GASB 101: Compensated Absences is the latest accounting standard set to take effect, and it brings a fresh approach to how governments recognize and report employee leave. While the concept of tracking unused vacation and sick time isn’t new, the rules around when and how to record these liabilities have changed—and it’s important for finance teams to get ahead of the transition.
What Are Compensated Absences?
Compensated absences are paid time off earned by employees, including:
- Vacation and sick leave
- Paid time off (PTO) plans
- Holiday or administrative leave
These absences represent future obligations for your agency—employees earn the right to use this leave now, but may not take it until months or years later. That’s why it’s important to properly account for these liabilities.
What’s Changing with GASB 101?
Previously, governments relied on GASB Statement No. 16 to account for compensated absences. GASB 101 simplifies and clarifies that guidance while modernizing how leave is recognized and measured.
Here are the key changes:
- Single Recognition Model
All types of compensated absences now fall under one model. No more juggling rules between vacation, sick leave, or PTO plans.
- Recognition Timing
Governments must now recognize a liability when:
- The leave is attributable to services already rendered, and
- It accumulates—meaning it can be carried forward and used in future periods.
This focuses on when the leave is earned, not when it’s used.
- Measurement
Accruals should reflect the amount the employee is expected to be paid, including:
- Base pay
- Certain salary-related payments (like Social Security, Medicare, or retirement contributions)
How This Impacts Government Finance Departments
Implementing GASB 101 may result in more consistent and, in some cases, larger compensated absence liabilities on your balance sheet. Here’s what to keep in mind:
- Liabilities may increase if previously unrecorded or limited accruals (like sick leave) now meet recognition criteria.
- Budgeting might need adjustment to reflect these changes in year-end liabilities.
- Year-end close processes will need updates to reflect new calculations.
- Audit readiness requires coordination between HR, payroll, and accounting.
Tips for Implementation
If you haven’t already started preparing, now’s the time. Here’s how to get ahead of GASB 101:
- Review your current leave policies
- Ensure you understand which types of leave accumulate and are eligible for carryover or payout.
- Coordinate with HR and payroll
- Make sure systems can track accrued leave balances by employee and include necessary salary-related components.
- Update your internal schedules
Whether you use spreadsheets or accounting software, prepare a reliable schedule for calculating and reviewing liabilities.
- Document your process
- Create a checklist or procedure for year-end to ensure consistency and audit support.
Journal Entry Example
Let’s say an employee earned $1,500 in unused vacation and you owe $115 in related payroll taxes.
Dr. Salaries/Functional Expense ………. $1,615
Cr. Accrued Compensated Absences Liability ……… $1,615
On the books, this reflects the total cost to the government for services already rendered by the employee.
What Will Auditors Look For?
From an audit perspective, be ready to provide:
- Written leave policies and union agreements
- Payroll data to support accrued leave balances
- Support for pay rates and benefit calculations
- Reconciliations to the general ledger
Expect auditors to review assumptions and test calculations—especially during the first year of adoption.
Final Thoughts
GASB 101 goes into effect for fiscal years beginning after December 15, 2023, which means many agencies are implementing it now. While it might seem like just another compliance task, this standard offers a clearer, more consistent way to account for employee leave—and provides your stakeholders with a more transparent view of your government’s employee obligations.
Need help preparing for GASB 101? Join us for our upcoming webinar, where LSL Director James Butera, CPA will break down everything you need to know about implementing the new standard. Register here: https://us02web.zoom.us/webinar/register/WN_OLDqwy0sRqKKoBrj67Yc9w#/registration
Don’t miss this chance to ask your questions and prepare your department with confidence.
