Leave Accrued

When processing your pay run and clicking on the Leave Accrued section, you may occasionally see some mysterious lines that begin with ADJ, have 0 Hours and have potentially large Amounts on them.

This is the system automatically adjusting the value of the accrued leave balance in the General Ledger when the employee's pay rate has changed.

These lines have absolutely no impact on an employee's pay or leave accruals.

A full explanation of these lines is provided below.

ADJ Lines

The ADJ prefix indicates that the line is an automatic adjustment by the system and may appear something like the red outlined lines below.

This situation occurs when an employee’s Standard Pay Rate has been changed since their last pay and is completely normal.

The pay rate increase means that the value of each of this employee’s accrued leave balances is now higher than it was before the pay increase.

They will be paid more for taking a week of leave after the pay increase than they would have been paid before the pay increase.

For employees with leave entitlements, each pay run adds some leave accrual hours to their leave balance and, if that leave type is configured to post the leave accrual liability to the General Ledger, a line in the pay journal will post the accrual value to the relevant liability account in the GL.

The amount of each accrual is based upon the employee's pay rate at the time of the pay.

When an employee takes some leave or is paid out for their unused leave upon termination, the payment is also based upon the employee's current pay rate at that time.

If the employee's pay rate has not changed at all, the amount of the leave payout will match the amount of the accruals posted during their employment and the balance in the liability account in the GL (for them) will become zero.

However, if the employee's pay rate increased during their employment, the amount of the payout will be greater than the total of the accruals posted for them and the liability account would be left with a debit balance.

To prevent this situation, the value of their accrued leave in the liability account in the GL must be adjusted each time their pay rate changes.

Marlin HR does this automatically for you. On each pay, the system checks to see whether the employee's pay rate has changed since the previous pay and if so it deducts the old rate from the new rate to determine the differential.

The red outlined lines in the diagram above show how the system has, for each leave type, multiplied the pay rate differential by the accrued hours balance to determine the amount by which the value of the accrued leave has changed.

These lines have 'ADJ' at the start to indicate that they are a system adjustment and have '0' in the Hours column because the employee's leave accruals are not being impacted in any way.

When you finalise the pay run the system generates the pay journal and in doing so checks to see which of these leave types are configured to post the leave accrual to a liability account in the GL (i.e. have the ‘Accounting Accrual of Leave Liability’ checkbox ticked under System > Leave Types).

Most businesses only set Annual Leave, Annual Leave With Loading and Long Service Leave to accrue in the GL as Personal Leave is not usually paid out upon termination but some businesses choose to accrue the Personal Leave liability in the GL too.

For those leave types that are set to accrue in the GL, it includes a line in the Leave Accrual section of the pay journal to post the adjustment amount to the relevant liability account in the GL.

These automatic adjustments ensure that the GL always reflects the true and current value of the accrued leave liability of the business, even when pay rates change, and that it matches the value in Marlin HR (i.e. accrued hours x current pay rates).

The adjustments have no impact on the employee whatsoever.