Nonprofit Accounting Basics

Accrued Vacation

Most organizations include some paid time-off in their benefits packages offered to employees. Rules concerning when an employee is eligible to receive these benefits vary widely within organizations and industries. Blue collar worker and industries often are willing to forgo benefits such as vacation and sick for higher wages. Most industries and workers rely on this type of benefit.

Vacation accrual rates may vary based on the length of service. Many organizations offer two weeks of annual vacation leave. This often increases after a stated length of service. For example, after five years of service, vacation leave increases to three week per year. Detailed descriptions of vacation and sick leave policies are found in the Employee Handbook.

The amount of accrued vacation that can be carried forward into a new calendar year varies by organization. Most organizations do provide for a limited amount of vacation that can be carried forward, resulting in a use or lose policy. This is particularly true for government organizations, where vacation leave amounts "pile up" over years of service. Employees must manage their time to ensure that no leave is "left behind". In certain situations, it can be gifted to other employees going through life or health challenges.

A basic example of vacation accruals follows:

  • Employee A receives 80 hours (2 weeks) of vacation leave per calendar year.
  • The employer pays on a bi-weekly frequency, with 80 hours as the standard number of hours per pay period.
  • Employee A receives a gross salary of $1,000 per pay period.
  • Total value of the annual vacation is $1000.

3.0769 hours of vacation are accrued per pay period. Computed as follows:

80 hours of vacation accrue for a calendar year
Divided by 26 (# of payrolls in a year, using bi-weekly as the frequency)

If Employee A has worked 6 months in a calendar year, they will have accrued ~ 40 hours of vacation.

Most automated payroll systems provide vacation and/or sick leave accrual calculators. The amount of leave accrued for any employee is reduced by the amount of leave taken.

Policies regarding when leave can be taken and taking leave in advance of accruals are typically documented in the Employee Handbook.