During the Covid-19 global pandemic, some governments have decided to support industries with significant revenue losses and offer wage grants/subsidies to keep workers employed during the crisis. To help guide users, the USALI Global Finance Committee came together to collaborate and issue their recommendations for how to record these wage subsidy programs.
This material was recently presented in the latest HFTP webinar, which was recorded and is now available upon registering to receive the web link. The accompanying presentation slides are also accessible online.
The committee prepared this new guidance through their expert interpretations of accounting principles and considerations of existing guidance in the USALI in order to assist users in the determination of the most appropriate classification for revenue and expenses. This guidance has been vetted and offered for comment to the entire committee – a diverse group of HFTP and AHLA Financial Management Committee members employed as owners/asset managers, operators, brands and more. The brand representatives on committee have all been supportive of this guidance.
Covid-19 Puzzlers for USALI Recording: Accounting Treatment for Hotels that Receive a Government Wage Grant/Subsidy
A wage subsidy is a form of government assistance provided in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. Typical examples include R&D funding, forgivable or interest-free loans, grants of land or facilities and expense waivers.
This wage subsidy program is different from a government assistance loan, like the Paycheck Protection Program (PPP) in the United States. There are no payment provisions related to these programs.
The receipt of a grant or subsidy is assumed to be taxable income to the business entity receiving the funds.
Scenario: As a result of Covid-19, my hotel is eligible under a government assistance program to receive a wage subsidy for labor costs incurred. The government assistance program requires the hotel to fund employee payroll costs, a portion of which will be subsequently reimbursed by the government agency. Please advise as to the appropriate accounting treatment for the receipt of the government assistance.
Outcome: In all cases, the wage subsidy should follow net presentation on the income statement.
There are two categories:
- Employees are paid to perform services/productive work. In this case, record in the appropriate Salaries and Wages account within the respective department. The corresponding hours worked by these employees should also be tracked and reported.
- Employee is paid but not performing services/productive work (i.e. furloughed). Record in Supplemental Pay – Other Pay within the respective department. No hours should be tracked and reported.
- One hundred percent of the wage subsidy received should be recorded in Supplemental Pay – Other Pay.
Please note: The subsidy should be recorded when it is earned, not necessarily when the funds are deposited. If there are conditions to the grant/subsidy, then it should be recorded when there is a reasonable assurance that (1) the conditions will be met and (2) the subsidy will be received. If there is a delay in receiving the subsidy, a receivable should be recorded. Also, the USALI Global Finance Committee plans to issue future FAQ guidance for government assistance for fixed costs such as rent.
The above guidance relates to accounting treatment for hotels that receive a government wage grant/subsidy. During the Covid-19 global pandemic, some governments have decided to support industries with significant revenue losses and offer wage grants/subsidies to keep workers employed
during the crisis. Please refer to your local, state or federal governments for details on eligibility, claim process and payment terms.
Continue to check back on HFTP Connect for future blog posts featuring this new USALI guidance or view the complete webinar online. Access the official FAQ document for USALI guidance during Covid-19 scenarios on the HFTP website.