Vacation and Leave Accrual -- Agenda

1. Definition & History Change in Policy Beginning Vacation Balance Budget Impact How it Will Work What about Sick Leave? Ability to Plan Implementation Considerations Vacation and Leave Accrual -- Agenda

2. Vacation Accrual Definition • A financial vacation accrual allows us to build up funds to pay staff while they are on vacation, thus recognizing this cost as it is earned • Similar to staff members saving money toward their own vacation trips, Stanford needs to put aside money to pay their salary when they are on vacation • If this is not done, vacation is a “hidden” cost, that can come back to bite you!

3. Vacation Accrual Definition • Allows us to charge the “full cost” of the person to the account/project (PTA) that benefits from their effort. Full cost includes: • Salary • Vacation benefits earned (money to pay it in the future) • Fringe benefits • For example, if a person earns 4 weeks of vacation in a year, but only took 3 weeks off: • the University has received one week’s more work than it was entitled to, and • that cost should be reflected and money put aside to pay for the future vacation

4. Vacation Accrual History • Most of Stanford has not accrued any funding for vacation - “pay as used” method • Lab Time Card users have an accrual • Prior policy requires transfer of $ value of accrued vacation when anemployee moves to a new department (but not to new accounts/projects) • Credit to expense in new department, was sometimes not “carried over” in reserves, but was a “windfall” to the bottom line; it was not always retained to cover the future vacation

5. Drivers for Change • When people leave Stanford they must be paid their accumulated vacation • It was sometimes hard to find a funding source, especially if they were previously on a sponsored project which ended • The same thing happened upon transfers to new jobs in a new department • Sponsors were not paying their full share • ONR and DCAA have previously requested this methodology • Adopting one uniform method puts us on a consistent basis as required by A-21 and CAS (government Cost Accounting Standards)

6. Change in Policy • The University began recording a financial accrual for vacation on September 1, 2003 • Oracle Financials can apply the appropriate “burden” to charge for vacation as it is earned • Kronos allows the capture of vacation hoursused and can pass it to Oracle • Oracle Financials can post vacation used • This financial accrual will affect every account (Project/Task/Award combination) to which vacation-eligible staff salaries are charged • Not applicable for faculty, students, or others who do not earn vacation per Stanford policies

7. Change in Policy • The University included a small component to cover Disability Sick Leave (DSL) in the vacation accrual rates negotiated with the Office of Naval Research • We have 3 combined Vacation/DSL rates, averages for the entire University: • Exempt: 8.65% • Nonexempt: 7.45% • Bargaining Unit (currently same as nonexempt): 7.45%

8. Beginning Vacation Balance • For every vacation-eligible person (except those in the Lab Time Card System) the vacation earned prior to the policy change is unfunded • It is an “empty bucket” that must be filled at some time in the future • We will not require its immediate funding (you don’t have to fill up the bucket right away) • The amount to go in the bucket for each person is: Their earned, but unused vacation at 9/1/03 X Their pay rate at the timetheir bucket is filled

9. Beginning Vacation Balance • The “bucket” will be filled up over time as employees leave or transfer to another department • We recorded the beginning unfunded hours for each employee (at 9/1/03) • When employee transfers or departs, the beginning unfunded hours must be funded (put into the central accrual account) SIMILAR TO TODAY’S PRACTICE • These hours have never been “paid for” • There is no “windfall” to receiving department, and no additional cost for them to cover these hours in the future • Treatment causes a “timing” variance • Allows “borrowing” from central accrual account when employee uses unfunded beginning hours

10. Accrual Balance • Units can choose to fund it “early” • Early funding can only be done person by person • Must fund the entire unfunded balance for the person • Can selectively choose which employee balances to fund • Need to justify which accounts (PTAs) are being charged • Balance will be built up over time, as employees transfer or depart

11. Vacation Accrual at 9/1/03 100 hours 32 hours accrued from 9/1/03 to 10/31/03 Employee quits on 10/31/03 and is paid for a total of 132 vacation hours How do I fill up their vacation bucket of 100 hours? 100 hours from Chemistry budget or 100 hours from funds received when employee transferred to Chemistry 32 hours covered by vacation accrual, already charged to Chemistry using new rate Note: Central accrual fund will pay out 132 hours of vacation. Chemistry will pay salary and benefits for 100 hours back to central fund. Vacation AccrualExample

