So what if you allow your employees to use more vacation than they have got to use. What happens in your accounting?

Technically speaking, let’s discuss regulation first. It’s crucial to understand if your legislation allows such activity and if you’d be required to pay additional fees on such “negative reserve”. It is really up to your local legislation so consult any guidance available beforehand. 

In your accounting on the other hand, you’ve got two methods you can opt to – show a receivable for “work yet to be done but that’s already paid for by the company” or show less liability you owe to your employees for the vacation they’ve earned.

So it’s a choice of showing the negative reserve gross or net. I have to be honest with you, I haven’t seen this shown in gross yet, and mostly the liability is just shown less of the negative reserve. Netting the balance also makes sense since both the positive and negative relate to one thing, a vacation.

Another question you have to answer and reach a compromise with your employees, is the amount you allow for them go into negative vacation reserve.