Under the projected unit credit method the obligation for long-term employee benefits is measured by calculating the present value of the expected future payments that will result from employee services provided to date.
For example, if employees will be entitled to 13 weeks of long service leave after 10 years of employment, 30% of the amount expected to be paid in the future is recognized for employees who have provided three years of service.
The estimation of projected salary levels may be affected by inflation as well as promotion. The likelihood of promotion may differ among different categories of employees, such as engineers, graduate trainees and unskilled workers. The proportion of employees who will become entitled to long service leave may vary from one location to another, and is usually considered to be increasing with the period of past employment.
Employees who are approaching entitlement are less likely to leave before their long service leave vests, as the loss of long service leave entitlement would be viewed as a cost of changing employment.
Projected unit credit method of measuring and recognizing an obligation for long-term employee benefits should be well understood before creating such liability