As a responsible employee, the topic of vacation reserves can make you break out in a sweat at the end of the year. Why? Because juggling legal requirements, individual employee entitlements, and the desire for efficient and precise accounting takes up one thing: time! In this blog article, we dive deep into the world of vacation reserves, focusing specifically on the needs of finance employees.
Definition: What Does Vacation Accrual Mean?
The term “vacation reserve” refers to a preventive measure in which unused vacation days within a fiscal year are recorded and reported in your annual financial statement by the balance sheet date.
If the case arises where your employees have not used their full annual vacation entitlement in the current fiscal year and wish to carry it over to the following year, this creates a fulfillment backlog for you.
If your employees have not yet submitted their vacation for the new year—meaning it has not yet been planned—it is considered an “uncertain liability.” This, in turn, is subject to the provision obligation according to § 249 HGB and requires the formation of vacation reserves.
Vacation Reserve Calculation: 3 Methods at a Glance
The larger your company, the more complex it becomes to calculate vacation reserves for each individual employee. For this reason, the legislation allows vacation reserves (§ 252 HGB) to be calculated either as an individual calculation or as an average calculation. In the individual calculation method, you determine the vacation reserve for each employee separately.
Although this method provides precise results, it is very labor- and time-intensive when dealing with a large number of employees. In such cases, the average calculation can be used as an alternative. In this method, all employees are considered as a group, which significantly reduces the workload. However, caution is required when there are large fluctuations in wage structures, as there is a risk of over- or undervaluation!
❗ Important ❗
Once the method for calculating vacation reserves has been chosen, it must be maintained in subsequent years! A change is only possible in exceptional cases.
Individual Vacation Reserve Calculation – Labor-Intensive, but Precise
With individual calculation, you use the hourly wage and the working time model of each employee as the basis for the vacation reserve calculation. Vacation days that your employees did not take are converted into working hours based on the working time model.
These working hours are then valued with the gross hourly wage of the respective employee. Additionally, the employer’s share of social security contributions is added. This allows you to assign a monetary value – the applicable vacation pay – to each reserve. Therefore, individual calculation is very precise but also very labor-intensive. Due to the high administrative effort, this method is more suitable for companies with a manageable number of employees.
Practical Example: Individual Calculation of Vacation Reserves
Klara Schneider receives an annual gross salary of €40,000 according to her employment contract. Additionally, her employer pays her a Christmas bonus of €2,500. To calculate the applicable vacation pay, the employer’s share of social security contributions and other wage-related costs are included. The following calculation applies:
• Annual gross salary: €40,000
• Christmas bonus: €2,500
• Employer’s share of social security: €5,500
• Total applicable vacation pay: €48,000
Ms. Schneider works full-time for her employer, working five days a week. After subtracting public holidays, she has worked 248 days in the year. Ms. Schneider still has six unused vacation days left. Therefore, the individual vacation reserve calculation would be:
• Applicable vacation pay: €48,000
• Actual working days: 248
• Remaining vacation days: 6
The reserve amount for Ms. Schneider would be €1,161. This passive vacation reserve – i.e., the reserve amount – must be reported in the employer’s tax balance sheet.
Average Calculation – Less Effort, Less Precision
The company Alleskönner GmbH has four employees and does not want to perform an individual vacation reserve calculation for each employee. To calculate the applicable vacation pay, the finance department must sum up the annual gross salaries, Christmas bonuses, and employer contributions to social security for all employees. The following calculation applies:
• Gross salaries: €270,000
• Christmas bonus: €25,000
• Employer’s share of social security: €28,000
• Total applicable vacation pay for the entire team: €323,000
To determine the actual annual working days of the four employees, the finance department of Alleskönner GmbH multiplies the workdays per week by 52. After subtracting the statutory public holidays for the year, the total comes to 996 actual working days.
Practical Example: Average Calculation of Vacation Reserves for 4 Employees
• Applicable vacation pay: €323,000
• Actual working days: 996
• Remaining vacation days: 24
The reserve amount of €7,783 is reported by the finance department of Alleskönner GmbH in the tax balance sheet.
