Navigating GASB 101: A Guide to Compensated Absences for School Districts

As governmental entities, school districts must adopt the updated guidelines outlined in the Governmental Accounting Standards Board (GASB) Statement No. 101 (GASB 101) for the treatment of compensated absences.

What is GASB 101?

GASB 101, effective for fiscal years beginning after December 15, 2023, replaces GASB Statement No. 16 and updates the recognition and measurement of compensated absences for state and local governments, including school districts. Compensated absences refer to paid employee leave, such as vacation, sick leave, holidays, parental leave, military leave, jury duty, bereavement, sabbaticals, and floating holidays. These absences result in compensation through cash payments for time off, payouts for unused leave upon termination, or non-cash settlements. For more details, refer to the GASB pronouncements page.

School districts with fiscal year-ends on or after December 31, 2024, must implement GASB 101, ensuring their financial statements align with the new standards.

When Are Liabilities Recognized?

Under GASB 101, school districts must recognize liabilities for compensated absences in two primary scenarios:

1.) Unused Leave:

Liabilities are recognized for unused leave when the following criteria are met:

• The employee has performed the services required to earn the leave.
• The leave accumulates and carries forward to future pay periods.
• The leave is more likely than not to be used for time off, paid in cash, or settled through non-cash means.

2.) Used but Uncompensated Leave:

Liabilities are recognized for leave that has been used but not yet paid in cash or settled through non-cash means.

Additionally, salary-related payments—such as the employer’s share of payroll taxes (e.g., FICA, Medicare), defined pension contributions, and other post-employment benefits—must be included in the liability calculation, consistent with GASB 16.

Note: Liabilities for sporadic leave types, such as parental leave, military leave, or jury duty, should not be recognized until the leave commences.

How is Liability Measured?

GASB 101 provides clear guidance on measuring liabilities for compensated absences:

• For Unused Leave: Use the employee’s pay rate as of the financial statement date, unless the leave arrangement specifies a different rate (e.g., sick leave paid at 50% of the employee’s pay rate).
• For Used but Unpaid Leave: Measure the liability based on the cash payment or non-cash settlement amount to be made.

What Has Changed from Previous Guidance?

GASB 101 introduces several key changes from GASB 16, impacting how school districts account for compensated absences:

1.) “More Likely Than Not” Threshold:

The new standard adopts a lower threshold for recognizing unused leave liabilities, replacing the previous “probable” criterion. This change is likely to increase reported liabilities, as more leave balances will meet the recognition criteria.

2.) Sick Leave Treatment:

Sick leave is now calculated consistently with other compensated absences, eliminating previous distinctions in measurement.

3.) Simplified Disclosure Requirements:

• School districts can now report the net change in compensated absence liabilities, rather than disclosing gross increases and decreases, provided the figure is identified as the net change.
• The requirement to disclose which funds were used to liquidate compensated absence liabilities has been eliminated.

What Actions Do School Districts Need to Take?

To comply with GASB 101, school districts should take the following steps:

1.) Review and Update Policies:

• Assess current compensated absence policies to ensure alignment with GASB 101’s recognition and measurement criteria.
• Update policy documentation to reflect the new “more likely than not” threshold and consistent treatment of sick leave.

2.) Evaluate Employee Contracts:

• Review employee contracts to determine how leave is earned, accumulated, and paid*.
• Assess whether contract terms require adjustments to comply with GASB 101’s measurement guidelines, particularly for leave paid at different rates (e.g., partial pay for sick leave).

3.) Assess Leave Usage Patterns:

• Analyze historical leave usage data and employee contract terms to answer key questions:
• What is the likelihood that accumulated leave will be used for time off?
• What is the likelihood that leave will be paid out upon termination, retirement, or death?
• At what rate will leave be used or paid out (e.g., full pay, partial pay)?
• These answers will inform liability calculations and ensure accurate financial reporting.

4.) Train Financial Staff:

• Provide training for finance and accounting teams on GASB 101’s requirements, focusing on the new recognition criteria and measurement methods.
• Ensure staff understand how to apply the “more likely than not” threshold and incorporate salary-related payments into liability calculations.

5.) Update Financial Systems:

• Modify accounting systems to track and report compensated absence liabilities under the new guidance.
• Ensure systems can distinguish between leave types (e.g., sporadic vs. accumulating) and apply appropriate recognition rules.

GASB 101 introduces significant changes to the accounting for compensated absences, requiring school districts to adopt a more inclusive approach to recognizing and measuring liabilities. By reviewing policies, evaluating contracts, and assessing leave usage patterns, districts can ensure compliance with the new standard and maintain accurate financial reporting. Proactive implementation of GASB 101 will help school districts avoid surprises in their financial statements and demonstrate fiscal responsibility.

For additional guidance, school districts should consult with their auditors or financial advisors to address specific circumstances and ensure a smooth transition to GASB 101 compliance.