The Accounting Standard 15 details all types of employee benefits and forms of consideration given by an enterprise in exchange for services rendered by employees (other than stock compensation for which a separate guidance note is promulgated).
The Standard addresses only the accounting of employee benefits by employers. The Standard makes four things very clear at the outset:
- the Standard is applicable to benefits provided to all types of employees (whether full- time, part-time, or casual staff;
- employee benefits can be paid in cash or in kind ; employee benefits include benefits provided to employees and their dependents (spouses, children and others); and
- payment can be made directly to employees, their dependent or to any other party (e.g., insurance companies, trust etc.).
Employee benefits include:
- Short-term employee benefits (e.g. wages, salaries, paid annual leave and sick leave, profit sharing bonuses etc. ( payable within 12 months of the year-end) and non-monetary benefits for current employees;
- Post-employment benefits (e.g., gratuity, pension, provident fund, post-employment medical care etc.);
- long-term employee benefits (e.g., long-service leave, long-term disability benefits, bonuses not wholly payable within 12 months of the year end etc.); and
- termination benefits (e.g. VRS payments)
The Standard lays down recognition and measurement criteria and disclosure requirements for the above four types of employee benefits separately.
Definition of “Employee Benefits”
The term employee is not defined under the standard AS 15 does not define who is an ’employee’, but states in that: “An employee may provide services to an entity on a full-time, part-time, permanent, casual or temporary basis. For the purpose of this Standard, employees include directors and other management personnel”. This suggests that the intention was for the term ’employee’ to apply more widely than simply to persons with a contract of employment as ‘casual’ and ‘temporary’ staff may frequently not have such contracts.
The following indicators may suggest an employee relationship may be more likely to exist, and may help in making individual judgements:
- A contract of employment exists;
- Individuals are considered employees for legal/tax/social security purposes;
- There is a large amount of oversight and direction by the employer and necessary tools, equipment and materials are provided by the employer;
- Services are performed at a location specified by the employer;
Services provided through an entity are in substance services provided by a specific individual, indications of which could be that the entity:
- Has no other clients;
- Has served the employer for a long period;
- Faces little or no financial risk;
- Requires the explicit permissions of the employer to concurrently undertake additional employment elsewhere.