Compensated Absences 05 1

1
Compensated Absences

• Rebecca Caravati
• Director, Rate Management
• Georgia Tech Research Institute

2
What Are Compensated Absences?

• Per CAS 408, Compensated personal absence means
  any absence from work for reasons such as
  illness, vacation, holidays, jury duty or
  military training, or personal activities, for
  which an employer pays compensation directly to
  an employee in accordance with a plan or custom
  of the employer.

3
What Is the Cost of Compensated Absences?

• Compensated absence expense equals the pro rata
  share of an employees salaries and wages earned
  while on leave. For example, if an employee
  earns 100,000 and takes 30 days of leave during
  the year, the total compensated absence expense
  equals 11,538 calculated as follows

Total Days Worked 230 88Total Leave
Days 30 12 Total Week Days 260 100 Cost of
Days Worked 88,462 88Cost of Days on
Leave 11,538 12 Total Annual
Salary 100,000 100
4
How Do We Recover Compensated Absence Cost?

• Method 1
• Leave time is charged to whatever project the
  employee is working on at the time leave is
  taken.
• Method 2
• Leave time is allocated pro rata on an annual
  basis to all projects through the application of
  a compensated absence rate (may be a separate
  rate or included in fringe benefit rate).

5
Method 1

• The cost of compensated absences are not
  separately captured and reported. They are
  included in the salaries and wages or personal
  services charged to various projects. A
  full-time employee charges 100 time to projects.
  No time is charged to an absence account.
  Example

Personal ServicesCharged to NASA 50,000 50 Pers
onal ServicesCharged to NSF 50,000 50 Total
Annual Salary 100,000 100
6
Method 1 (continued)

• If an individual employee only charges to one
  project for the entire year that project is
  fairly burdened.
• If however an employee charges to more than one
  project and leave is not taken evenly during the
  course of the year, the cost of leave may not be
  fairly distributed.

7
Method 1 (continued)

• Project charges may be particularly distorted
  during months of extended sick leave or months
  with extensive holidays (December) or vacation.
• In the university setting, this may often lead to
  transferring project time to institutional
  accounts. Consequently, institutional funds
  often bear a disproportionate share of the cost
  of leave time.

8
Method 2

• All projects bear a pro rata share of compensated
  absence expense.
• The cost of leave time is captured and reported
  separately.
• This cost is then spread pro rata across all
  projects through the application of a compensated
  absence rate.

9
Example of Method 2
Payroll Absences Time Distri- At Project Repo
rted bution 13.04 Costs
Salaries and Wages Charged to NASA 44 44,231 5
,769 50,000 Salaries and WagesCharged to
NSF 44 44,231 5,769 50,000 Salaries and
WagesCharged to Leave 12 11,538
Total 100 100,000 11,538 100,000
10
Examples Comparing Methods 1 and 2

• Assume employee works January through June on
  NASA and July through December on NSF research
  projects.
• During first half of the year, employee takes 5
  days of vacation.
• During second half of the year, employee takes 5
  holidays and 20 days of sick leave.

11
Method 1 vs. Method 2
Days Payroll Total Actually
Time Distri- Charged METHOD 1 Worked Reported but
ion to Sponsor
Personal Services Charged to NASA 125 50 50,000
50,000 Personal Services Charged to
NSF 105 50 50,000 50,000 Total Annual
Salary 230 100 100,000 100,000
Days Payroll Plus Total Actually
Time Distri- Absences Charged METHOD
2 Worked Reported bution at 13.04 to Sponsor
Personal Services Charged to NASA 125 48 48,077
6,271 54,348 Personal Services Charged to
NSF 105 40 40,385 5,268 45,652 Personal
Services toCharged to Leave Time 12 11,538 -1
1,538 Total Annual Salary 230 100 100,000 0
100,000
12
Same Example, Except Sick Time is Transferred to
an Institutional Fund

• Assuming 20 Days of Sick Leave is Transferred to
  Institution Account

Days Payroll Total Actually
Time Distri- Charged METHOD 1 Worked Reported but
ion to Sponsor
Personal Services Charged to NASA 125 50 50,000
50,000 Personal Services Charged to
NSF 105 42 42,308 42,308 Personal Services
toInstitutional Funds 8 7,692 Total Annual
Salary 230 92 100,000 92,308
Days Payroll Plus Total Actually
Time Distri- Absences Charged METHOD
2 Worked Reported bution at 13.04 to Sponsor
Personal Services Charged to NASA 125 48 48,077
6,271 54,348 Personal Services Charged to
NSF 105 40 40,385 5,268 45,652 Personal
Services toCharged to Leave Time 12 11,538 -1
1,538 Total Annual Salary 230 100 100,000 0
100,000
Compensated Absences 05 - 12
13
Calculating Compensated Absence Rates

• CAS 408 provides guidance on the use of
  compensated absence rates for the recovery of
  paid leave time.
• Separate rates need to be calculated for
  different classes of employees.
• Leave costs are included in the rate calculation
  either
• As taken or
• As earned.

14
Calculating Compensated Absence Rates

• For example, sick leave, holidays, military and
  other administrative leave are typically
  recovered as taken.
• Vacation, if payable upon termination of the
  employee, should be recovered as earned.
• For amounts recovered as earned, estimated
  liability should be reduced for anticipated
  nonutilization if material.