Treatment of Unused Annual Leave
In general, a retiring employee receives a lump sum payment for any unused annual leave when the employee retires from federal service, or if the employee leaves federal service to enter active military duty and elects to receive a lump sum payment. A lump sum payment will equal the pay the employee would have received had the employee remained employed until expiration of the period covered by the annual leave.
Calculating a Lump Sum Payment for Unused Annual Leave
An agency calculates a lump sum payment for a retiring employee by multiplying the number of hours of accumulated and accrued annual leave by the employee’s applicable hourly rate of pay. It also includes other types of pay the employee would have received while on annual leave, excluding any allowances that are paid for the sole purpose of retaining a federal employee in federal government service. The latter includes retention incentives and physicians’ comparability allowances.
The types of pay included in a lump sum payment are:
- rate of basic pay;
- locality pay or other similar geographic adjustments;
- within grade increase (if the waiting period is met on the day of separation);
- across the board annual adjustments;
- administrative uncontrollable overtime pay, availability pay, and standby duty pay;
- night differential for Federal Wage System (FWS) employees only:
- regularly scheduled overtime pay under the Fair Labor Standards Act for employees on uncommon tours of duty;
- supervisory differentials;
- non-foreign area cost-of-living allowances and post differentials; and
- foreign area post- allowances.
The following example illustrates the payment of unused annual leave:
Rick retired on Dec. 31, 2017 with 440 hours of unused annual leave. At the time of Rick’s retirement, Rick’s hourly rate of pay was $50 per hour. At the start of the new leave year on Jan. 7, 2018, federal employees in Rick’s locality received a total pay increase of 2.0 percent. Two percent of $50 is $1. Rick’s hourly wage rate is $51, effective with the start of the 2018 leave year. Rick’s lump sum payment for unused annual leave of 440 hours was paid as follows:
40 hours (5 days, Dec. 31, 2017 – Jan. 4, 2018) x $50/hour = $2,000
400 hours (50 days, Jan. 7, 2018 – March 16, 2018) x $51/hour = $20,400
The total lump sum payment for unused annual leave = $22,400.00
Employees who leave federal service and who opt for a deferred retirement get paid for all of their unused annual leave in a lump sum payment at the time of their departure.
Treatment of Unused Sick Leave
All employees receive credit for the total number of unused sick leave hours accumulated until their day of retirement. Employees should be aware of three things with respect to the treatment of unused sick leave:
- Unused sick leave hours are added to their length of service;
- Unused sick leave credit is used only in the computation of a retiring employee’s CSRS or FERS annuity. Note that employees who leave federal service and opt for a deferred retirement lose all of their unused sick leave at the time of their departure from federal service. Unused sick leave cannot be used to establish retirement eligibility or to calculate the high-three average salary; and
- There is no limit on the amount of unused sick leave that can be credited.
OPM’s sick leave conversion table for converting unused sick leave in hours to months and days of service time may be found in OPM’s CSRS and FERS Handbook, Chapter 50, page 51. A copy of that table can be downloaded here (1-page PDF).
The following example illustrates:
Cecelia retired on Dec. 31, 2017 at the age of 58. Cecelia’s service computation date for retirement is Dec. 9, 1986. At the time of her retirement, Cecelia had 813 hours of unused sick leave. The following chart summarizes the total service time used in the computation of Cecelia’s FERS annuity:
1 Since Cecelia has reached her minimum retirement age (MRA) of age 57, and has at least 30 years of service, she is eligible to retire. 2 813 hours of unused sick leave is converted to 4 months and 21 days, using the CSRS/FERS Retirement Handbook sick leave conversion chart. 3 OPM’s uses a 30 day a month calendar for all 12 months. Therefore, 22 plus 21 equals 43, which is 1 month and 13 days. The 1 month is carried over to the month’s column.
Note that for purposes of calculating the FERS annuity, OPM uses years and months. Any leftover days (in the above example, 13 days) are not used in the calculation of the annuity and are forfeited. Therefore, in the above example Cecelia’s FERS annuity will be computed based on 31 years and 5 months of service.