RGCI - Cost Accounting Standard (CAS) 408 - Accounting for Costs of Compensated Person Absence

Cost Accounting Standard (CAS) 408 was put in place to provide consistency in the measurement and allocation of vacation, sick leave, holiday, and other compensated personal absences. Today, many contractors refer to all paid time off as “PTO.”

What are the Basic Requirements of CAS 408?

There are two fundamental requirements:

  1. The cost of paid time off is assigned to the account period the employee earns the time off, and
  2. The cost assigned to contracts is based on the annual amount – not a monthly or quarterly calculation.

What Do You Need to Consider When Implementing the Requirements of CAS 408?

You need to make a determination (the CAS wording, not mine) for each type of cost (CAS refers to the types of cost as plans – sick leave plan, etc.). For each type of cost, you must determine when the employee has earned the leave (i.e., the employee is entitled to bank the leave and take it at a later date).

For each type of cost, you must then measure the amount of cost to assign to the earned leave. This measurement is based on:

  • When the employer has a liability to pay the employee for the leave:
    • The cost of the leave is determined at this point;
    • The cost then needs to be adjusted for any material amount of unused leave, and
    • The cost can be based on the employee’s current or future pay rate, or an average of all employees can be used if it results in a reasonable accurate amount.
  • If the employer’s liability cannot be determined, then the leave will be considered earned when the employee is paid (i.e., takes the leave).

The amount of cost measured must be allocated to contracts based on the annual amount. Yes, you must estimate and then true up the cost at the end of the year – and even during the year if material differences are identified.

I understand this is a high-level introduction to the CAS 408 requirements. However, this standard has not kept up with changes in how paid time off is managed and the various plans in the employment marketplace.

Current Paid Time Off Plans

Many contractors today have a single plan referred to as “PTO.” The employee can use the leave for any reason – vacation, sick leave, taking care of a sick child, mental health day, etc. There are even some contractors that offer unlimited PTO, provided the employees can complete their job functions. The selection of the right PTO plan for a contractor is complex and often impacted by the employment laws of the states in which it operates or, today, the ever-increasing number of states its remote employees work in.

The Takeaway

Once you have a general understanding of the CAS 408 requirements, you will need to collect the details of your contractor’s paid time off plan or plans. You can then establish when the employer is liable to pay the employee and calculate an amount of cost. If a clear point of liability cannot be established, the cost of the paid time off will have to be measured at the time the employee takes the leave and is paid.

Yet another standard is the new CAS board; if and when it becomes active, it should consider updating for current practices.

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s requirements, assisting contractors with CAS requirements, and working through complex human resourcing issues. We would be happy to be part of your team.

Learn More About Our Cost Accounting Standards (CAS) Services

Written by John C. Shire, CPA

John C. Shire, CPA John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Compliant Accounting Infrastructure, Contracts & Subcontracts Administration, DCAA Audit Support, Government Regulations, Cost Accounting Standards (CAS)