401.2 Employment Related Liabilities

Owned by Chad
May 20, 2021

POLICY STATEMENT 

PSU’s recording of payroll expenses in the accounting records and financial statements follows the accrual method of accounting and applicable statements of the Governmental Accounting Standards Board (GASB). All payroll expenses incurred but not paid as of fiscal year-end are recorded and reported as an employment related liability.

PSU seeks to ensure that the policies and procedures related to recording of payroll expenses in the accounting records and financial statements are documented, communicated, clearly understood, and consistently applied.

PSU RESPONSIBILITIES

  • To ensure that actual payroll expenses agree to the compensation terms of the university’s employment agreements, notices of appointment, and bargaining agreements.
  • To ensure that all payroll expenses, including applicable taxes, pension costs, etc., incurred but not paid as of fiscal year-end are recorded as employment related liabilities in the university accounting records.
  • To prepare an annual schedule pertaining to employment related liabilities.

EMPLOYMENT RELATED LIABILITIES POLICIES

General Policies

Payment and funding of the compensation provisions of employment agreements, notices of appointment, and bargaining agreements are the responsibility of the university. All compensation, regardless of funding source, is recorded in the university’s accounting records.

Payroll expense is incurred when earned by employees based on when the services required to earn the compensation, benefits, or other pay have been performed. Services performed by employees that benefit future years are still considered a period cost and are therefore recorded as payroll expense, not prepaid expense.

Payroll expense not paid by June 30 represents an employment related liability.

The university is responsible for ensuring that actual payroll expenses agree to the compensation terms of the university’s employment agreements, notices of appointment, and bargaining agreements.

Academic-year employees paid over 12 months

Some nine month academic year employees elect to receive paychecks over 12 months. The payroll expense is incurred during the academic year (from September through June) but is paid throughout the calendar year. Payroll expenses incurred but not paid by June 30 represent a liability. This liability is recorded in the university’s accounting records in account codes that roll up to account code B1000 – Salary and Wages Payable.

Hourly payroll

Pay periods for employees earning wages on an hourly basis are often from the 16th of one month to the 15th of the following month and are paid at the end of that following month. The fiscal year-end accounting records at June 30 do not include the hourly payroll incurred from June 16 through June 30. This liability pertaining to hourly payroll is accrued at the end of the year. 

Compensated absences

Compensated absences liability is estimated annually by PSU, and recorded in the university’s accounting records in account code B1990 – Compensated Absences Liability. Refer to PSU’s policy 401.0 Payroll-Compensated Absences

Early retirement liabilities

Liabilities incurred for early retirement incentives are recorded in the university’s accounting records with account code B0370 – Early Retirement Liability. The liability is calculated at the discounted present value of expected future benefit payments, using the monthly averages of the past 5 years of the Oregon Short-Term Fund annual yield as the discount rate. If there are early retirement liabilities, PSU would maintain the records to calculate the liability.

Other post-employment benefits

Liabilities for other post-employment benefits (OPEB) are not recorded in the university accounting records. The change in OPEB obligation is based on an actuarial valuation for the State of Oregon.  The liability is allocated to state agencies by the Department of Administrative Services based on actual health insurance premiums paid by agencies.

Termination pay

The liability for termination pay is recorded in the university’s accounting records in account code B1992 – Employee Termination Liability. The liability is calculated at the discounted present value of expected future benefit payments, including applicable taxes, pension costs, etc., using the monthly averages of the past 5 years of the Oregon Short-Term Fund annual yield as the discount rate. If there are termination pay liabilities, PSU would maintain the records to calculate the liability.

OUS Supplemental Retirement Plan

Universities make payments required by employment agreements to the OUS Supplemental Retirement Plan by the close of each fiscal year. The payments are made to the Chancellor’s Office fund 940012 –Supplemental Retirement Plan Contrib, and are recorded in the university’s accounting records in account code 10907 – OPE JV Adj Retirement.

Deferred compensation

Deferred compensation as provided for in employment agreements is recorded as a liability in the university’s accounting records in liability account B1991 Deferred Comp Liability (Unfunded), and expense account 10934 – Accrued Deferred Comp (Unfunded). The liability and expense are updated on a monthly basis.

Universities are encouraged to record the deferred compensation liability in a separate fund especially if the funding for the deferred compensation will come from Foundation and/or other gift sources.

ANNUAL SCHEDULE

Universities provide an annual schedule to the OUS Controller’s Division of the employment related liabilities. (See Section .700 for sample schedule.) The schedule is as of fiscal year end and is therefore dated June 30 of the fiscal year-end.