Once the fair value has been established, the total expense must be calculated and then the expense recognized over the vesting period (time until purchase).
To calculate total expense, you must estimate the contributions for the period. This should be calculated at the employee level so that (in some cases) after the purchase the expense can be adjusted based on the actual shares purchased.
Generally, you should calculate the estimated contributions with the assistance of payroll. When the participant enrolls in most plans they will specify what percentage of included pay types they would like deducted from their pay and used to purchase shares. Once that % is known, the % is multiplied by the estimated pay for the purchase period.
Example of Estimated Contributions
Some companies attempt to calculate a different estimate for each employee for each purchase period based on planned pay increases. We discourage this practice since it complicates the process and can more easily be performed with the true-up at the purchase date.
Nearly all plans apply a limit on the number of shares that can be purchased by an employee on any given purchase date. For 423-qualified ESPPs, each participant is limited to purchasing $25,000 of value within a calendar year. These limits should be applied to the contribution estimate to reduce variability in expense and make the estimates more accurate.
Once estimated contributions are calculated, the contributions at the participant level are divided by the estimated purchase price to arrive at an estimated number of shares purchased. Total expense is derived by multiplying estimated shares by the fair value per share calculated on the enrollment date.
Once the total expense for the ESPP is calculated (see prior blog post), the expense is recognized over the service period: the time from enrollment to vest/purchase.
Originally under FTB 97-1, accelerated recognition was required, meaning that each purchase period was expensed from the enrollment date to the respective purchase date, resulting in front-loaded expense.
When FAS 123(R) was released in 2005, the requirement for accelerated recognition was eliminated. So, the majority of companies now use straight-line attribution.
Please note that whichever method you are using for your employee stock options and/or restricted stock/units (accelerated or straight-line), you should use the same method for your ESPP expense recognition.
 Remember that purchase plans vary widely in which pay types they include in ESPP deductions. Some plans include commissions, overtime, and bonuses, which can make estimating pay extremely challenging. Some companies exclude these pay types from the estimate and simply perform a true up process after the purchase occurs. This simplifies the process and may reduce variability in expense but may not be acceptable to some auditors. Including only regular wages in included pay types simplifies the process without requiring the true up.  Rounded down to the nearest whole share.  For offering periods that span a calendar year any unused limit from the prior year may be “carried forward” to subsequent calendar years. Calculating these limits is complex and generally estimating the maximum shares under the limit is best practice followed by a true up after the purchase occurs.