Short-term employee benefits

Short-term employee benefits are all those payments that an entity makes as consideration for the services provided by a worker, which are not share-based payments and whose generated liability should not be recognized at present value, since its settlement will be within of the 12 months after the service is provided by the employee.


The payments that an entity makes to workers and that correspond to employee benefits can be confused with payments based on shares that management incorporates within the company.


However, it is important to remember that according to IFRS 2, all those payments that an entity makes to an employee in exchange for its equity instruments or the  payments made that are based on the  price of the shares of company, must be recognized as share-based payments.


For example, if an entity agrees with the employees of the sales area that if the income its increase by 15% at the end of the period on which it reports, these employees will obtain a bonus equivalent to the increase in the company’s stock during the present year, this type of benefits is not within the scope of IAS 19, but within the scope of IFRS 2.


Now, if the bonus had been a payment of $ 15,000 once the objective is reached, this payment would be within the scope of IAS 19, since said payment would not be based on the entity’s share price.


This payment would be recognized as short-term employee benefits if its settlement is made within 12 months after acquiring the right to the incentive, otherwise it will be a long-term benefit that will be recognized at present value.


Types of short-term employee benefits

Within this category, we find:



  • Salaries and contributions to social security.
  • Short-term paid absences.
  • Profit sharing and incentives.
  • Non-monetary benefits to employees such as: medical assistance, accommodation, transportation and delivery of free or subsidized goods and services)


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Short-term paid absences

Paragraphs 14 and 15 of IAS 19 regulate the concept of paid absences, in the standard they are known as short-term paid absences.


In this type of benefits, the company assumes the cost derived from the non-provision of the service by an employee for a certain number of days.


Within this type of absences we find, illness, calamity, vacations that are settled within 12 months after to the right to enjoy this benefit, maternity leave, among others.


Absences are classified as accumulating and non-accumulating.


Accumulative absences give the worker the right to enjoy the benefit granted by the entity in subsequent periods, many companies allow for example that the days granted for the fulfillment of goals can be enjoyed in subsequent years if they have not been used in the current period.


However, benefits such as days granted for birthdays, marriage, among others, are generally not accumulative.


It must be taken into account that if the benefits are accumulated and the liability associated with this benefit will be settled within 12 months after obtaining the incentive, the liability for employee benefits is a short-term liability and as such should not be recognized the present value of the future payments.


Within the cumulative benefits are two categories: irrevocable and non-irrevocable:


Irrevocable benefits are those where once the employee resigns from the company, they will have the right to cash payment of the benefits accrued to date, generally in most jurisdictions, vacations are cumulative and irrevocable, this It means that the worker does not lose the right to its enjoyment or its subsequent payment in cash, since these are an acquired right that cannot be restricted.


Non-irrevocable benefits expire when the worker does not make use of them in the current period, for example, an entity can give the right to a worker to take 5 days due to illness, however, if the employee was not absent due to this concept in the present period, these benefits will expire, ie, if the employee were to resignation to the job, he would not have the right to cash payment for the days not taken.

Profit-sharing and bonus plans

Another type of short-term benefits that are incorporated within an entity are the profit sharing plans of a company, this type of incentive is usually associated with the fulfillment of objectives by the executives of a company.


Paragraph 19 of IAS 19 establishes a series of requirements so that the management of an entity can incorporate these benefits and can be inside the scope of this standard.

rofit sharing and incentive plans

The first requirement is that the obligation associated with this type of benefit has legal force, or is implicitly incorporated in the statements made by management.


For example, an entity may establish through a statutory reform that certain types of workers will obtain a part of the entity’s earnings if they meet certain objectives. 


However, these types of incentives may also be granted implicitly, this is the case of an entity that every 5 years as part of a strategy to avoid that the top executives of the company are hired by the competition, delivers part of the entity’s earnings to its workers.


In many companies the implicit obligations have more force than those of a legal nature, this is the case of entities that trade their equity instruments in the stock market.


And the second requirement is that the obligation can be reliably measured.


Accounting recognition profit sharing and incentive plans

Paragraph 23 of IAS 19 states the following:

paragraph 23 ias 19 EB-min

This means that the benefits granted related to profit sharing plans will be recognized as an expense in profit and loss, while if the payment for this concept is with the entity’s shareholders, these will be recognized as a lower value of equity.


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