Payment of back pay following a retroactive raise for federal employees involves a number of complications related to benefits.
According to OPM guidance:
* “Agencies must review any awards, allowances, and incentives required to be computed as a percentage of basic pay that were paid between January 6, 2019, and the date the retroactive pay adjustment is processed and make any necessary adjustments to reflect the new 2019 pay rates.”
* “An employee who separated or retired in late 2018 or early 2019 may be entitled to an adjustment in his or her lump-sum payment for annual leave to reflect the new 2019 pay rates. The lump-sum payment for annual leave must be calculated on the basis of the amount of pay the employee would have received if he or she had remained in Federal service and used the annual leave. The retroactive adjustment also may affect severance payments computed using the pay rates in effect before the retroactive adjustment.”
* “The retroactive pay adjustment is considered basic pay for retirement purposes. Federal payroll providers must submit the appropriate employee deductions and agency contributions due for any additional basic pay to OPM in accordance with standard reporting procedures. For employees who separated after the beginning of the first full pay period of the calendar year, agency payroll offices also must submit a supplemental Individual Retirement Record documenting the revised salary rate and additional employee deductions.”
“If an employee’s retroactive pay adjustment moves the employee into a different $1,000 bracket, the amount of his or her Basic insurance increases. This increases the employee’s withholding and the government contribution. This increase in coverage and withholding also applies to Option B coverage if the employee has that coverage.”
* taxes and retirement contributions will be withheld from the retroactive amount at regular rates;
* since biweekly deductions for FEHB, FEDVIP and FLTCIP insurance and for FSA accounts were been withheld from previous pay distributions, there will be no additional deductions for them (the same applies to TSP investors who invest on a dollar amount basis); and
* TSP investors who invest on a percentage of salary basis will have additional retroactive investments withheld and FERS employees among that group will receive additional agency matching contributions. For them and for dollar-amount investors, the FERS automatic 1 percent of salary agency contribution will be increased to reflect the raise. However, lost earnings are not payable since a retroactive pay increase is not considered an agency error that would trigger payment of lost earnings.