I received a question from a reader regarding how to accrue for benefits. The question was:
"I would like to know the best and most cost-efficient way to reconcile benefit accruals, such as health, dental, etc. to the benefits invoice?"
My reply was:
"You have touched upon one of the most painfully tedious chores ever inflicted on the accounting staff. The short answer is that complete avoidance of a reconciliation (see first item below) is the only way to reduce your labor in this area, unless you can bring about either or both of the structural changes that I also describe below. Here are some improvements:
- Don’t try to reconcile. Instead, just record the supplier invoices “as is,” even if there are errors in the invoices. Under this approach, you assume that errors will be found and corrected by the human resources staff, so error adjustments will eventually appear in a later invoice, which you will also record “as is”. This also means that the company will not record a benefits expense for a new employee if that person does not yet appear on a benefits invoice (even if benefits have been earned), and will pay extra when a multi-month charge appears on a later benefits invoice. Yes, this means that your numbers will be somewhat inaccurate every month – but when averaged over several months, your numbers should be accurate.
- Centralize as many benefits as possible with a single supplier, so you can reconcile to a single invoice.
- Require all employees to have the same benefits package, so you are not reconciling a broad range of benefits for each employee. For example, if the company-standard life insurance is $50,000, then no one is allowed to also take out additional insurance.
Obviously, the last two suggestions are probably outside your control, but the first option may work for you."