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Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

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17–11. Use Honor System to Track Vacation and Sick Time

The payroll staff may be in charge of tracking the vacation and sick time used by employees. This involves sending out forms for employees to fill out whenever they take time off, usually requiring their supervisor’s signature. Upon receipt, the payroll staff logs the used time in the payroll system and files the forms away in employee personnel folders. If the payroll staff does not account for this information correctly in the payroll system, employees will probably spot the problem on their remittance advices the next time they are paid and will go to the payroll office to look into the matter. These inquiries take up accounting staff time, as does the paperwork tracking effort.

When used with some control features, it is possible to completely eliminate the tracking of vacation and sick time by the payroll staff. Under this scenario, employees are placed on the honor system of tracking their own vacation and sick time. Though this system keeps the payroll staff from having to do any tracking of this information, there is also a strong possibility that some employees will abuse the situation and take extra time off. There are two ways to avoid this problem. One is to institute a companywide policy that automatically wipes out all earned vacation and sick time at the end of each calendar year, which has the advantage of limiting the amount of vacation and sick time to which an employee can claim that he or she is entitled. ...

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