Accrued benefits: Overview, definition, and example
What are accrued benefits?
Accrued benefits refer to the benefits that an employee or individual has earned but has not yet received. These benefits typically accumulate over time and may include things like retirement funds, vacation days, or bonuses. The term is often used in the context of pensions or retirement plans, where employees earn benefits during their employment, which will be paid out in the future, often upon retirement.
Why are accrued benefits important?
Accrued benefits are important because they represent the value of an employee's work or service that has been earned but not yet paid. For businesses, tracking accrued benefits is essential for accurate accounting, ensuring that employees receive the benefits they are entitled to. For employees, accrued benefits are important because they represent compensation they’ve earned over time, which they can rely on in the future.
Understanding accrued benefits through an example
For example, if an employee has worked for a company for 5 years and is entitled to 10 vacation days per year, by the middle of the current year, they will have accrued 5 vacation days. These 5 days represent the benefits they’ve earned so far, even if they haven’t taken them yet.
In another scenario, consider an employee who is part of a pension plan. Over the years, they’ve accrued benefits that will be paid to them once they retire. Even though the employee hasn’t yet retired and is not receiving any payments, the benefits they’ve earned during their years of service are considered accrued benefits.
An example of an accrued benefits clause
Here’s how an accrued benefits clause might appear in a contract:
“The Company agrees that the Employee shall be entitled to all accrued benefits under the Company’s pension plan, including any unpaid vacation days, as of the date of termination of employment.”
Conclusion
Accrued benefits are a critical part of employee compensation, representing the value of what has been earned but not yet received. Whether it's vacation time, retirement savings, or bonuses, understanding and managing accrued benefits is important for both businesses and employees to ensure fairness and compliance. Properly tracking these benefits helps ensure that employees get what they are owed and that businesses meet their financial obligations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.