Share this content

Annual Leave Accrual FRS 102 - prior year

Making the accrual for unused annual leave at the year end date.

Didn't find your answer?

Good Evening

I have a client whom for the first time has an accrual to include in the accounts in respect of annual leave which had not been taken by the year end date - I suspect this might be the first of many!

Last year there was a small, immaterial, amount of leave owing to staff and so no adjustment was made, however this year most staff had a significant amount of holiday outstanding at the yer end date due to the pandemic.

I am comfortable with the calculations and entries in the accounts for the current year- but just wanted to double check whether I need to make any adjustments for the small amount of holiday carried forward into the accounting period (similar to the adjustment which would have been required in the first set of accounts under the accounting standard).

As ever thank you in advance for any responses.

Replies (4)

Please login or register to join the discussion.

By lionofludesch
04th May 2021 19:11

I vote no. As you say, it was immaterial.

Thanks (2)
By paulhammett
04th May 2021 19:11

If it was immaterial last year, forget about it and just get this year's accrual right.

Thanks (1)
By Hugo Fair
04th May 2021 20:33

Just to answer a bunch of related but unasked questions:

1. The amount of 'unused' annual leave not taken may consist of two 'types' for which different rules apply:
* statutory leave (which subject to the comment below relating to the pandemic) cannot be carried forward - it is 'use it or lose it';
* contractual leave (any amount to which the employee is entitled over and above the statutory component), which can be carried forward and/or paid 'in lieu' (subject only to what the specific employment contract T&Cs say on the matter).

2. When calculating entitlement (and of course how much has been taken in the holiday year), you need to know the start/end dates of the holiday year ... for which there is no statutory definition, so again you are reliant on the employment contract. [They are often consistent across the organisation - e.g. 1st Sep to 31st Aug for many schools/colleges - but can even be the anniversary of each employee's first day of employment!]

3. Strictly speaking, as of last year, you should only calculate the 'value' of holiday pay as at the first day of when the holiday is taken (because of the need to look back and average pay, not just basic salary, over the preceding 52+ weeks). Whilst a total pain, this new set of regs is (just about) possible to follow when you know the start date of each employee's every period of leave (the rate of pay may differ in different holiday periods for the same employee)! But good luck (especially with anyone on variable pay and/or irregular overtime etc) in determining the value to accrue - as you don't know when the holiday will actually be taken.

4. Although there was a 'relaxation' announced last year (with regard to the normal 'use it or lose it' concept) due to the impact of coronavirus, most of the associated guidance was fairly clear that there was nothing (other than heartlessness) to stop employers insisting on furloughed employees using up their paid leave during a period of furlough. So the govt's expectation was that only those who couldn't (as opposed to didn't want to) take their annual leave - such as for instance many health workers on critical wards - would end up with accrued holiday to carry forward.

Basically, the topic of holiday pay is probably the only concept that is hated equally (and often misunderstood) by most HR and Payroll teams, so welcome to their world!
I'm not recommending it, but whenever you feel that the amount is likely to be immaterial then I'd go with that instinct.

Thanks (2)
By paul.benny
05th May 2021 16:07

I'm not a fan of holiday pay accruals for UK employees.

In some countries (eg Netherlands), culturally and maybe legally, holidays can be carried forward almost indefinitely. People build up large balances and can and do cash them out when they leave/retire.

In the UK, we don't typically accrue for untaken holiday each month. Most employers have a use-it-or-lose-it policy and with a stable workforce, only ever pay out a relatively small amount when people leave. The nearest most leavers get is to use their remaining days off at the end of their notice period.

Thanks (1)
Share this content