In June 2022, the Governmental Accounting Standards Board (GASB) issued a new standard that would provide sweeping changes to how governments account for the various types of compensated absences. The previous guidance, GASBS 16 Accounting for Compensated Absences, had become outdated with the advent of new forms of leave which were not originally conceived of. As such, GASB has gone back to the drawing boards and has decided to replace GASBS 16 with GASBS 101, Compensated Absences. 

The primary goals of GASBS 101 were to address the following: 

1. Consolidate the various recognition models for the different types of leave into a unified framework.
2. Revisit the recognition criteria using a principles-based approach, moving away from the rules-based structure of GASBS 16.

Key Recognition Criteria

Under GASBS 101, governments must recognize a liability for compensated absences when all of the following conditions are met:

• The leave is attributable to services already rendered.
• The leave accumulates.
• The leave is more likely than not (i.e. >50% likelihood) to be used for time off or otherwise paid in cash or settled through noncash means.

To determine whether leave is more likely than not to be utilized, management should evaluate the following items:

• The government’s policies on compensated absences.
• Whether earned leave is, or will be, eligible for future use or payment.
• Historical trends in usage, payment, or forfeiture of leave.
• Any known changes that may cause historical data to not reflect future trends.

What Qualifies as a Compensated Absence?

Leave Type

GASBS 101 defines compensated absences as leave where employees may receive:

• Cash when the leave is used for time off,
• Cash payments for unused leave upon termination, or
• Noncash settlements (e.g., converting unused leave to postemployment benefits).

Common examples include vacation (or annual) leave, sick leave, and paid time off (PTO).

However, leave types triggered by sporadic or infrequent events (e.g., parental leave, military leave, jury duty, holiday leave) are not recognized until the leave actually begins or occurs.

Valuation of the Liability

The liability for compensated absences should be measured using the employee’s current pay rate as of the reporting date of the financial statements. If an employer uses a different rate for leave payouts (e.g., a percentage of their current pay rate at termination), the liability should reflect that alternate rate as of the reporting date. 

For example, if leave is paid out at 25% of an employee’s pay rate at time of payment, the leave liability balance would use 25% of the employee’s pay rate as of the date of the financial statements.

Scenario 1 – Payout cap, unlimited accrual, payout rate difference

The City of ABC pays out all vacation leave up to 400 hours upon termination. It does not get paid out into a defined benefit plan. The City clerk had 800 hours of vacation leave accrued as of the fiscal year ended September 30, 2025. The Clerk’s hourly rate at September 30, 2025, was $20. Based on management’s evaluation of historical trends for utilized leave, the City expects for the Clerk to utilize 20% accrued balance while employed with the City. The City pays out all accrued leave at a rate of 25% of their pay at time of termination.

Scenario 2 – Payout cap, accrual cap, no payout rate difference

The City of Appleton pays out all vacation leave up to 400 hours upon termination. It does not get paid out into a defined benefit plan. The Staff Accountant had 800 hours of vacation leave accrued as of the fiscal year ending September 30, 2025. The City has a cap on accrued vacation leave of 400 hours. The Staff Accountant’s hourly rate at September 30, 2025 was $20. Based on management’s evaluation of historical trends for utilized leave, the City expects for the Staff Accountant to utilize 20% accrued balance while employed with the City. The City pays out all accrued leave at the full pay rate at time of termination.

Below is a comparison to how Scenario 1 and 2 would be treated under GASB 101. 

 

Disclosure Changes

GASB has also had a chance to revisit the required disclosures and, after much discussion, has decided to make some well received simplifications to the required disclosures for compensated absences.

Governments can now present changes in long-term liabilities for compensated absences as either  separate increases and decreases, or  as a net amount. When presenting net, a government should indicate to the reader that the amount has been netted.

Additionally, governments are no longer required to disclose the governmental funds that will typically be used to liquidate the long-term liability for compensated absences.

Effective Date

The effective date of the pronouncement is for fiscal years beginning after December 15, 2023, and all reporting periods thereafter. Florida municipalities will need to implement this pronouncement in fiscal year ended September 30, 2025.

Conclusion

GASBS 101 modernizes the accounting treatment for compensated absences by aligning it with evolving leave policies and simplifying recognition under a principles-based model. Governments should assess their leave policies and data practices to ensure compliance with the new standard. Additionally, governments may wish to revisit their policies around compensated absences to streamline the new necessary liability calculations required with the adoption of GASBS 101. This can reduce complexity in implementation and ensure alignment with the new guidance.

If you need assistance preparing for your audit or need assistance with the implementation of this pronouncement, CFLG is here to help. Contact us at (305) 662-7272 or email us at info@cflgcpa.com.