In accordance with the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued the revised Enterprise Accounting Standard No. 9 — Employee Benefits on 2014/1/27, effective as of 2014/7/1.
1. Overview of Guidelines
Employee compensation refers to all forms of remuneration or compensation provided by an enterprise in exchange for services rendered by employees or upon termination of their employment.
Employee Compensation Categories
- • Short-term compensationEmployee wages, bonuses, allowances, and subsidies; employee welfare benefits; medical insurance, work-related injury insurance, and maternity insurance premiums; housing fund; union dues and employee education expenses; short-term compensated absences; short-term profit-sharing plans; non-monetary benefits; etc.
- • Post-employment benefitsCompensation and benefits provided to employees after retirement or termination of employment in exchange for services rendered.
- • Termination benefitsCompensation provided to employees when an enterprise terminates the employment relationship before the expiration of their labor contracts, or to encourage voluntary acceptance of layoffs.
- • Other long-term employee benefits: including long-term paid leave, long-term disability benefits, long-term profit-sharing plans, and similar items.
2. Short-term compensation
Enterprises shall recognize short-term employee benefits as a liability and charge them to profit or loss for the accounting period in which employees render services.
Paid Time Off
Categorized as either accumulating or non-accumulating paid leave. Accumulating leave rights can be carried forward to the next period, whereas non-accumulating leave rights cannot.
Profit Sharing Plan
An enterprise shall recognize a liability for employee benefits when both of the following conditions are met: (1) The enterprise has a present legal or constructive obligation to pay employee benefits as a result of past events; and (2) The amount of the obligation arising from a profit-sharing plan can be reliably estimated.
III. Post-Employment Benefits
An entity shall classify post-employment benefit plans as either defined contribution plans or defined benefit plans.
Defined contribution plan
Post-employment benefit plans where an employer makes fixed contributions to an independent fund and has no further obligation to make additional payments.
Defined Benefit Plan
Post-employment benefit plans other than defined contribution plans, where the enterprise assumes actuarial and investment risks.
Steps for Accounting Treatment of Defined Benefit Plans
- Recognizes obligations arising from defined benefit plans using the projected unit credit method and actuarial assumptions.
- Determine the net liability or net asset by subtracting the fair value of plan assets from the present value of the defined benefit obligation.
- Determine the amount to be recognized in profit or loss for the current period.
- Determine the amount that should be recognized in other comprehensive income.
IV. Termination Benefits
When an enterprise provides termination benefits to employees, it shall recognize the liability for employee benefits arising from termination benefits at the earlier of the following two dates and include it in current period profit or loss:
- • Companies cannot unilaterally withdraw termination benefits provided under a plan to terminate employment or a proposal for workforce reduction.
- • When an enterprise recognizes costs or expenses related to a restructuring that involves termination benefits
Regulatory Document Attachment
CAS 9 — Employee Benefits (PDF)