GASB 101: Compensated Absences — What Changed and What It Means for Utility Financial Statements

GASB Statement No. 101, Compensated Absences , effective for fiscal years beginning after December 15, 2023, replaced a patchwork of guidance that had governed leave accounting for governmental entities since GASB 16 was issued in 1992. For municipal utilities, public power entities, and water and wastewater authorities that follow GASB standards, the new standard brings a unified recognition and measurement model that resolves longstanding inconsistencies—but also requires a careful review of existing leave policies, accrual practices, and financial statement presentation to ensure compliance.

The practical impact depends on how an entity has been accounting for leave under the prior guidance. Some utilities will find that GASB 101 formalizes what they were already doing. Others will need to recognize liabilities they previously excluded, remeasure balances using updated methodology, or reclassify amounts between current and noncurrent in ways that affect key financial ratios and bond covenant calculations. Either way, a systematic implementation review is necessary—and the standard’s disclosure requirements ensure that auditors and financial statement readers will be looking for evidence that it was performed.

What GASB 101 Covers

GASB 101 applies to compensated absences—leave for which employees will be paid when the leave is taken, upon separation from employment, or upon some other event. The standard covers a broad range of leave types: vacation leave, sick leave, paid time off (PTO) under combined-bank policies, holiday leave that can be accumulated, jury duty leave that carries a benefit, and sabbatical leave. It does not cover leave that is granted for specific purposes and forfeited if not used (use-it-or-lose-it leave with no payout provision) or leave for which there is no obligation to compensate the employee.

The critical threshold question under GASB 101 is whether an obligation to pay for leave exists. If employees have the right to take leave and will be compensated for unused leave either at termination or through a cash-out provision, a liability must be recognized. The prior guidance under GASB 16 required more nuanced judgments about whether sick leave was probable of being paid—a threshold that produced inconsistent practice across entities. GASB 101 simplifies this by applying a single recognition model to all qualifying leave types.

The New Measurement Model

GASB 101 measures the compensated absence liability based on the current salary rates of employees as of the measurement date—not historical rates or blended averages. This is consistent with the prior guidance for vacation leave but represents a change for entities that were measuring sick leave or PTO at something other than current pay rates.

The standard also requires that salary-related employer costs—primarily payroll taxes such as FICA and Medicare, and in some cases retirement contributions that are based on gross payroll—be included in the liability measurement. Many utilities were already doing this for vacation leave; GASB 101 requires consistent application across all qualifying leave types.

Leave that will be paid out at a rate other than the current salary rate—for example, sick leave banks that pay out at 50% of the accrued balance at termination—should be measured at the expected payout rate, not the full salary rate. The measurement should reflect the actual obligation, not a theoretical maximum.

Current vs. Noncurrent Classification

GASB 101 requires utilities to separate the compensated absence liability between current and noncurrent portions on the Statement of Net Position. The current portion represents the amount expected to be paid within one year of the financial statement date. The noncurrent portion is everything else.

For utilities with large, tenured workforces—common in the public power sector—this classification can be significant. A utility with 200 employees, average accrued vacation balances of 120 hours per employee, and average hourly rates of $35 carries roughly $840,000 in accrued vacation alone before layering in sick leave and PTO. The split between current and noncurrent affects working capital calculations, current ratio analysis, and potentially bond covenant compliance tests that reference current liabilities.

If you are analyzing utility financial statements and want to understand how this liability fits into the broader picture of net position, current obligations, and coverage ratios, our course on Analyzing Electric Utility and Co-op Financial Statements walks through exactly how these items appear in the Statement of Net Position and what they mean for the organization’s financial health.

Journal Entry Examples

The following examples illustrate how GASB 101 liabilities are recorded and updated. All examples assume a municipal electric utility following GASB standards.

Example 1: Initial Recognition of Vacation Leave Liability

Riverside Municipal Electric has 50 employees. At fiscal year-end, total accrued unused vacation is 4,800 hours at an average wage of $32/hour. Employer payroll taxes (FICA/Medicare) are estimated at 7.65% of wages. The utility estimates $48,000 of the total will be paid out within the next 12 months.

Step 1 — Calculate the liability:

• Wages: 4,800 hours × $32.00 = $153,600
• Employer payroll taxes: $153,600 × 7.65% = $11,750
• Total liability: $165,350
• Current portion: $48,000 + (7.65% × $48,000) = $51,672
• Noncurrent portion: $165,350 − $51,672 = $113,678

Account	Debit	Credit
Compensation Expense — Vacation	$165,350
Compensated Absences Payable — Current		$51,672
Compensated Absences Payable — Noncurrent		$113,678
To record GASB 101 vacation leave liability at current salary rates including employer payroll taxes.

