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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 5 – Long-Term Liabilities
Employee Compensable Leave

Employee compensable leave liabilities are separately reported as both current and non-current in the statement of net position. Enter a brief description of the employee compensable leave liability in the Note Disclosure field of the LTLN web application. Classification of leave liabilities into current and non-current amounts mandates a calculation methodology rather than an averaged rate multiplied by the total ending leave balance at fiscal year-end.

GASB 16 established the standards of accounting and reporting for compensable leave (vacation and sick leave) by state and local governmental entities. A liability for sick leave is only accrued if it is probable that benefits will result in termination payments. Since the state of Texas does not make termination payments related to sick leave balances, sick leave is not included in the compensable leave calculation.

Payroll Report for Compensable Leave

The USPS Compensable Leave (Report 574) report can be run by agencies using the USPS Leave Accounting system. This report provides the current and noncurrent liability amounts for compensable leave for agencies. This report does not include amounts for Social Security and Medicare taxes.

The beginning balance may not always match the ending balance from the prior year due to differences in how beginning balances are calculated in USPS. For example, if an employee’s last day of service is Aug. 31, 20PY, the leave balances for that employee are not included in the beginning balance for the next fiscal year’s report.

In cases where the beginning and ending balances do not tie, review employee records to determine if there was a reduction in work force that occurred on Aug. 31, 20PY, or other adjustments occurred due to timing of updates to employee records in USPS. Since the current fiscal year beginning balance must tie to the prior fiscal year’s ending balance, any differences between these two amounts must be included in the additions or reductions column of the Changes in Long-Term Liabilities table.

Agencies that do not use the USPS Leave Accounting system can apply the methodology the Comptroller’s office adopted (as stated below) or they can develop their own systematic and logical methodology and ensure there is supporting documentation for their decision.

Annual Leave

Annual leave (commonly referred to as vacation leave) and other compensated absences with similar characteristics are accrued as a liability when the benefits are earned by the employee if both:

  • The employee’s rights to receive compensation are attributable to services already rendered
  • It is probable the employer will compensate the employee for the benefits through paid time off or some other means (such as cash payments at termination or retirement)

Overtime and Compensatory Leave for FLSA Non-Exempt and Exempt Employees

Under the federal Fair Labor Standards Act and state laws, overtime can be accumulated in lieu of immediate payment as compensatory leave for non-exempt, non-emergency employees up to a maximum of 240 hours. All overtime exceeding 240 hours must be paid with the next regular payroll. Upon termination or death, all overtime balances must be paid in full. For emergency personnel (firefighters, law enforcement, prison officers, etc.), overtime can be accumulated up to a maximum of 480 hours. Unpaid overtime must be included in the calculation of current and long-term liabilities because each employee may be paid for the overtime or use it as compensatory time.

Compensatory leave is allowed for exempt employees who are not eligible for overtime pay. This leave is accumulated on an hour-for-hour basis and must be taken within one year from date earned or it lapses. Legislative agencies only lapse compensatory time at the end of even numbered fiscal years. There is no death or termination benefit for compensatory leave and it is non-transferable. For these reasons, this category is reported as a current liability.

Comptroller’s Office Methodology for the Liability Calculation

Calculate the compensable leave liability based on the employee’s pay or salary rate in effect at the balance sheet date. In addition to the compensable leave liability, accrue the amount for salary-related payments associated with the payment of compensable leave for which an employer is liable to make a payment upon an employee’s termination. Such salary-related payments include the employer’s share of social security and Medicare taxes and also might include, for example, the employer’s contributions to pension plans.

An accrual for the required contribution to a defined contribution or a cost-sharing multiple-employer defined benefit pension plan is made if the employer is liable for a contribution to the plan based on termination payments made to employees for vacation leave, sick leave or other compensated absences. Do not record an additional accrual relating to single-employer or agency multiple-employer defined benefit plans.

Glenn Hegar
Texas Comptroller of Public Accounts
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