Employee Benefits

Accrued Benefits
Accrued benefits refer to the benefits that are due under a defined-benefit pension scheme in relation to the service rendered by an employee up to a specific date. These may be calculated based on current earnings or protected final earnings, and are governed by various regulatory standards depending on the jurisdiction.
Accumulated Postretirement Benefit Obligation (APBO)
The actuarial present value of an employer's postretirement benefits other than pensions, attributed to employee service rendered up to a specified date. These benefits often include retiree medical or retiree life insurance benefits.
Accumulating Compensated Absences
Accumulating compensated absences refer to employee benefits that an organization must account for, representing the amount accrued but not yet taken by employees.
Additional Voluntary Contribution (AVC)
An Additional Voluntary Contribution (AVC) allows employees to make extra contributions to their pension schemes over and above the standard contributions from their employer or themselves. This helps in enhancing their pension benefits upon retirement.
Advance Funded Pension Plan
An advance funded pension plan is a retirement plan in which current allocations are made to finance an employee's pension, ensuring funds are available upon retirement.
Allocated Benefits
Allocated benefits refer to the payments in a defined-benefit pension plan, where benefits are distributed to participants as premiums are received by the insurance company. This ensures that employees are guaranteed a pension at retirement, even if the firm ceases operations.
Cafeteria Benefit Plan
An arrangement that allows employees to choose their own employee benefit structure, tailoring it according to their personal needs and preferences.
Cafeteria Plan
A cafeteria plan allows employees to choose from a variety of fringe benefits, including cash, without including the chosen benefit in their gross income for tax purposes.
Cash Balance Pension Plan
A type of hybrid pension plan in which each participant's benefit is stated as a hypothetical account balance, increased with pay credits for additional service and interest credits to reflect the passage of time.
Cash Or Deferred Arrangement (CODA)
A Cash Or Deferred Arrangement (CODA) is a type of retirement plan arrangement that allows employees to defer a portion of their income to a retirement plan, such as a 401(k), on a pre-tax basis.
COBRA (Consolidated Omnibus Budget Reconciliation Act)
COBRA is a federal law that allows employees and their families to continue their group health benefits even after losing their job or experiencing other qualifying events.
Company Car
A company car is a vehicle owned by a business but made available for employees to use for business and, in some cases, personal purposes.
Compensated Absences
Compensated absences refer to certain periods during which employees are paid even though they do not attend work. This concept is crucial for proper financial reporting and management in organizations.
Compensation
Compensation refers to the direct and indirect monetary and nonmonetary rewards provided to employees in recognition of the value of their job, their personal contributions, and their performance. These rewards must align with the organization's ability to pay and comply with relevant legal guidelines.
Compensatory Time
Compensatory time, often referred to as comp time, is time off that an employee is allowed to take in lieu of overtime pay.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Federal legislation that requires group health plans sponsored by employers with 20 or more employees to offer continuation of health insurance coverage to employees and their dependents after they leave their jobs. Employees must pay the entire premium plus up to 2% administrative costs.
Contributory Pension
A contributory pension is a type of pension scheme where both the employee and the employer contribute to the employee's pension fund.
Contributory Pension Plan
A contributory pension plan is a retirement savings plan in which both the employee and employer contribute funds. These plans are designed to provide financial security to employees after retirement by pooling resources from both parties.
Deferred Compensation
Deferred compensation is a tax-advantaged plan under which an employee postpones a portion of their salary in exchange for the employer's promise to pay this salary in the future, usually to achieve tax benefits and retirement planning.
Deferred Retirement
Deferred retirement refers to the act of postponing retirement beyond the normal retirement age, which typically does not result in an increase in monthly retirement income when the employee actually retires.
Defined-Benefit Pension Plan
A defined-benefit pension plan promises to pay a specified amount to each person who retires after a set number of years of service. These plans pay no taxes on their investment income.
Defined-Benefit Pension Scheme
A defined-benefit (DB) pension scheme is an occupational pension plan where the retirement benefits are predetermined by a specific formula, typically incorporating years of service and salary levels. The pension is funded accordingly, and accounting for pension costs presents specific challenges governed by Section 28 of the Financial Reporting Standard in the UK and IAS 19.
Dental and Vision Insurance
Employee insurance covering a part of the incurred cost for dental and vision care. The deductible portion and total coverage of the plans vary according to the insurer and the workplace.
Eligibility Requirements
Conditions required to be covered by employee benefit plans such as pensions, under which minimum requirements, such as a certain number of years of service, must be met by an employee to qualify for benefits.
Emoluments
Amounts received from an office or employment including all salaries, fees, wages, perquisites, and other profits as well as certain expenses and benefits paid or provided by the employer, which are deemed to be emoluments. They are subject to income tax.
