Federal Employee Retention Pay and a Promotion

What is retention pay? When is it terminated? What if an employee on retention pay receives a promotion?

Applicability of Retention Pay Will Vary

What is “retention pay” for a federal employee, and how does it work?

According to the Office of Personnel Management (OPM), retention pay is applicable when “An employee whose rate of basic pay otherwise would be reduced as a result of a management action is entitled to retain his or her rate of basic pay.”

Pay retention is a valuable federal employee benefit, but it is complex. Many variables apply to determining a federal employee’s pay retention eligibility. Some differences may be unique to some agencies.

The question below is based on circumstances that may be unique and not applicable to other employees. In most cases, any employee will need help from a servicing human resources office before making a career decision that may involve pay retention.

The purpose of this article is to provide additional information for those with an interest in this topic.

A Complex Pay Retention Question With Unknown Variables

Q: I received a promotion to a GS 12. I currently receive retention pay of 10%. Will my two-step grade increase include the 10% retention pay that I am currently receiving, or will the calculation take place before my retention pay? I am currently a GS 11 step 7 and will be a GS 12 step 3 after the promotion, albeit at a location in the rest of U.S. locality pay area. This means I will get a lower salary at a higher grade than I had previously.

This question sounds like it would be easy to answer. However, it isn’t easy which may be why your human resources (HR) office did not provide a definitive answer. I cannot either, but what follows is some information that may help provide a better understanding of the issue depending on your circumstances and the agency at which you are employed.

As you may know, the federal government actually has different versions of HR or pay systems in different agencies. Or, even if there is no different enabling legislation, there may be differences in the actual practices or how regulations are interpreted and applied.

Find The Right Person in HR to Answer the Question

Some readers have indicated they cannot get information from their servicing human resources office. From working in various HR offices in government in the past, it is my experience that you will have to find the right person in the office to ask for more information. Your HR office will interpret and apply the pay retention regulations to your situation. You will have to find the person in HR with that responsibility.

Here is the reality. Depending on the attitude, interests, or work ethic of the person you initially contact, it is sometimes easier to make a person go away—especially if the answer requires locating and researching rules and regulations to answer a complex question.

When the time comes, and the HR office is required to provide an answer to implement an action, it will be referred to the resident expert on that topic, or the HR office will seek assistance from a higher-level organization if necessary. To get an answer, you probably need to find that person.

Retention pay is typically used to encourage employees to remain in their current position. It is often used to retain employees with specialized skills or in a critical role. The specifics of retention pay vary. It is often a separate payment added to an employee’s base salary.

Pay Attention to Time Limits for Retention Pay

When you receive a promotion, your retention pay may or may not be affected. It depends on the policies of the specific agency, how long you have received retention pay, or if you are promoted to a higher position with increased responsibilities, the agency may reassess your eligibility for retention pay based on your new role.

The answer may also differ if you are under a covered pay system (or not) and if the promotion is also in a covered pay system (or not).

Different agencies may have different HR or pay systems created by legislation. Pay retention may apply to an employee in a covered pay system or moving to a position under a covered pay system from a position not under a covered pay system.

There are instances of mandatory pay retention if you move from a covered pay system to one that is not covered. (A covered pay position refers to a position subject to certain pay and leave provisions established by law. These provisions often include regulations related to compensation, overtime, and leave benefits for federal employees.)

Geographic Conversion and Retention Pay

Locality pay also can make a difference. In other words, if you are in a locality pay area, your pay rate will be different based on the locality area. Pay areas like San Francisco, New York, or Washington, DC will have higher salaries than the “Rest of the U.S.”

According to OPM, “When an employee becomes entitled to pay retention, an agency must determine the employee’s pay retention entitlement…after applying any required geographic conversion.”

  • If the employee’s existing retained rate is less than or equal to the maximum rate of the highest applicable rate range for the employee’s position of record immediately after the position or schedule change, the employee is entitled to the maximum rate of the highest applicable rate range, and pay retention ceases to apply.
  • If the employee’s existing retained rate is greater than the maximum rate of the highest applicable rate range for the employee’s position of record immediately after the position or schedule change, the employee continues to be entitled to the existing retained rate.

When Retention Pay Will be Terminated

Under the Code of Federal Regulations, an employee loses pay retention or pay retention is terminated when any of the following conditions occurs after the employee receives written notice of the reduction-in-grade but before the commencement of the 2-year period of grade retention:

  • The employee has a break in service of 1 workday or more;
  • The employee is entitled to a rate of basic pay under a covered pay system which is equal to or greater than the employee’s retained rate, except that entitlement to a retained rate will not be terminated based on entitlement to an equal or higher rate of basic pay during a temporary promotion or temporary reassignment but will be held in abeyance during that temporary period;
  • The employee declines a reasonable offer of a position in which the employee’s rate of basic pay would be equal to or greater than the employee’s retained rate;
  • The employee is reduced in grade for personal cause or at the employee’s request (based on the grade of the employee’s position of record rather than the employee’s retained grade); or
  • The employee moves to a position that is not under a covered pay system.

I realize this does not answer your question, but these are some of the considerations likely to be applied by your agency when implementing the personnel action.

The HR office for your new location in RUS, if there is an HR office there, would be able to provide a definitive answer that may be based in part on the regulation that follows. That office would presumably know relevant facts surrounding your promotion, pay retention, and transfer and whether these would apply. It should be able to provide you with specific information in your new location.

I realize how fuzzy the requirements are on many HR issues. The pay retention amount is likely to be singled out in the underlying documentation for your regular paycheck, even though the amount you receive each pay period is deposited in one lump sum.

There is a regulation in 5 CFR that may be applicable, as it sounds like you will be moving to the RUS from an area with locality pay. This is from the Code of Federal Regulations (CFR) at § 536.303 Geographic conversion. Your agency will probably use this section and 5 CFR § 536 provisions that may apply to your case to determine your new location’s final pay rate.

If you work in an agency with different HR provisions or a unique pay scale, some provisions may be different for employees in that agency.

Geographic conversion at time of action that may provide initial entitlement to pay retention. 

If, in conjunction with a pay action that may entitle the employee to pay retention under §§ 536.301 or 536.302, an employee’s official worksite is changed to a new location where different pay schedules apply, the agency must convert the employee’s rate(s) of basic pay to the applicable pay schedule(s) in the new location before applying the pay retention rules in this subpart or any other simultaneous pay action (other than a general pay adjustment).

The agency must identify the highest applicable rate range that would apply to the employee’s position of record before the pay action as if that position were stationed at the new official worksite and determine the employee’s converted payable rate of basic pay based on the step (or relative position in range for a GM employee) in that range that corresponds to the employee’s step (or relative position in range for a GM employee) before the pay action. A reduction in an employee’s payable rate of basic pay resulting from this geographic conversion is not a basis for entitlement to pay retention. The pay retention rules in this subpart must be applied as if the employee’s payable rate of basic pay after geographic conversion is the employee’s existing payable rate of basic pay in effect immediately before the action.

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