Government Advisory Insights

GASB 101: What Your Government Needs to Know About Compensated Absences

By the JG Technical Committee  ·  Julian & Grube, Inc.  ·  June 2025

GASB has issued Statement No. 101, "Compensated Absences," and it goes into effect for your government's fiscal year 2025 financial statements. It replaces the old guidance under GASB 16 with a single, unified model for how leave is recognized and measured. Here's a plain-language look at what's changing, what it means for your numbers, and what our team will need from you.

What's changing, and why

GASB issued this new standard to provide an updated framework for all compensated absences. Entities now make available leave types that weren't anticipated when the previous standard, GASB 16, was originally issued. GASB 16 provided guidance specific to the type of leave, and it has been replaced by the new GASB 101.

The objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model.

What counts as a compensated absence?

A compensated absence is leave for which employees may receive one or more of the following: (a) cash payments when the leave is used for time off; (b) other cash payments, such as payment for unused leave upon termination of employment; or (c) noncash settlements, such as conversion to defined benefit postemployment benefits. The payment or settlement could occur during employment or upon termination of employment. Compensated absences generally do not have a set payment schedule.

Examples include vacation (or annual) leave, sick leave, paid time off (PTO), personal time, compensatory time, holidays, parental leave, bereavement leave, and certain types of sabbatical leave. Vacation, sick, PTO, personal, and compensatory time will likely be the bulk of the liability, and those are what we generally focus on.

How the liability is recognized and measured

Under GASB 101, a liability will be recognized for two things:

• Leave that has not been used, which must meet three tests: the leave is attributable to services already rendered, the leave accumulates, and the leave is more likely than not to be used for time off or otherwise paid in cash or settled through noncash means.
• Leave that has been used but not yet paid in cash or settled through noncash means. Known retirees would fall under this.

In estimating the leave that is more likely than not to be used or otherwise paid or settled, a government should consider relevant factors such as employment policies related to compensated absences and historical information about the use or payment of compensated absences.

The old model vs. the new model

Under GASB 16, the liability considered the leave that would be paid out upon termination or retirement (the vested portion), plus an estimate of the nonvested portion based on the probability of retirement. GASB 101 keeps the vested portion but changes the rest: the nonvested portion is now based on whether leave is more likely than not to be used for time off or future retirement.

The assumptions shift as well. These are example percentages, and your government's actuals may vary:

• Under GASB 16, probability was often based on an assumption such as 25% of employees staying on for more than five years to receive the termination or retirement payment.
• Under GASB 101, the vested portion might assume 80% of employees with over five years of service are paid out at termination or retirement, with 20% used beforehand as sick leave. For the unvested portion, an example might be 30% paid upon termination or retirement after five years, 40% used beforehand as sick leave, and the remainder forfeited.

What it means for your financial statements

During the required year of implementation, expect it to take a little longer to gather the necessary historical information. Gathering that information sooner rather than later is highly recommended.

The liability for most entities is expected to increase considerably. This will result in a corresponding decrease to the net position of the entity. Implementation will also require a restatement of the prior year's net position and outstanding long-term obligations.

The notes change too. Governments are no longer required to disclose which governmental funds typically are used to liquidate the liability for compensated absences. And in the long-term obligations note, you will no longer be required to disclose the gross increases and decreases in the liability. They will now be shown as the net change in liability.

The upside of the new approach

The unified recognition and measurement model will result in a liability for compensated absences that more appropriately reflects when a government incurs an obligation. The model can be applied consistently to any type of compensated absence and will eliminate potential comparability issues between governments that offer different types of leave. It will also produce a more robust estimate of the amount a government will pay or settle, which enhances the relevance and reliability of the information about the liability.

What we'll need from you

Because this is the first year, gathering the right data early makes a real difference. Here's what our team will need:

• Hours earned and used by each employee for each year, for at least FY25 and the prior two fiscal years.
• Hourly rates for each employee at the end of the current and previous fiscal years.
• Sick, vacation, compensatory, and PTO leave balances, by hours, as of the end of the fiscal year (provide only the ones that apply to your entity).
• An employee listing that describes which bargaining unit (BU) or personnel agreement each employee is covered by.
• Information on all employees who left (retired, fired, or voluntary departure) during the prior three years. We'll need their name, bargaining unit (BU), accumulated sick leave balance in hours or days at separation, and the sick leave balance, in hours, paid out at separation.
• "Archive" access to USAS/USPS if your government is on the redesign for State Software.

Let's make year one straightforward

Compensated absences can feel like a lot to untangle, especially in the first year of a new standard. That's exactly the kind of thing we help our local government clients work through. If you'd like help navigating GASB 101, or you just want to make sure you're ready before your next financial statements, reach out to Jason Cowman and our advisory team at jcowman@jg.cpa. We're always glad to help.