When Does a Company Accrue Vacation and Sick Pay?
Not every unused day off creates the same liability. The right must meet the applicable accrual criteria.
Vacation benefits
Vacation rights commonly accumulate with employee service and can therefore create a liability before the employee actually takes the time off.
Sick pay
Sick-pay benefits are accrued only when the applicable criteria are satisfied, which depends on whether benefits vest, accumulate, and are expected to be paid.
Measurement
The liability reflects the amount expected to be paid based on applicable compensation rates and plan terms.
Exam strategy
Focus on vesting, accumulation, probability of payment, and whether the obligation relates to service already rendered.
The takeaway
Vacation benefits are often accrued when rights accumulate and payment is probable. Sick pay is more fact-dependent because many plans do not vest or accumulate in the same way.
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FAQ
Is all unused sick leave automatically accrued?
No.
Can unused vacation create a liability before the employee takes leave?
Yes.
Do plan terms matter?
Yes.