INQUIRY
Hey Paul, I had a quick question that I’ve been unable to find the answer for. We have some employees that have excess PTO (Paid Time Off) at the end of the year and would like to let other employees without PTO use the time. As a company, we generally don’t see a problem in doing that, but I wanted to see if this was okay under DCAA regulations and if there were any guidelines regarding how to do it. If you know, can you please pass any info along? Finance Manager
RESPONSE
Smile - another “quick question” - smile! I don’t know off-hand a specific reference or guidance on this issue, but I do remember discussing this issue at one time. For now consider following any “Family and Medical Leave Act (FMLA)” laws and regulations on this issue and I will let you know what I come up with as it relates to government contract accounting.
However, my initial response would be that PTO would be applied or charged according to donating employee and “How Earned” and not according to receiving employee and “How Shared/Donated”. It is important to show all PTO according to how earned so it can be charged and tracked accurately. Once charged and tracked, any transfer to an overall sharing pool or to an individual can be done over and above the information as posted in the books and charged in appropriate Fringe or other Pools.
I generally do not see an issue with this approach.
Reply:
Hi Paul, Thanks for the reply. As far as charging the PTO according to how it was earned, that may be tricky, since we have an automated payroll system that books those entries in our QuickBooks automatically. I’ll look into how to accomplish that correctly a little more and will make our decision based on what I find. Thanks as always for your input! Finance Manager
Response to Reply:
I thought and contemplated about this and here is one option to think about:
Looking at this from a common sense point of view (my common sense J) – Assuming everything is processed through the payroll and accounting system normally under the contributing person’s name, we are talking about Unused Leave. Therefore, a firm would have this Unused Leave accruing in a Liability account. The expense is already charged appropriately as it is accrued and earned, so the costs/expense is accurately being charged in the period earned and based on the activities performed of the contributing employee/party.
The only thing a firm would have to do is set up a liability just for banked leave. This would transfer leave liability costs from the normal liability owed employees to the banked liability leave account. There is no impact on costs or assignment to final cost objectives. This is just a transfer.
Now whenever banked leave is assigned to someone else they could just pull from the liability account as needed. This reduces the liability account (Debit) and reduces the payroll cash account (Credit) [Asset Account].
I am not a Tax Specialist or CPA, however, from experience, analysis and problem solving, this appears to be ONE way to address this and make everyone happy!
Review with your team and remember this is presented for your consideration as you move forward. Let me know what your team finally decides to do, okay? Take care and God Bless!
Paul Sr.
COMMENTS: Members, please feel free to use the Online Forum to provide comments/feedback addressing this issue and to provide additional clarification and/or actual case information for colleagues.