Holiday Pay Accrual FRS 102

Under FRS 102, there is a requirement to recognise a holiday pay accrual for any employees who have a remaining leave balance at the year-end. The accrual is essentially treated as any other accrual but the way in which it is calculated and the circumstances in which it must be recognised can differ from employer to employer.


The need for the accrual stems from FRS 102 section 28.1 (A). This section covers “short-term employee benefits” and defines these as “expected to be settled wholly within twelve months of the end of the reporting period in which the employees render the related service”. (for further definitions please see the latest version of FRS 102).

Upon interpretation of this, there are 2 key situations where a holiday pay accrual must be recognised:

  • Where the company’s holiday year does not match up to the financial reporting year end. This gives rise to the possibility that at the financial year end, employees may not have used up their pro-rated holiday entitlement and this will be due to them within 12 months after the financial year end.
  • The financial and holiday years do line-up and there is an agreement with the employees that their unused holiday entitlement can be carried forward or paid to them.

Essentially, if there are any days of un-taken leave at the balance sheet date and these are going to be paid within 12 months of this date, an accrual needs to be put in place.