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:
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.