What is Vacation Pay Payable?

Vacation pay payable is a general ledger account that contains the liability that an employer has to pay employees for vacation time earned but not yet used. In effect, it states the obligation of an employer to pay its employees for unused vacation time. The balance in this account is updated at the end of each reporting period to reflect additions to accrued vacation expense, as well as employee usage of their vacation time.

Presentation of Vacation Pay Payable

The vacation pay payable account is classified as a current liability, since the payee (employees) can take their stored-up vacation time on short notice. On the employer’s balance sheet, this amount is usually combined with other liabilities in a single line item, because the liability is not large enough to warrant separate presentation. If separate presentation is used, then it is probably because the business has a large number of employees who are granted substantial vacation pay, and who are allowed to carry it over for lengthy periods of time (all of which are factors that result in a larger vacation pay payable amount).