The Time off liability report shows how much time off your company owes its employees at any given time, so you can understand and account for your outstanding time off liability. To that end, the report includes each employee's time off balances alongside their current pay rate.
The Liability Hours column shows how much time off is actually owed to the employee and is intended to be used when an employee is terminated to calculate their final payroll. For employees in upfront policies, this includes the earned portion of their current allotment (the time they've accrued based on how much of the policy year they've worked, minus any time off taken before the report date), plus any carried over time that has not yet expired. Any time off requests scheduled after the report date are ignored, since they will never be taken.
The Liability Adjustment Hours column shows the difference between the employee's balance and their liability, so you can see exactly how the two reconcile.
Example: Maria is in an upfront annual vacation policy and receives 15 days on January 1. She is terminated on May 1, a third of the way through the year, and has 3 days booked in June. Her available balance on the termination date reads 12 days (15 days received minus 3 days scheduled), which isn't useful for calculating her final pay. Her Liability Hours, however, will show about 5 days: she worked a third of the year, so she earned a third of the 15-day allotment, and she took no time off before May 1. The June request is ignored because it falls after her termination. Liability Adjustment Hours will show -10 days, reconciling her 15-day allotment down to the 5 days the company actually owes her.