IAS 19: Employee benefits

Keywords: Mazars, Thailand, Accounting, IAS 19, Employee Benefits, IFRS, TFAC

18 February 2022

The article stated that the IFRS Interpretation Committee (“the Committee”) received a request about the periods of employment to which an entity attributes a benefit for a particular benefit plan. Under the terms of the plan:

1. Employees are entitled to a lump-sum benefits payment when they reach a specified retirement age, provided that they are employed by the entity when they reach that retirement age.
2. The amount of the retirement benefit to which an employee is entitled depends on the length of employment with the entity before retirement age, and is capped at a specified number of consecutive years of employment.  

To illustrate the situation described in the request, assume an entity provides a defined benefit plan for its employees. Under the terms of the plan:

(a)   Employees are entitled to a retirement benefit only when they reach the retirement age of 62, provided that they are employed by the entity when they reach that retirement age.

(b)   The amount of the retirement benefit is calculated as one month of final salary for each year of employment with the entity before reaching retirement age.

(c)    The retirement benefit is capped at 16 years of employment (that is, the maximum retirement benefit to which an employee is entitled is 16 months of final salary).

(d)   The retirement benefit is calculated using only the number of consecutive years of employment with the entity immediately before reaching retirement age.

Consequently, for the benefit plan mentioned above, the Committee concluded that the entity should attribute a retirement benefit to each year in which the employee was employed from the age of 46 to the age of 62 (or, if employment commences on or after the age of 46, from the date that the employee was first employed to the age of 62). The Committee’s conclusion matches the outcome set out in the first part of Example 2, paragraph 73 (that is, for employees who join before the age of 35), of IAS 19.

The Committee concluded that the principles and requirements in the IFRS provide an adequate basis for an entity to determine the periods to which a retirement benefit is attributed in the situation described in the request.

However, the plan above differs from Thai labour law, and the calculation method is not allowed under Thai accounting standards. Therefore, recognizing the liability as noted above could not be done in Thailand. 

Moreover, TFAC's committee answered the question in regard to attributing a benefit to periods of employment. It indicated that, before changing any employee benefits plan, a company must check each country's labour law, because the conditions and context of the law are different.

A Thai employee benefit plan includes:

1. Former employee benefits; and
2. Termination or severance pay under the Labour Protection Act, 2541 (1998, as amended in 2017) to the employee, which is a maximum of 400 days of the latest salary.

As a result, the calculation of the employee benefits obligation in Thailand must be based on the first date that the employee worked for the company until reaching retirement age. TFAC’s committee believed that this calculation is appropriate and sufficient to record a liability in the financial statements under Thai labour law.  

References: TFAC website, and IFRS website