Automatic Calculation of Vacation Provisions: ZEP as Software Support
Now, you’re probably feeling a bit overwhelmed, right? Depending on the size of your company, calculating the remaining vacation days and vacation provisions can be more or less time-consuming. To save you precious time from manual calculations, we have a solution that assists you in calculating vacation provisions. With ZEP’s additional modules “Absences & Overtime” and “Revenue & Costs,” you’ll not only save time but also reduce the stress during year-end closing.
With the Revenue & Costs module (additionally available for ZEP Compact & already included in ZEP Professional), you can set an internal hourly rate for each employee, which will be used to calculate the applicable vacation pay. And with the Absences & Overtime module, the remaining vacation days and all statutory public holidays for your state are accurately represented. Simply input all the necessary parameters, such as annual vacation, gross wages, etc., into the respective modules, and by combining both modules, you can automatically calculate vacation provisions for each employee with just a click.
Here’s how to do it in ZEP:
Step 1: Go to Evaluations > Employees > Provisions
Step 2: Select the date range (from/to)
Step 3: Click on Execute
Step 4: Read the provision amount per employee & export as a file
As you can see, with just a few clicks, you can access the desired report, select the provision period, and easily export the data to include in your annual balance sheet.
Small ZEP Hack: You can also have this report automatically sent to you on a set schedule (via ZEP’s “Run in Background” feature).
Releasing Vacation Provisions: Here’s How to Proceed
The release of vacation provisions occurs when the uncertain liability that led to their creation no longer exists. There are various methods to properly release these provisions. Below are the four main methods that are applied depending on the situation:
1. Vacation Provision Matches the Paid Expense
If the provision corresponds to the actual expense, no additional accounting adjustments are necessary. The expense is already accurately represented, and no further action is needed.
2. Vacation Provision Was Greater than the Payout
If the provision exceeds the actual vacation payout, the difference is recorded as other operating income, leading to an improvement in the operating result.
3. Vacation Provision Was Too Low
If the provision was insufficient, the difference between the provision and the actual expense is recorded as an additional expense, resulting in a deterioration of the operating result.
4. Provision Is No Longer Needed
If the provision is no longer necessary, the entire provision amount is recorded as other operating income, resulting in an improvement in the operating result.
Please note that employees do not automatically have the right to cash compensation for unused vacation days. Financial compensation is only possible if the employment relationship is terminated by the employer. Additionally, the claim for remaining vacation days expires if not taken by March 31 of the following year.
Conclusion
Accurate calculation and management of vacation provisions are crucial for a precise year-end balance sheet. Whether through detailed individual calculation or simplified average calculation, the method should align with the company’s size.
Using ZEP can significantly simplify this process: With the modules for automated calculation and management of vacation provisions, you save time and minimize errors. Ensure that provisions are correctly released to maintain an error-free year-end balance and avoid any financial surprises.
FAQs
When are vacation provisions calculated?
Why do you have to set up vacation provisions?
Do you have to make vacation provisions?
Müssen Urlaubsrückstellungen jedes Jahr neu bewertet werden?
Ja. Urlaubsrückstellungen sind jährlich neu zu ermitteln, da sich Urlaubsstände, Gehälter und sozialversicherungspflichtige Anteile laufend ändern können. Ein einmal gebildeter Betrag darf nicht einfach übernommen werden.
Wie wirkt sich eine zu hohe oder zu niedrige Rückstellung aus?
Ist die Rückstellung zu hoch, entsteht beim Auflösen ein Ertrag. Ist sie zu niedrig, entsteht zusätzlicher Personalaufwand. Beides kann das Jahresergebnis beeinflussen und sollte vermieden werden.
Welche Software unterstützt die Berechnung von Urlaubsrückstellungen?
ZEP bietet mit den Modulen „Abwesenheiten & Überstunden“ sowie „Umsätze & Kosten“ eine automatisierte Lösung. Unternehmen sparen dadurch Zeit, vermeiden manuelle Fehler und erhalten exportfähige Daten für die Bilanz.
