An employee is eligible for a lump-sum payment for any unused annual leave when he or she retires or otherwise separates from federal service (including entry to active duty in the armed forces). Many employees misunderstand what goes into this payment, however, so it is important to understand the terms to make sure the amount you receive is correct.

Generally, a lump-sum payment will equal the pay the employee would have received had he or she remained employed until expiration of the period covered by the annual leave.

An agency calculates a lump-sum payment by multiplying the number of hours of accumulated and accrued annual leave by the employee’s applicable hourly rate of pay, plus 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 government service (for example, retention allowances and physicians comparability allowances).

Types of pay included in a lump-sum payment are: basic pay; locality pay or other similar geographic adjustment; within-grade increase (if waiting period met on date of separation); across-the-board annual adjustments; administratively uncontrollable overtime pay, availability pay, and standby duty pay; night differential (for wage-grade employees only); regularly scheduled overtime pay under the Fair Labor Standards Act for employees on uncommon tours of duty; supervisory differentials; nonforeign area cost-of-living allowances and post differentials; and foreign area post allowances.

If an employee is reemployed in the federal service prior to the expiration of the period of annual leave (that is, the lump-sum leave period), he or she must refund the portion of the lump-sum payment that represents the period between the date of reemployment and the expiration of the lump-sum period. An agency recredits to the employee’s leave account the amount of annual leave equal to the days or hours of work remaining between the date of reemployment and the expiration of the lump-sum leave period.