How Does Severance Pay Work? Is It the Same as VSIP?

By on September 7, 2010 in Current Events with 0 Comments

Generally, federal employees qualify for severance pay if they have been in their position at least one year and are displaced through no fault of their own, like in a reduction in force (RIF). Or, they may be allowed to voluntarily resign in a RIF, and receive the Voluntary Separation Incentive Payment (VSIP). You will need to check with your human resources office for details on whether you may be qualified. 

When a Federal employee is entitled to severance pay, he receives one week’s pay for each year of his first 10 years service, and two weeks’ pay for each year beyond 10. Months. Each 3 months adds another 25%. of one year. Example: 13 years 7 months service = 17 weeks severance pay (10 weeks for first 10 years, then 6 weeks for the next 3 years, and 1 week for the leftover 7 months).

Age adjustment

For each full year past age 40, the employee receives an additional 10% of the basic amount. Leftover months are treated the same way as in the basic amount: each 3 months qualifies for 25% more of the annual amount.

Total dollars are converted into weeks of salary.

There are three limitations:

  1. For part-time employees, the calculation uses the actual rate of pay.
  2. No credit is allowed for military service, unless the employee had restoration rights – check with your HR office on this.
  3. Severance pay has a lifetime limitation of 52 weeks. Thus, if an employee received 10 weeks severance pay in the past, and then returned to Federal service, he is limited to 42 more weeks, regardless of salary rates.

VSIP

VSIP, or Voluntary Separation Incentive Payment, is a special case of severance pay. The primary difference – in addition to being voluntary – is the VSIP payment is capped at $25,000.

For an illustration of how the above works, go to fedretire.us, click number 2 on the menu, and enter your numbers. Be sure to opt for the hard copy printout, which will provide the calculation breakdown.

Check out 5 CFR 550.709 for more information.

© 2016 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.

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About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.

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