When federal employees have retirement in sight, even if it is still several years away, one point of focus becomes the lump-sum payment for unused annual leave.
That payment (which also applies on separation for reasons other than retirement) is one big reason so many federal employees retire at the end of the year, or just a few days into the new calendar year before a new federal leave year starts. By doing so, those with more than the standard 240 hour carryover limit can cash in the full value of their unused leave.
However, many employees project its value based on mistaken notions of how the calculation is performed. (Note: Also be sure not to confuse unused annual leave with unused sick leave. There is no lump-sum payment for unused sick leave. If you retire, that leave will be credited as time worked in your annuity calculation.)
The payment will equal the pay you would have gotten if you had stayed on the job until your annual leave ran out. Your agency will figure out the amount by multiplying your annual leave balance by your hourly pay rate, plus any other types of pay you would have received while on annual leave. These include:
Basic pay; locality or other similar geographic adjustments; within-in grade increase, if you qualified for one before you retired; administratively uncontrollable overtime, availability pay, and standby pay; night differentials for wage system employees; regularly scheduled overtime pay under the Fair Labor Standards Act; supervisory differentials; nonforeign area cost-of-living allowances and post differentials; and foreign area post allowances.
The lump-sum payment doesn’t include allowances paid for the sole purpose of retaining a federal employee, for example, retention incentives or physicians comparability allowances.
To figure out the exact amount of money you’ll receive, your agency will project your lump-sum payment hours forward for all the days you would have worked if you had stayed on board. That includes any holidays that would have been covered during the period, and any across-the-board pay raises.
Note: If you are reemployed in the federal government before that lump-sum payment period runs out, you’ll have to refund the money that represents the amount you received for the time between the day on which you were reemployed and the expiration of the lump-sum leave period.