Employee Benefits
Employee benefits, often referred to as fringe benefits, are non-wage compensations provided to employees in addition to their normal salaries or wages. These benefits are key components of comprehensive compensation packages, aimed at attracting, motivating, and retaining employees.
Employee Profit Sharing
An outline of an employee benefit plan where employees are entitled to a portion of the profits of their company, receiving bonuses when the company is profitable.
Employee Retirement Income Security Act (ERISA)
The Employee Retirement Income Security Act (ERISA) of 1974 governs most private pension and benefit plans, easing pension eligibility rules, establishing the Pension Benefit Guaranty Corporation (PBGC), and setting guidelines for managing pension funds.
Employee Retirement Income Security Act (ERISA)
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.
Employee Share Ownership Trust (ESOT)
An Employee Share Ownership Trust (ESOT) is a trust set up by a UK company to acquire and distribute company shares to its employees, benefiting both the employees and the company through tax-deductible payments.
Employee Share Ownership Trust (ESOT)
An ESOT, or Employee Share Ownership Trust, is a type of employee benefit plan designed to provide employees with an ownership interest in the company.
Employee Stock Option
An employee stock option (ESO) provides employees the opportunity to purchase stock in the company they work for, typically at a price below market value. The two main categories for tax purposes are statutory (incentive stock options) and nonstatutory options.
Employee Stock Ownership Plan (ESOP)
An Employee Stock Ownership Plan (ESOP) is a program that encourages employees to purchase stock in their company, thus allowing them to participate in the management of the company. Companies with such plans may take tax deductions for ESOP dividends passed on to participating employees and for dividends that go to repay stock acquisition loans.
Enrollment Period
The period immediately following employment during which one may sign up for insurance coverage. If an employee decides later to secure coverage, he or she must wait for a period of time or for an open enrollment period.
Enterprise Management Incentives (EMIs)
Enterprise Management Incentives (EMIs) are a type of employee stock option scheme that provides tax advantages to both employees and employers in the United Kingdom.
Excess Contributions
Excess contributions refer to contributions made to a cash or deferred arrangement for highly compensated employees that exceed the limits set by nondiscrimination rules.
Executive Perquisites
Executive perquisites, often referred to as 'perks,' are special benefits or privileges provided by a company to its senior executives. These perks are usually not available to lower-level employees and can include a wide range of amenities, such as company cars, private jet access, and significant bonuses.
Forfeitable
In the context of a pension or a profit-sharing plan, forfeitable benefits are those in which a participant has no ownership rights until specific length-of-service or performance requirements for vesting have been met.
Furlough
A furlough is a temporary leave of absence from an organization, typically granted to employees for a specified period, often without pay. Furloughs can be used for various reasons, including economic downturns, training, or personal necessity.
Golden Hello
A Golden Hello is a financial incentive offered to a potential new employee to entice them to join a company, often provided in industries where talent competition is fierce.
Gross Earnings
Gross earnings refer to an employee's salary or wages before any deductions for taxes, Social Security, and employee benefit contributions are made.
Group Deposit Administration Annuity
A pension plan funding instrument in which contributions paid by an employer are deposited to accumulate at interest, and an immediate annuity is purchased upon retirement for the employee. The benefit is determined by a formula and the investment earnings on funds left to accumulate at interest.
Group Disability Insurance
Group Disability Insurance provides coverage for a group of employees, offering monthly benefits if members are unable to perform their job functions due to illness or accident. Benefits are typically limited to a specified duration and capped at a percentage of pre-disability earnings or a flat dollar amount, whichever is lower.
Group Health Insurance
Group health insurance offers healthcare coverage to members of a defined group, such as employees of a business, union members, or association groups, facilitating access to a comprehensive range of medical services.
Group Legal Services Plan
A Group Legal Services Plan is a program that offers legal services to participants, typically employees of a company, through a prearranged and often prepaid contractual agreement.
Group Life Insurance
Group life insurance is a basic employee benefit under which an employer buys a master policy and issues certificates to employees denoting participation in the plan. Group life is also available through unions and associations. It is usually issued as yearly renewable term insurance although some provide permanent insurance. Employers may pay all the cost, or share it with employees.
Guaranteed Annual Wage (GAW)
A plan provided by an employer to assure eligible employees a minimum amount of work or pay during the year. Employees must meet certain requirements such as willingness to change activities or to work overtime when needed.
Holiday Pay
Holiday pay refers to wages or salary paid to an employee during a period of vacation leave to which they are entitled. It ensures employees enjoy compensated time off from work.
Hospitalization Insurance
A form of health insurance that covers hospital stays and related medical costs, such as medicines and physicians' services. Many organizations provide at least part of the cost of hospitalization insurance for their employees, with coverage varying depending on the specific policy.
