-
Allocating Severance Pay/ Retirement Insurance – Functional Allocations
I am working with a nonprofit that is covering medical insurance for an executive director that left the organization in a past fiscal year as part of a retirement/separation agreement.
How would you advise coding that from a functional allocation perspective given the employee did not work this fiscal year, and therefore we cannot observe how she spent her time for the organization. Would it all be management & general as part of an HR/risk management expense, or can the organization code based on the breakdown the ED had before they departed (E.g., 60% program, 10% management, 30% fundraising)?
This organization is small, so coding it all to M&G could have a significant impact on their program expense ration.
-
4 Replies
-
Hi Tony, and thanks for coming to the Forum! My inclination would be to allocate based on how the individual worked when they were employed by the organization whether or not they were actually on the payroll that year. I look forward to hearing other opinions as well!
-
This is a retirement benefit expense. Expensed currently. I don’t see how you can use previous or historical percentages. These retirement benefits do not futher current programs. Allocating to historical work does not assist in compliance and doesn’t make transparent. Nor does it assist in budgeting, performance evaluation or strategic planning. I would leave in admin as retirement benefit. Or am I missing something?
-
I agree with Wade. The retirement severance is a cost of doing business, just like the salary and other benefits were while she was still employed there; I would allocate it based on the history.
-
Hello, Tony. This is a classic accounting conundrum. In my view, the answer depends largely on the nature of the expense. If the cost relates to an employee’s past service, allocating it according to their historical time breakdown seems reasonable. Using the previous year’s analysis provides a practical and defensible basis, even if it feels slightly retrospective. For a smaller charity, it can also help maintain a more consistent picture of programme costs.