12. Vacation Budget Impact • The Budget Office will not add funding for vacation • Budgets will reflect a year’s worth of salary • Example: 48 weeks of work + 4 weeks of vacation = 1 year of salary • There should be no significant ongoing budget impact if employees use the same amount of vacation as earned in one year (a usage variance) • If use more vacation in a year, get budget savings • If use less vacation in a year, will be over budget • This treatment accurately reflects the true costs of the effort received in the year • For several years, departures and transfers will still impact budgets, just as they do today

13. Budget Variances Operating Budgets and Auxiliaries • For FY2004, the Budget Office will hold Operating Budget and Auxiliary accounts “harmless” • For the first year of this policy, if the net vacation impact on the operating budget or an auxiliary account is negative, the Budget Office will allow the deficit to be carried over to FY2005 and will require it to be funded by the end of FY2005 • All other funds and accounts (PTA combinations), including sponsored projects, gift funds, service centers and designated funds must cover any deficit generated

14. How it Will Work:Impact on Staff - Vacation • Process is automatic as long as staff accurately record vacation hours taken in Kronos • If vacation is not accurately recorded, Kronos Administrator must enter a Kronos “Historical Edit” • Historical edit adjusts the hours in Kronos only • Labor Distribution Adjustment must be made to correctly reflect the vacation used • Debit to Vacation Accrual Liability will be routed to Controller’s Office for Approval

15. What about Sick Leave? • Sick Leave is another benefit Stanford provides to its staff members • Everyone, except Lab Time Card users, treated it on the “cash basis” (it was charged only as used) • Most sick leave is short term, and doesn’t present a financial hardship to the department/account which pays it • Longer term sick leave can present funding issues

16. Disability Sick Leave Accrual Definition • A Disability Sick Leave (DSL) accrual covers the sick leave supplemental pay while a staff member is on: • Short-term or Long-term Disability • Worker’s Compensation • DSL is like “insurance” for the department, to protect it when someone is out for a long period of time and charges sick leave • Includes maternity leave • Includes long-term illnesses

17. Why Accrue for DSL? • It raises the same “appropriate funding” issues as vacation, when an employee charges sick leave for an extended time and did not “earn” that much sick leave while working on a sponsored project • Accruing for “Disability” sick leave provides: • Ability to consistently charge to funding source • Sponsors pay “their share” • “Protection” to departments • Source of funds for sick leave so required activities can continue with replacement staff

18. DSL Budget Impact • The Budget Office will not add funding for the Disability Sick Leave portion of the rate • Budgets will reflect a year’s worth of salary • If no one uses sick leave to supplement disability or workers’ compensation payments, the account will still be charged, but will receive no benefit • Similar to your own health, homeowner’s or automobile insurance -- you need to have it, but you don’t want to use it! • The cost of protection is spread over a larger number of accounts (PTAs) so no one has to pay much • If someone on the account does need to use the sick leave supplement, the department is covered

19. How it Will Work:Disability Sick Leave • The DSL charge is included in the Vacation burden charge • When employee uses sick leave related to disability or workers’ compensation, Kronos Administrators will use special earnings codes in Kronos • Initially, Controller’s Office will make corrections to credit regular accounts charged for this sick leave • Eventually, Oracle will make entries automatically • When employee uses DSL no salary is charged to the account

20. Ability to Plan • May focus management on staff usage of vacation, which may have other HR benefits • Management can predict some future costs, depending on known upcoming staff departures • Management can decide to fill up the 9/1/03 vacation balance bucket “early” in a “good year”

21. Implementation Considerations • Review your unit’s Kronos practices and processes • Do you know who is on vacation? • Do you ensure it is recorded in Kronos? • If staff members don’t record vacation themselves do you have a way for your Kronos Administrators to be informed and to make the entry for them? • Do your Kronos Administrators know who is on Disability or Worker’s Comp, and how to record the sick leave component? • Do you review Kronos reports?

22. Vacation Accrual and Disability Sick Leave • Contacts: • Controller’s Office: • Karen Craig, klcraig@stanford, 4-3899 • Tana Hutchison, tana@stanford, 3-9793 • Office of Research Administration: • Sara Bible, sbible@stanford, 5-1712 • Ken Schulz, kschulz@stanford, 5-1733 • Pamela Webb, pwebb@stanford, 4-6613 • Office of Sponsored Research: • Contact your assigned OSR representatives