Hybrid Pension Plan
A Hybrid Pension Plan is a general term encompassing pension plans that incorporate elements of both defined-contribution and defined-benefit plans, offering versatility in retirement planning.
Key Person Life and Health Insurance
Key Person Life and Health Insurance is a type of business insurance coverage designed to protect companies from the financial loss that can occur if a key employee becomes disabled or passes away.
Labor Agreement
A labor agreement, also known as a labor contract or collective bargaining agreement, is an officially negotiated deal between management and labor unions detailing the terms of employment, working conditions, wages, benefits, and other employment-related matters.
Leave of Absence
A leave of absence refers to a formally approved period during which an employee is permitted to take time off work without losing their job seniority or associated perks. It is often granted for specific purposes such as education, research, maternity/paternity leave, or personal health.
Legal Expense Insurance
A prepaid legal insurance coverage plan sold on a group basis, entitling members to a schedule of benefits for legal services such as adoptions, probates, and divorces.
Leveraged ESOP
A Leveraged Employee Stock Ownership Plan (ESOP), also known as a Leveraged ESOP, is a type of ESOP that borrows money to purchase employer stock directly from the company.
Lifetime Security
Lifetime security refers to a form of employee job security that guarantees protection against layoffs during economic slowdowns or plant closings.
National Insurance Contributions (NIC)
National Insurance Contributions (NIC) are payments made by employees and employers in the UK primarily to qualify for certain benefits and state pensions.
Non-Contributory Pension Scheme
A non-contributory pension scheme is an occupational pension scheme in which all the contributions are made by the employer, enabling employees to receive retirement benefits without having to make any contributions themselves.
Noncontributory Qualified Pension or Profit-Sharing Plan
A noncontributory qualified pension or profit-sharing plan (NQP/PSP) is a retirement plan entirely funded by the employer, with no contributions required from the employees. These plans are established for the employees' benefit, ensuring financial security upon retirement.
Nonforfeitable
In the context of pension or profit-sharing plans, nonforfeitable benefits are those that are guaranteed and not conditioned upon further length of service or performance requirements.
Normal Cost in a Defined-Benefit Pension Plan
Normal cost represents the portion of the economic cost of a participant's anticipated pension benefits allocated to the current plan year, usually distinct from accounting accrual cost or the cash outlay required in that year.
Normal Retirement Age
The earliest age at which an employee can retire without a penalty reduction in pension benefits, typically after meeting minimum age and service requirements. Historically, set at 65 years but varies by pension plans.
Occupational Pension Scheme
An occupational pension scheme, also known as superannuation or workplace pension, is a pension plan designed for employees within a specific trade, profession, or company, providing retirement benefits through either insured or self-administered schemes.
Open Enrollment Period
The Open Enrollment Period is a limited timeframe, typically lasting between 10 to 30 days, during which employees who have not previously enrolled in specific types of insurance are allowed to do so. Certain exclusions may apply, such as for preexisting conditions.
Part-Time Employment
Part-time employment refers to jobs requiring less than a full-time commitment from employees. Part-time employees typically do not enjoy the same benefits as full-time employees, such as health insurance and retirement plans.
Past Service Benefit
A private pension plan credit given to an employee’s past service with an employer prior to the establishment of a pension plan. Usually, a lower percentage of compensation is credited for benefits for past service than for future service benefits.
Past Service Credit
Past service credit refers to the recognition of service time an employee has accrued prior to being a member of a pension plan, which is used to determine pension benefits.
Past Service Liability
Past Service Liability refers to the obligations to fund an employee's benefits in a pension plan for their prior service before entering into the pension plan. It is a crucial element in pension planning and impacts the financing of future benefits.
Pay
Pay can refer to the compensation given to personnel for services performed or the act of exchanging money for goods or services.
Pension Freeze
A Pension Freeze refers to the situation when a pension plan sponsor decides to eliminate future pension accruals for plan participants, although the plan itself remains in existence to pay out already accrued pensions.
Pension Plan
A pension plan is a retirement savings program sponsored by an employer that provides its employees with regular income post-retirement. There are various types of pension plans, each with different rules regarding contributions, benefits, and tax treatment.
Pension Plan Liability Reserve
An obligation recognized by the employer for the future liability to make annuity payments to employees. The reserve is typically a liability when it results from charging a pension expense. However, in a revocable plan, the reserve is considered an appropriation of retained earnings regardless of whether it affects specific assets.
Perquisite (Perk)
Perquisites, often abbreviated as perks, refer to the privileges granted to employees in addition to basic wages and salaries. These can range from health insurance and pensions to executive benefits like automobiles, resort vacations, and more.
Perquisite (PERK)
A perquisite, often abbreviated as 'perk,' is a non-wage benefit or privilege granted to employees in addition to their regular salary or wages. Perquisites are typically offered to enhance job satisfaction, performance, and loyalty among employees.
