Accounting



How do you calculate accrued vacation pay?

Accrued vacation pay is the amount of vacation pay which has been earned by the employee but has not yet been paid to the employee.

To illustrate accrued vacation time and accrued vacation pay let’s assume that the employee’s contract guarantees 120 hours of paid vacation time per year (40 hour work week times 3 weeks). If the employee’s hourly pay rate is $26 per hour, the employee is earning vacation pay of $3,120 per year (120 hours x $26), or $60 per week ($3,120 per year divided by 52 weeks). The company is also incurring vacation pay expense and a liability of $60 per week. In terms of vacation time, the employee is earning 2.31 hours of vacation time each week (120 hours per year divided by 52 weeks per year) or 2.45 hours based on 120 hours divided by the 49 weeks not on vacation.

At December 31 the company has a liability for the vacation hours and vacation pay that the employee has earned and is entitled to if the company were to close. If the employee has worked 20 weeks since the employee’s anniversary date with the company and the last vacation payment, then the company should report a current liability of $1,200 (20 weeks x $60 per week.)

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.




Comments

7 Responses to “How do you calculate accrued vacation pay?”

  1. Wallter on May 14th, 2009 6:43 pm

    does the accrued time calculates diffently for salary and non-salary employees?

  2. Mohamed on June 16th, 2009 11:40 pm

    i have one doubts this accruals when have to post in accounts every month or end of the accounting year pls explain who knows through

  3. Mostafezur on June 17th, 2009 8:11 am

    For consistent and spreding expenses over the year , you can make accrue every month in your books and in the every employee sub ledger.

  4. Theresa on February 18th, 2010 12:45 pm

    What about part-time employees for vacation pay?

  5. Shaji Mathew on February 25th, 2010 8:57 am

    Did the Salary paid by GM is his wife’s Salary or his mother’s salary?

  6. Anita on April 26th, 2010 1:44 pm

    We have two part-time employees on contract with our firm and wish to know how much vacation pay they are entitled to. They both work 20 hours a week at $18.36 per hour, one has deductions of CPP, EI, and IT taken out, the other does not. Thank you for your response in advance.

  7. Daniela on August 31st, 2010 9:26 pm

    Gostaria de saber se a empresa tem o direito de dar férias para um funcionário um mês antes de vencer as férias dele, sendo que tem outro funcionário com férias vencidas a três meses? Esse funcionário com férias vencida não deveria pegar primeiro? Sendo que do outro falta ainda um mês para vencer?

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