 520,49 197 786,20
D 25 4,3 150 336 1 503,36 18 792 170 631,36 656,27 70 549,03
E 6 1,6 290 304 2 903,04 36 288 329 495,04 1 267,29 12 165,98
459 262,33

Journal Dr Cr
R R
Dr Short-term Employee benefit cost (SPL) 459 262
Cr Leave pay accrual (SFP) 459 262
16 HOMEWORK

You can do the following questions in your module guide:

➢ Question 2
➢ Question 3
➢ Question 5
➢ Question 6

Please do the questions on your own, then mark it and correct your
own work. Make notes on errors made and correct your thinking
pattern where necessary.