Lesson: Employee Compensated Absences

In this lesson, Nick Palazzolo, CPA, unravels the accounting treatment for employee compensated absences such as sick pay, vacation, holidays, and maternity leave. He clarifies that these are considered as liabilities for a company when they are earned by employees. Nick elucidates that such benefits need to be accrued if they correspond to previously rendered services with vested rights, and when probable payment is expected, provided the amounts can be reasonably estimated. He also shares personal experiences to illustrate the practical implications of these liabilities, both for employers in recognizing the obligation, and for employees understanding their compensated time off.