Starting and running a successful business takes a lot of hard work, dedication, and knowledge. However, there is one area that often gets overlooked: accounting. Many business owners view accounting as nothing more than keeping track of their finances, but it is so much more than that. Accounting is the process of recording, classifying, and summarizing financial transactions to provide useful information in making business decisions. It can also be used to measure performance, assess risk, and make predictions.
One important aspect of accounting is employee benefits services. This includes things like retirement plans, health insurance, and other employee benefits. Employee benefits are an important part of attracting and retaining talent, so it’s important to make sure you have a good understanding of the options available. Keep reading to learn everything about employee benefits.
What Are Employee Benefits?
Employee benefits include the costs of your employees’ indirect compensation. Health insurance, stock options, or any other variety of perks given to workers are examples of this. While two positions may pay the same salary, their benefits packages might be very different, thus making one offer a better financial deal than the other.
Employee benefits services are a vital part of accounting. They can include anything from health insurance to retirement savings plans. The most important thing for business owners is to find the right provider for their employees. There are many different types of services available, and each one has its own set of pros and cons.
Some employee benefits services, like health insurance, are required by law. Others, like retirement savings plans, are not. But most business owners find that offering as the best way to attract and keep talented employees.
Employee Benefits & Their Accounting Requirements
Employee benefits are a key part of any compensation package, but they can also be a challenge to account for. That’s because there are many different types of benefits, and each has its own set of accounting requirements.
According to Deloitte’s IAS 19, the standard establishes that any costs related to employee benefits should be accounted for in the period when the employee earned said benefit, rather than when it’s paid or payable. Each category of employee benefits is measured in a different way, and knowing the details of each category can be tricky for some accounting teams.
The 3 Types Of Accounting Employee Benefits
When we think of employee benefits, we’re inclined to think of health or dental insurance, stocks and other forms of compensation, and retirement accounts. Benefits can vary from company to company, but there are 3 key categories most all benefits fall into. Each category has its own accounting requirements. These 3 categories are:
Short-term employee benefits are those offered and settled with the employee within a span of 12 months or less. Some short-term benefits include:
- Base Payment: Base payment includes wages, salaries, and social security contributions.
- Absences: Paid absences where compensation is paid out within one year after the employee has provided related services, for example, vacation, short-term disability, jury service, and military service.
- Performance Pay: Profit-sharing and bonuses paid out within 12 months of when the employees provided or rendered their services.
- Non-monetary Benefits: Health and dental insurance, accommodations, company-appointed vehicles, and other subsidies for goods or services.
These benefits have accounting requirements that need to be reported and managed at the right time and the right way. This needs to be done to avoid any federal penalties or even profit losses from unrecognized costs from the benefits themselves.
For paid absences, their expected cost should be recognized as the employee works and entitlement increases. This includes any additional amount an entity expects to pay due to unused entitlements at the end of the period.
For-profit sharing and performance bonuses, a company recognizes its expected costs when it has a legal obligation to make such payments. This happens when past events led to this obligation, and the company can estimate how much money it will need to payout.
Post-employment benefits are arrangements between companies and their employees that aim to provide benefits to retired employees as compensation for their service during their working career.
Most post-employment plans can be boiled down to deferred salary, but also may include additional benefits like healthcare and life insurance.
The accounting treatment for post-employment benefit plans is based on the economic magnitude of the plan itself, resulting in the plan being classified as either a defined contribution or a defined benefit plan. These two categories are very different from each other; the differences include:
- Defined contribution plans: Defined contribution plans: The company pays a fixed contribution into a fund under this plan. However, they don’t have a legal obligation to make further payments if the fund doesn’t have enough assets to pay all of the employees’ post-employment benefits. The company’s obligation is then limited to the amount it agrees to contribute to the fund.
For defined contribution plans, the amount recognized for accounting purposes in the period is the contribution payable in return for the service rendered by employees during the reporting period. These contributions are not expected to be completely settled within 12 months after the end of the annual reporting period.
- Defined benefit plans: These are post-employment benefit plans that create an obligation on the company to provide previously agreed-on benefits to current and past employees. This can place actuarial and investment risks on the company.
The company is required to recognize the net-defined liability. However, the measurement of a said net-defined benefit asset is the lower side of any surplus in the fund and the “asset ceiling.” For example, the current value of any economic benefits available in the form of reimbursement from the plan or reductions in future contributions.
Termination benefits are monetary compensations and other services paid to employees when their employment is terminated. The most common termination benefits are severance payments and extended health insurance coverage.
A termination benefit liability dates:
- When the company can no longer withdraw the offer of these benefits.
- When the company recognizes costs for restructuring under IAS 37, which includes the payment of said termination benefits.
Why You Should Consider Hiring An Accountant For Your Employee Benefits
Keeping track of every detail of when, who, and why employee benefits are paid requires a high level of precision and attention to detail that only a qualified accountant can bring into your team.
An employee benefits accounting team can save you money. They can do this by helping you find the best plans and providers for your company and its employees. This can help you take that weight off your shoulders while keeping your employees happy and saving the company money; everybody wins.
Most importantly, employee benefits accounting services can help you ensure that you are compliant with all the laws and regulations surrounding employee benefits. They can do this by using efficient auditing combined with a much-needed up-to-date knowledge of the changes and updates by the regulatory government entities such as ERISA (Employee Retirement Income Security Act), the Department of Labor, and the Social Security Administration.
Employee benefits services keep their professionals well informed on the rules and regulations your business needs to abide by, helping you identify issues and exposures that could potentially concern a benefits plan administrator.
Some of the specialized audits you can expect from employee benefits services to do on your company’s benefit plan include:
- Defined benefit plans
- Defined contribution plans
- Profit-sharing plans
- ESOP (Employee stock option plan)
- 401 (K) plans
- Health and welfare benefit plans.
Nesso Accounting – The Employee Benefits Services Your Business Needs
Accounting is as important for any business as sales or fulfillment and even more. Keeping your books clean and up-to-date is such an important yet delicate task that you should always try to get professional help to either ease the process or ensure everything is in order.
At Nesso Accounting, we strive to help businesses and non-profit organizations of all sizes with their accounting needs, including employee benefit services. We have a team of professionals to offer a wide range of services, from payroll and human resources to health insurance, retirement planning, and employee benefits accounting and reporting.
As part of the Nesso Group, our culture of connectivity helps us use our knowledge to help you find benefit plans that can help both your employees and your company. We are keen on being a helping hand for businesses that want to shift their focus to their core operations and leave employee benefits and accounting to the experts.
A competitive benefits package is essential for attracting and retaining high-quality employees, but continuing to offer them can be difficult with the rising cost of medical care. That’s why we provide comprehensive solutions for many businesses. Nesso Benefits is your ally to plan and implement a comprehensive benefits package for your employees if you don’t have one in place already.
Don’t leave your employee’s future in the hands of fate. Your employees are your most valuable asset and treating them as such with good employee benefits is key. Contact us today and let us help you keep your employees loyal to your company and happy.