By default, in ITFin, the vacation calculator does not generate transactions and is disconnected from the financial block, with vacation recognized as an expense at the time it is utilized by the employee.

The vacation pay fund allows recognizing expenses for vacation pay at the time it is accrued to the employee. This way, vacation expenses are evenly reflected in the P&L throughout the year, and the company’s vacation balance is accounted for not only in the vacation calculator but also in a separate account.

What to consider if you want to use the vacation fund:

1. Relevance of the Vacation Fund: The vacation fund is not applicable if you do not use financial reports in ITFin. Accounting for vacation reserves is a part of financial accounting; it involves forming certain transactions to reflect balance movements on the account. Therefore, using the vacation fund implies that you utilize the financial module in ITFin and monitor financial reports (P&L report, Trial Balance, General Ledger).
2. Start at the Beginning of the Calendar Year: You can only enable vacation fund accounting in ITFin from 2024 onwards, and it is generally advisable to start at the beginning of the year. If you want to have a vacation fund, you will either need to make adjustments for all the months of 2024 that have already passed or start from 2025.
3. Synchronize with Vacation Compensation Policy: You should align your vacation fund accounting with the vacation compensation policy you use. The functionality of vacation fund accounting requires consideration of your current vacation policy. If vacations reset on January 1 and unused amounts are compensated to employees, the transition will be the easiest. If you do not reset vacations at the end of the calendar year do not compensate unused vacations to employees, or only do so partially, additional actions will be necessary in the system to adjust balances on the account where you will record vacation reserves. Additionally, you should consider the method of vacation compensation; if it is salary-based, it may not be compatible with vacation fund accounting.
4. Change in Expense Distribution Logic: The distribution of vacation expenses across projects will change. Transitioning to the vacation fund will also affect how vacation expenses are accounted for over time and how these expenses are allocated to projects. If you implement this functionality retroactively (for example, starting from the beginning of 2024), the structure of project expenses will change. By default, vacation expenses are recognized upon use and allocated to projects where the employee reported hours at the time of use. With the vacation fund, expenses will be recognized based on the accrual of vacation to employees and will be distributed monthly across projects where the employee reported hours at the time of accrual.

How does the vacation fund work?

In the P&L Policy, two additional lines have been added for setting up the accounting of the vacation fund:

• Vacation Usage (only applicable from 2024) - determines which transaction will be generated when vacation is taken, according to the Vacation line in payroll.

• Vacation Fund (only applicable from 2024) - determines which transaction will be generated when vacation is accrued to an employee in the Vacation Calculator.

Once you set them up, the system will no longer take information from the Vacation line in the P&L Policy (which will remain relevant only for transactions prior to the transition to using the vacation fund).

Transactions related to the Vacation Fund will be generated from the amounts in the Vacation Calculator, based on the Accrued > Money column.

Transactions related to Vacation Usage will be generated from the amounts in the Vacation Calculator, based on the Used > Money column.

The transactions will appear in the General Ledger after the P&L is generated.

In case of needing to adjust the accrued vacation or balances at the end of the period, manual adjustments can be made through the Time off calculator.

How can companies transition to using a vacation fund?

Step 1: Determine whether you want to transition in 2024 or 2025.

Step 2: Create a separate account in the chart of accounts for accounting the vacation fund (e.g., 50.068.004 Vacation Reserve).

Step 3: Set up in the P&L Lines which entries should be generated for accounting the vacation fund (lines Vacation Fund and Vacation Usage).

Step 4: Calculate the vacation balances for the company and regenerate the P&L for the months in which the vacation fund is to be accrued.

Step 5: Check the General Ledger for the vacation fund accounting account to ensure that the balances match the data in the vacation calculator.

Q&A

Question: If we attempt to set up a vacation fund but later want to return to the previous logic, can we do that on our own?

Answer: If you haven’t made manual adjustments, it will be sufficient to delete the entries in the P&L policy. Otherwise, if you have adjusted balances or made manual entries, you will need assistance from the ITFin support team. Therefore, we advise making a careful decision regarding the transition to using a vacation fund.