Section 23: Employee Benefits (AASB 1061_04-26)

This section applies to employee benefits, except when paragraph 1.5 requires or permits a different accounting treatment. Employee benefits are all forms of consideration given by an entity in exchange for services rendered by employees, including directors and management. Employee benefits include: 

(a) wages and salaries (including performance-related bonuses); 

(b) compensated absences (such as annual leave, sick leave and long-service leave); 

(c) post-employment benefits, such as employer contributions to defined contribution plans; and 

(d) non-monetary benefits (such as medical care, housing, motor vehicles and other free or subsidised goods or services) for current employees.

Subject to paragraph 23.3, an entity shall record the cost of all employee benefits to which its employees became entitled as a result of services rendered to the entity during the reporting period as follows: 

(a) as a liability, after deducting amounts paid either directly to the employees or to a third party on their behalf (eg payment of a tax instalment or a contribution to a defined contribution plan). If the amount paid exceeds the obligation arising from services received before the end of the reporting period, the entity shall record that excess as an asset to the extent that the prepayment will lead to a reduction in future payments or a cash refund; and 

(b) as an expense, unless the cost is recorded as part of the cost of an asset such as inventory or an item of property, plant and equipment, as required by another section of this Standard.

Notwithstanding paragraph 23.2, an entity shall record the cost of employee benefits that: 

(a) may only be taken during employment with the entity; and 

(b) do not entitle employees to a cash payment for unused entitlements on leaving the entity; 

when, and only when, the entitlement is used. Examples of these employee benefits are sick leave and parental leave.

Accumulating paid absences (leave) are employee entitlements that are carried forward and can be used in future periods if the current period’s entitlement is not used in full. Examples of accumulating paid absences include annual leave, sick leave and long-service leave entitlements. In applying paragraphs 23.2 and 23.3, an entity records a liability for employee benefits only for those accumulating paid absences for which, at some past (or future) time, the employee has (or will) become entitled to payment of the accumulated entitlement when they depart the entity (eg annual leave and long-service leave).

Non-accumulating paid absences lapse if the current period’s entitlement is not used in full and do not entitle employees to a cash payment for unused entitlements on leaving the entity. In applying paragraphs 23.2 and 23.3, an entity records the cost of non-accumulating paid absences only when the absences occur. Examples of non-accumulating paid absences are jury service and compensated time-in-lieu balances that expire at the end of the reporting period.

An entity shall measure employee benefits at the undiscounted amount of the employee benefits expected to be paid in exchange for the services rendered, using the pay rates applicable at the reporting date and ignoring any approved or possible future pay rises. The cost for the period of accumulating paid absences that are payable on departure is the increase during the period in those entitlements that the entity expects to pay or has already paid.

An entity shall remeasure its liability for employee benefits for changes in its estimate of employee benefits expected to be paid in exchange for the past services rendered, including to reflect changes during the period in pay rates and in expectations of whether the entitlement will become available to the employee. The remeasurement of the liability shall be recorded as part of the cost of employee benefits of the reporting period.

In estimating a provision for long-service leave, an entity shall take into account the likelihood that employees will become entitled in a future period to use (or be paid out) their long-service leave benefits. Approaches for estimating the obligation include by reference to the probability-weighted expected value of all possible outcomes or to the most likely outcome of the obligation.

An entity shall disclose the amount recorded in profit or loss as an expense for defined contribution plans.