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Retention Incentive Payment and Termination Calculations

U.S. Office of Personnel Management

An agency may pay a retention incentive under 5 U.S.C. 5754 and 5 CFR part 575, subpart C, to a current employee when the agency determines that the unusually high or unique qualifications of the employee or a special need of the agency for the employee’s services makes it essential to retain the employee and that the employee would be likely to leave the Federal service in the absence of an incentive. An agency may authorize a retention incentive for an individual employee or a group or category of employees. See the Retention Incentives and Group Retention Incentives fact sheets for additional information.)


Payment Options


A retention incentive may be paid-

  1. In installments after the completion of specified periods of service during the course of the full service period (biweekly, monthly, quarterly, etc.); or
  2. As a single lump-sum payment after the completion of the full period of service required by a service agreement.

An agency may not pay a retention incentive as an initial lump-sum payment at the start of a service period or in advance of fulfilling the service or installment period for which the incentive is being paid.


Payment Calculation


An agency must establish a retention incentive rate for each individual or group retention incentive authorization, expressed as a percentage of an employee’s rate of basic pay. The retention incentive rate may not exceed 25 percent of an employee’s rate of basic pay, if authorized for an individual employee, or 10 percent of an employee’s rate of basic pay, if authorized for a group or category of employees. With OPM approval, this cap may be increased to 50 percent in certain circumstances. (See 5 CFR 575.309(e).)

If an agency chooses to pay retention incentives in installments, it may compute each retention incentive installment payment using the full retention incentive percentage rate established for the employee (or group of employees) or a reduced percentage rate. Each installment payment is derived by multiplying the full or reduced retention incentive percentage rate by the total rate of basic pay the employee earned during the installment period. If the retention incentive installment payment percentage is less than the full percentage rate established for the employee (or group of employees), any accrued portion of the retention incentive not paid upon completion of the installment period must be paid as part of a final installment payment after completion of the full service period under the terms of the service agreement.

A retention incentive paid as a single lump-sum payment upon completion of the full period of service required by a service agreement is derived by multiplying the retention incentive percentage rate established for the employee (or group of employees) by the total amount of basic pay earned by the employee during the full service period.


Rate of Basic Pay


For the purpose of calculating a retention incentive, a rate of basic pay includes a special rate under 5 CFR part 530, subpart C, or similar payment under other legal authority, and a locality-based comparability payment under 5 CFR part 531, subpart F, or similar payment under other legal authority, but excludes additional pay of any other kind. For example, a rate of basic pay excludes night shift differentials under 5 U.S.C. 5343(f) or environmental differentials under 5 U.S.C. 5343©(4) for Federal Wage System employees. (See the definition of “rate of basic pay” at 5 CFR 575.302.)


Payment Calculations


An employee’s biweekly rate (computed under 5 U.S.C. 5504) must be used to compute an installment payment or a lump-sum payment. The installment payment is derived by multiplying the employee’s basic pay earned in each biweekly pay period during the installment period by the percentage bonus retention rate. In the examples below, a biweekly rate of $3,057.60 is used to compute retention incentive installment payments after 13 and 26 pay periods of service and to compute a retention incentive lump-sum payment after 26 pay periods of service.


Examples of Calculations Upon Termination of a Service Agreement


Information on terminating a retention incentive service agreement is provided in the Retention Incentives fact sheet. Note that in some situations, a service agreement is not required when an agency pays a retention incentive. (See 5 CFR 575.310(f).)

If an agency terminates a service agreement based on management needs under 5 CFR 575.311(a), the employee is entitled to retain any retention incentive payments attributable to completed service and is entitled to receive any portion of a retention incentive payment owed by the agency for completed service.


Example


An employee who signed a 364-day (26-pay period) service agreement will receive a total retention incentive of $7,949.76 in two installment payments-i.e., $3,974.88 at the end of 13 pay periods of completed service and $3,974.88 at the end of 26 pay periods of completed service. The employee receives the first payment of $3,974.88. However, after 15 pay periods (210 days), the employee is affected by a reduction in force, and the agency terminates the service agreement. The employee is entitled to keep the $3,974.88 retention incentive payment already received and to receive a prorated share of the second planned retention incentive payment based on the amount of service completed. The employee would receive an additional $612.13 (210 days/364 days = 57.7%; 57.7% × $7,949.76 = $4,587.01; $4,587.01 – $3,974.88 = $612.13).

If an agency must terminate a service agreement under 5 CFR575.311(b) (when the employee is at fault), the employee is entitled to retain retention incentive payments previously paid by the agency that are attributable to the completed portion of the service period. If the employee received retention incentive payments that are less than the amount that would be attributable to the completed portion of the service period, the agency is not obligated to pay the employee the amount attributable to completed service, unless the agency agreed to such payment under the terms of the retention incentive service agreement.


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