Corporate Accounting and Auditing · Employee Benefits (Ind AS 19)

Short-term Employee Benefits and Compensated Absences under Ind AS 19

Updated 10 October 2026 · Fact-checked

Short-term employee benefits are wages, leave, bonuses and non-monetary benefits expected to be settled wholly within twelve months after the year-end in which service is rendered. Recognise the expected undiscounted cost as an expense as service is given. Accumulating absences are recognised as entitlement builds; non-accumulating ones only when the absence occurs.

Understand Short-term Employee Benefits and Compensated Absences

Short-term employee benefits are items like wages, salaries, social security contributions, paid annual and sick leave, profit-sharing, bonuses and non-monetary benefits (medical care, housing, cars, subsidised goods) for current employees. The test is timing: they must be expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.

The core idea is simple. The employee gives service, so you recognise the cost of that service in the same period. You do not wait for payment. If amounts are unpaid at the year-end, you show a liability. If you have paid in advance, you show a prepaid amount to the extent it will lead to a refund or reduced future payment.

Paid absences fall into two types. Accumulating paid absences carry forward and can be used in future periods if the current entitlement is not used in full. Non-accumulating paid absences lapse if unused. Sick pay, maternity or paternity leave, and jury or military service are typically non-accumulating. For these, no liability or expense arises until the absence occurs, because service does not increase the benefit.

Accumulating absences can be vesting (employees get cash for unused entitlement on leaving) or non-vesting (no cash on leaving). The obligation exists and is recognised in both cases. The difference is only in measurement: for non-vesting leave, the chance that employees leave before using the leave reduces the amount you measure.

Bonus and profit-sharing plans follow the same logic. They are an expense, not a distribution of profit, because the obligation comes from employee service and not from a transaction with owners. If there is no legal duty but you have a practice of paying bonuses, you have a constructive obligation, and you measure it allowing for employees who may leave without receiving it.

Key rules to remember

Short-term benefit test: Settled wholly before 12 months after the end of the reporting period in which service is rendered; If not met, the item is an other long-term employee benefit, for example bonuses not expected to be settled in that time.
Accumulating paid absences: Recognise when employees render service that increases their entitlement to future paid absences; Applies to both vesting and non-vesting. Non-vesting only affects measurement.
Non-accumulating paid absences: Recognise when the absence occurs; No liability or expense before the absence.
Measurement of accumulating leave: Expense = expected additional amount the entity expects to pay because of unused entitlement at the reporting date; Measured at undiscounted amount. Use the expected extra days used × daily pay.
Bonus and profit-sharing: Recognise as expense (not as appropriation of profit) when there is a present legal or constructive obligation and a reliable estimate; Allow for employees expected to leave without receiving the bonus.

How to solve Short-term Employee Benefits and Compensated Absences questions

Use this order for any question on short-term benefits or compensated absences.

1Check timing: is the benefit expected to be settled wholly within twelve months after the year-end of service? If yes, treat it as short-term.
2Identify the benefit type: wages, bonus or profit share, paid absence, or non-monetary benefit.
3For absences, decide accumulating or non-accumulating. Non-accumulating: nothing until the absence occurs.
4For accumulating absences, find unused entitlement at the year-end and how much the entity expects to be used in the next period.
5Allow for employees expected to leave if the leave is non-vesting (or a bonus requires service). Do not reduce for vesting leave.
6Compute the undiscounted amount: days × pay per day, or bonus % × profit, adjusted for expected leavers.
7Pass the entry: debit employee benefit expense, credit liability (accrued expense or provision). Show it as an expense, not an appropriation.
8State the conclusion in one line, with the treatment and the reason.

Quickest way: Three-question check for compensated absences

When to use it: For MCQs and short numerical parts where you must find the liability fast.

Does leave carry forward? If no, liability is nil at the year-end.
If yes, how many unused days does the entity expect employees to use next year? Ignore days expected to lapse or be forgone.
Multiply the expected days by the daily rate, then adjust for leavers if non-vesting. That is the liability.

