What is Employee Benefits Accounting?
Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees. IAS 19 classifies them into four categories: short-term benefits, post-employment benefits, other long-term benefits, and termination benefits. Each category has its own recognition and measurement rules.
How It Works
- Identify and classify each benefit by category and timing.
- Short-term benefits (within 12 months) are accrued at the undiscounted amount.
- Post-employment benefits such as end-of-service awards are measured using actuarial assumptions and the projected unit credit method.
- Disclose policies, actuarial assumptions, and key figures in the notes.
Saudi Context
The Saudi Labor Law requires end-of-service benefits (EOSB) equal to half a month’s salary for each of the first 5 years and one month per year thereafter. Saudi entities accrue EOSB using actuarial methods under IAS 19, while GOSI contributions for Saudi nationals are treated as short-term expense.
Example
A Saudi company with 100 employees accrues SAR 2 million annual EOSB using actuarial projections, plus SAR 800,000 in GOSI for Saudis and SAR 300,000 in private medical insurance. Each is recognised under the appropriate IAS 19 category.