Employee benefits are usually paid to employees but the term also includes amounts paid to their dependents or to other parties.
Wages, salaries and other employee benefits are usually recognized as expenses. However, the costs of employee benefits may be allocated to assets in accordance with other accounting standards. For example, the cost of labor used in the manufacture of inventory is included in the cost of inventory in accordance with IAS 2 Inventories.
The cost of an internally generated intangible asset recognized in accordance with IAS 38 Intangible Assets, such as the development of a new production process, includes the cost of employee benefits for staff, such as engineers, employed in generating the new production process.
Short-Term Employee Benefits
Short-term employee benefits are expected to be settled wholly within one year after the end of the annual reporting period in which the employee renders the service. Examples of short-term employee benefits include wages, salaries, bonuses and profit-sharing arrangements. They also include various forms of paid leave entitlements for which employees may be eligible. Sick leave and annual leave are common forms of paid leave entitlements. IAS 19 refers to various forms of leave entitlements as paid absences.
Short-term employee benefits also include non-monetary benefits, which are often referred to as ‘fringe benefits’. Non-monetary benefits include the provision of health insurance, housing and motor vehicles. For example, non-monetary employee benefits received by Abacus International Ltd executives include health insurance, car allowances and clothing allowances.
An entity may offer non-monetary benefits to attract staff. For example, a mining company may provide housing to employees where there are no major towns located near its mining sites. Non-monetary benefits may also arise from salary sacrifice arrangements, otherwise referred to as salary packaging. A salary sacrifice arrangement involves the employee electing to forgo some of his or her salary or wages in return for other benefits, such as a motor vehicle, provided by the employer.
