Accounting for Employee Benefits under IAS 19

Posted 27 August 2025 Written by Acts Online
Category Accounting and Finance

Brought to you by SA Accounting Academy: This guide outlines the regulatory requirements for the recognition and measurement of employee benefits under International Accounting Standard 19 (IAS 19).

In terms of International Accounting Standard 19 (IAS 19), employee benefits are defined as all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment. The standard requires an entity to recognise a liability when an employee has provided service in exchange for benefits to be paid in the future, and an expense when the entity consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.

The standard categorises benefits into four distinct groups:

  • Short-term employee benefits: Benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. These include wages, salaries, social security contributions, and paid annual leave.
  • Post-employment benefits: Benefits such as retirement benefits (e.g., pensions and lump sum payments on retirement) and other post-employment benefits, such as post-employment life insurance and post-employment medical care.
  • Other long-term employee benefits: Benefits that are not expected to be settled wholly before twelve months after the end of the annual reporting period, such as long-service leave or sabbatical leave.
  • Termination benefits: Benefits provided in exchange for the termination of an employee’s employment as a result of either an entity’s decision to terminate employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment.

Accounting for Leave and Post-Employment Plans

Under IAS 19, the accounting treatment for compensated absences depends on whether they are accumulating or non-accumulating. Accumulating benefits are those that are carried forward and can be used in future periods if the current period’s entitlement is not used in full. These may be either vesting (employees are entitled to a cash payment for unused entitlement on leaving the entity) or non-vesting.

Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans:

  • Defined contribution plans: The entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. The actuarial risk and investment risk fall on the employee.
  • Defined benefit plans: The entity’s obligation is to provide the agreed benefits to current and former employees. Actuarial risk and investment risk fall on the entity. If actuarial or investment experience are worse than expected, the entity’s obligation may be increased.

Entities must also distinguish between accounting costs and tax implications. While IAS 19 focuses on the cost of service provided, tax practitioners must account for the impact of Pay-As-You-Earn (PAYE) and fringe benefit taxes which may not have an equivalent cost within the company’s financial statements but affect the total cost to company.

What this means for you, your business, or your clients

  • For yourself: You must correctly distinguish between accumulating and non-accumulating leave to ensure that leave pay provisions are accurately calculated in accordance with IAS 19.
  • For your business: Your firm must evaluate whether any long-term service awards or sabbatical arrangements qualify as ‘other long-term employee benefits’, requiring discounted present value measurements rather than simple accruals.
  • For your clients: Advise clients on the significant financial statement impact of defined benefit plans, including the requirement for annual actuarial valuations and the recognition of remeasurements in other comprehensive income.

Originally published at https://accountingacademy.co.za/news/read/employee-benefits-ias-19-a-complete-guide-to-accounting-for-your-workforce

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