Perquisites of Office
Perquisites of Office, also known as fringe benefits, refer to the advantages or benefits provided by an employer to an employee, which are above their regular wages or salary. When these benefits are used for personal or family purposes, they are taxable.
Phantom Stock Plan
A Phantom Stock Plan is a type of deferred-compensation plan that uses the employer's stock as a basis for determining the value of the compensation payment. It provides employees with the benefits of stock ownership without actually awarding them any company stock.
Plan Sponsor
A plan sponsor is an entity that establishes and maintains a pension or insurance plan, ensuring compliance with government guidelines, financial transparency, and proper benefit allocation.
Portability
Portability in the context of employee benefits, such as pension and insurance coverage, refers to the characteristic that allows employees to retain their benefits even when they leave their current job to take up a new one with a different employer.
Portal-to-Portal Pay
Compensation for all expenses incurred while traveling from door to door. Portal-to-portal pay is used in business organizations for business-related purposes, such as business travel where all expenses including transportation are covered.
Prior Service Cost
Prior service cost refers to the obligations a company incurs for employee benefits under a pension plan related to service provided by the employee before a specific date.
Professional Employer Organization (PEO)
A Professional Employer Organization (PEO) is a firm that provides comprehensive HR solutions for small and medium-sized businesses, including payroll processing, employee benefits, human resources, tax administration, and regulatory compliance assistance.
Professional Employer Organization (PEO)
A Professional Employer Organization (PEO) provides comprehensive HR solutions for small and mid-sized businesses, including payroll, benefits, regulatory compliance, and HR management.
Profit-Sharing Plan
A profit-sharing plan is an agreement between a corporation and its employees which allows employees to share in the company's profits. Contributions are made annually by the company to an account for each employee, accumulating tax deferred until retirement or departure. Employees may be able to borrow against these funds for major expenditures.
Profit-Sharing Scheme
A profit-sharing scheme is a program that provides employees with a share in the profits of the company they work for, often by means of share ownership.
Projected Benefit Obligation (PBO)
The actuarial present value as of a specific date of all benefits attributed by the pension benefit formula to employee service performed before that date. It is measured using assumptions as to future compensation levels if the pension benefit formula is based on those future salary levels (e.g., pay-related, final-pay).
Qualified Plan or Qualified Trust
A pension or profit-sharing plan set up by an employer for the benefit of employees, adhering to IRS rules, where contributions are deductible for the employer, trust income is not taxable, and employees are taxed only upon distribution.
Rabbi Trust
An irrevocable trust used to fund deferred compensation benefits for key employees in the absence of a qualified plan or trust, ensuring some financial security against company risks.
Remuneration
Remuneration is a sum of money paid for services given, encompassing both salaries and wages.
Retirement Fund
A retirement fund is a sum of money specifically reserved by an organization for retiring employees. The investment of retirement funds is increasingly significant in the stock market and is regulated by federal laws such as the Employee Retirement Income Security Act (ERISA) of 1974.
Salary Continuation Plan
A salary continuation plan is an arrangement often funded by life insurance to continue an employee's salary in the form of payments to a beneficiary for a certain period after the employee's death. The employer may act as the beneficiary, collecting the death benefit and making payments to the employee's designated beneficiary.
Salary Reduction Plan
A salary reduction plan allows employees to have a certain percentage of their gross salary withheld and invested in options such as stocks, bonds, or money market funds.
Section 401(k) Plan
A Section 401(k) Plan allows an employee to contribute pretax earnings to an individual account, invested in various financial instruments, accumulating tax-deferred until withdrawal.
Severance Pay
Severance pay is an income bridge provided by some employers for employees transitioning from employment to unemployment. The amount is negotiable and taxable in the year received.
Share Incentive Plan (SIP)
A Share Incentive Plan (SIP) is a tax-advantaged employee share scheme that allows employees to purchase or receive shares in the company they work for, promoting employee ownership and aligning their interests with shareholders.
Share Option
A share option is a benefit often offered to employees that provides them the opportunity to purchase company shares at a favorable fixed price or discounted market rate. This guide explores the definition, examples, FAQs, related terms, and additional resources.
ShareSave (Savings Related Share Option Scheme)
An approved share option scheme established by an employer for the benefit of executives or other employees. HM Customs and Revenue has detailed rules regarding the income tax and capital gains tax chargeable to individuals benefiting from such a scheme.
ShareSave (Savings Related Share Option Scheme)
The ShareSave, also known as a Savings Related Share Option Scheme (SAYE), is a tax-efficient savings plan for employees. Under this scheme, employees can save money each month for a set period and then use their savings to buy shares at a fixed price that was set at the beginning of the savings contract.

Accounting Terms Lexicon

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