Will Federal Employee Buyouts Go to $40,000?

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By on June 18, 2018 in Human Resources with 0 Comments

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A number of readers have asked a version of the following question: “When will the maximum buyout amount go up to $40,000?”

For those familiar with the question and the process, this refers to providing a financial incentive for a federal employee to decide to give up a federal job and to pocket an extra amount of money when walking out the door.

Why Does the $40,000 Question Arise?

The reason for the question from astute readers is that the amount of a buyout was previously increased to $40,000 for the Department of Defense. For most employees outside of DoD, the maximum amount of a buyout is currently $25,000.

The Secretary of Defense was given legislative authority to spend up to $40,000 (instead of the previous high of $25,000) as Voluntary Separation Incentive Pay (VSIP). The authority to spend the higher amount is set to expire on September 30, 2018.

Proposal To Raise Buyout Max to $40,000

Currently, in the Senate version of the National Defense Authorization Act, there is a provision to raise the maximum amount of a federal employee buyout to $40,000.

Section 1123 of the Senate version reads, in part, that the relevant portions of the United States Code are amended “by striking ‘‘$25,000’’ and inserting ‘‘$40,000….” This would apply to all federal employees and not just employees of the Department of Defense.

For those with a possible future interest in a buyout, the proposal includes a provision to automatically raise the amount of a potential buyout each year based on the Consumer Price Index. In effect, the amount that a buyout would be raised would operate in a similar fashion for determining how an annual COLA is determined in the coming year for Social Security recipients and retirees of the federal government.

What is a Buyout?

A buyout is a payment used for “increasing voluntary attrition in agencies that are downsizing or restructuring.” It is often used as an alternative to running a reduction-in-force (RIF). A RIF is a complex, time-consuming, bureaucratic procedure that comes with appeal rights and requires a significant amount of time and money in any agency that runs a RIF of any size.

A buyout under current legislation is usually the lesser of $25,000 or the severance pay the employee would be due if laid off. As a practical matter, it’s usually the former. The payment is taxable, reducing a typical value to under $20,000. Employees who accept one generally must repay the full amount if they return to government employment within five years.

VSIP Offers Are Usually Limited

Voluntary Separation Incentive Pay (VSIP) is commonly referred to in the federal community as a “buyout”. A buyout means that a federal employee leaves federal service and is given a financial incentive to leave. An agency offers buyouts for employees for any of several reasons including downsizing the workforce, reshaping its workforce or other similar reasons.

There are basic eligibility requirements for buyouts. Eligibility criteria for those who will be offered a buyout are established by an agency in any buyout plan before it is approved and implemented.

A buyout is not an employee entitlement. The eligibility criteria will be restricted to allow an agency to meet its goals in reducing overhead costs or restructuring the workforce in some way.

A buyout plan describes the general categories of employees that may be offered a VSIP. Factors may include specific organizations, geographic locations, occupational categories, grade levels or retirement eligibility.

For those that do qualify, the extra money with time limits attached can speed up a person’s decision to leave or to stay and the extra money can make the decision to leave federal service more attractive.

Buyouts Can Be Quicker, Less Expensive

In agencies that may need to downsize their workforce due to mission changes or changes in the federal budget, the possibility of taking a buyout, especially if the amount is raised, can be an attractive offer and is a quicker, less expensive way of reducing employment levels compared to other alternatives.

Will a Buyout Increase Pass in Congress?

No one can reliably predict what will happen in fashioning legislation in Congress. There are several possible reasons the increase will pass though.

The administration is interested in reducing the size of the federal workforce. There was a hiring freeze early in the administration and an executive order was recently issued to make it easier to fire employees who are not performing as well as others.

Unlike many more focused bills, the National Defense Authorization Act will pass in Congress in some version.

So, while there is no assurance the buyout amount will increase, there are sound reasons for this provision to be passed into law.

© 2019 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47

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