How should the value of accrued vacation days be calculated?
by Susan Miranda I recently lost my job and was paid for accrued, unused vacation time--less than what I expected. My past employer owed me for 10 days but paid me less than regular salary for those days. They used the formula: $paid = annual salary / 365 days X accrued days. I believe the formula should be: $paid = annual salary / (52 weeks x 5 days per week) x accrued days. Is there a standard accounting principle for calculating the dollar value of unused vacation time? To my knowledge, there is no formal accounting guideline for computing the dollar value of unused vacation time. Unions may demand certain methods for computing these amounts, and if you are a union member, you should discuss your situation with your union representative. But I assume that your company isn't unionized. Many large corporations consider a work year to consist of either 2080 or 2090 hours, depending on weekends, holidays, personal time off and so forth that the company allows. Accrued vacation time earned is based on time worked. While the formulas you provide could be used for computing interest, they aren't valid for determining what you should be paid for accrued vacation time -- days other than weekends, holidays and sick days. I recommend checking your company's policies and procedures manual, if any, to see how a work year is computed. If no formal policy is given, then using a 2080- or 2090-hour work year is reasonable. You could also compute the actual number of hours you are supposed to work for your company during a calendar year and base the calculation on those hours. Regardless, you'll need to sit down with your former employer and explain the situation to him or her. If he or she doesn't agree to a new formula, you may want to consult a lawyer. Susan Miranda, CPA, is a sole practitioner. She can be reached at (949) 689-9687. Have a question for a CPA? Ask it here.
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