Example 2: Vacation Leave Taken During the Year

During the year, employees take 600 hours of vacation. The average wage for those employees is $31/hour (slightly lower than year-end rates due to mix of employees).

Account	Debit	Credit
Compensated Absences Payable — Current	$20,003
Salaries Payable / Cash		$18,600
Payroll Taxes Payable		$1,423
600 hrs × $31 = $18,600 wages; × 7.65% = $1,423 taxes. Liability reduced as leave is settled.

Example 3: Sick Leave Under the More-Likely-Than-Not Threshold

Riverside has a sick leave policy under which employees accrue 8 hours per month. There is no termination payout. Under prior GASB 16 guidance, the utility recognized no sick leave liability because there was no separation payout. Under GASB 101, the utility determines that employees are more likely than not to use accrued sick leave for time off (based on historical utilization data showing 85% of sick leave is eventually used). A liability must now be recognized.

At year-end, total accrued sick leave is 9,200 hours at an average wage of $32/hour.

Account	Debit	Credit
Compensation Expense — Sick Leave	$318,566
Compensated Absences Payable — Current		$54,000
Compensated Absences Payable — Noncurrent		$264,566
9,200 hrs × $32 = $294,400; × 7.65% = $22,522; total $316,922. Current portion based on prior-year usage pattern. This entry would not have been recorded under prior GASB 16 guidance with no termination payout.

Transition and Implementation

GASB 101 is effective for fiscal years beginning after December 15, 2023—meaning calendar year 2024 and most fiscal year 2024–2025 periods. The standard permits either of two transition approaches: retroactive restatement of prior-period financial statements, or a cumulative-effect adjustment to beginning net position in the year of adoption.

Most utilities are expected to use the cumulative-effect approach, which avoids the burden of restating prior periods but requires a clear disclosure in the notes explaining the adoption and its financial statement impact. Auditors will expect to see documentation of the leave policy analysis, the determination of which leave types meet the recognition threshold, the calculation methodology, and the current/noncurrent split basis.

For utilities that previously recognized no sick leave liability—the most common gap—the transition entry can be material. A utility with 150 employees and significant accumulated sick leave balances may be recording a new noncurrent liability in the hundreds of thousands of dollars for the first time. Finance staff and utility management should assess this impact before the fiscal year closes and communicate the effect to the board and any lenders whose covenants reference net position or current ratio thresholds.

Interaction with GASB 62 Regulatory Accounting

For utilities applying GASB 62 regulatory accounting, compensated absence expense—particularly the incremental expense created by the new sick leave recognition requirements—may be a candidate for regulatory deferral if there is a regulatory mechanism to recover the additional cost through future rates. This is not automatic: GASB 62 requires that recovery be probable and that the oversight board authorize a specific recovery period. But for utilities in rate-setting environments where employee benefits costs are a recognized cost-of-service component, the regulatory deferral option is worth evaluating.

For a detailed explanation of how GASB 62 regulatory deferral works in practice—including board authorization requirements and journal entries—see our article on 5 Misunderstandings About Regulatory Accounting (ASC 980 / GASB 62) .

Note Disclosure Requirements

GASB 101 requires disclosure of the following in the notes to the financial statements:

• The types of compensated absences covered by the liability
• The beginning and ending balances of the compensated absence liability for the period
• Increases (accruals) and decreases (leave taken or paid out) during the period
• The portion of the liability not expected to be liquidated within one year

The rollforward disclosure is new relative to prior practice and gives financial statement readers meaningful information about leave activity during the year. Utilities that have not previously tracked leave accruals and usage in a format that supports this rollforward will need to update their accounting systems or spreadsheet models before the first GASB 101 financial statement is issued.

Understanding how these disclosures fit into the broader financial statement package—and what they signal to bond rating agencies, lenders, and oversight boards—is covered in depth in our course on Analyzing Electric Utility and Co-op Financial Statements . If you are responsible for preparing or reviewing utility financial statements, that course provides the foundational framework for reading every major statement and note with confidence.

For utilities also applying GASB 62 to defer regulatory costs, the companion article on Using ASC 980 and GASB 62 to Record Future Recoverable Costs and Rate Stabilization Under ASC 980 and GASB 62 show how regulatory accounting tools can be used alongside the new compensated absence requirements.

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