Common mistakes in Short-term Employee Benefits and Compensated Absences

Treating non-vesting accumulating leave as not recognised.
Students think no cash right means no obligation.
Fix: Recognise it. Non-vesting only affects measurement, since some employees may leave before using the leave.
Recognising a liability for unused sick leave that lapses.
Students confuse all leave with accumulating leave.
Fix: For non-accumulating absences, recognise nothing until the absence occurs.
Showing bonus as an appropriation of profit.
Older practice and the link of bonus to profit mislead.
Fix: Charge it to Statement of Profit and Loss as employee benefit expense, since it arises from service.
Discounting short-term benefits.
Students carry over present value habits from defined benefit plans.
Fix: Measure short-term benefits at the undiscounted amount expected to be paid.
Ignoring expected leavers when measuring a bonus liability.
Students apply the full percentage to all employees.
Fix: Reduce the bonus for employees expected to leave without receiving it.
Taking a benefit as short-term only because it is called annual.
Name is used instead of settlement timing.
Fix: Apply the twelve-month settlement test. If not settled wholly in that time, treat as other long-term benefit.

Worked examples

Example 1

Alpha Ltd has 100 employees. Each is entitled to 5 paid sick days a year; unused days lapse. At 31 March, employees have taken 420 sick days in the year at a daily pay of ₹1,000. Explain the treatment and compute the expense for the year.

Show the solution

Unused sick days lapse, so the absences are non-accumulating.
Recognise cost only when the absence occurs.
Expense for the year = 420 days × ₹1,000 = ₹4,20,000.
No liability is created for the 80 unused days (500 − 420), because they lapse.

Answer: Expense ₹4,20,000 for absences taken; no liability for unused days.

Example 2

Beta Ltd has 50 employees. Each gets 10 paid leave days a year; unused days carry forward for one year only and may be used next year. At 31 March 2027, the average unused leave is 2 days per employee. Based on past experience, the company expects 40 employees to use up to 2 extra days next year, and 10 employees to use none of their carried forward days. Daily pay is ₹2,000. Compute the liability.

Show the solution

The leave is accumulating, so a liability arises as service is rendered.
Expected additional days to be paid = 40 employees × 2 days = 80 days.
The 10 employees expected to use none add no extra cost.
Liability = 80 × ₹2,000 = ₹1,60,000.
Entry: Dr Employee benefit expense ₹1,60,000; Cr Provision for compensated absences ₹1,60,000.

Answer: Liability and expense of ₹1,60,000.

Exam tips

Write the classification first: accumulating or non-accumulating, vesting or non-vesting. Step marks often depend on it.
Show the journal entry with a clear debit to employee benefit expense.
Always say the amount is undiscounted for short-term benefits.
In MCQs, watch for the word lapse. It points to non-accumulating, so nil liability.
Cite the twelve-month test whenever a bonus is paid after the next year.

Practice questions from Employee Benefits (Ind AS 19)

Short-term Employee Benefits and Compensated Absences in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Short-term Employee Benefits and Compensated Absences: frequently asked questions

What is the difference between accumulating and non-accumulating compensated absences?

Accumulating absences carry forward and can be used in future periods if the current entitlement is not used in full. Non-accumulating absences lapse if unused. The first creates a liability as service is rendered; the second only when the absence occurs.

What is the difference between vesting and non-vesting compensated absences?

Vesting means employees get cash for unused leave on leaving the entity. Non-vesting means they do not. Both are recognised, but non-vesting leave is measured after allowing for employees who may leave before using it.

Is bonus an expense or an appropriation of profit under Ind AS 19?

It is an expense. The obligation results from employee service, not from a transaction with owners. A constructive obligation can exist if the entity has a practice of paying bonuses.

When is a bonus not a short-term benefit?

If it is not expected to be settled wholly before twelve months after the end of the reporting period in which the service is rendered. Then it is an other long-term employee benefit.