Pay Flexibilities

Chapter 1: Section 5

Agencies have authority to provide additional direct compensation in certain circumstances to support their recruitment, relocation, and retention efforts. Some of these are at an agency’s sole discretion while others require approval of the Office of Personnel Management and/or the Office of Management and Budget. The following summarizes the main compensation flexibilities.

Agency-Based Discretionary Authorities

Highest Previous Rate—Upon re-employment, transfer, reassignment, promotion, demotion, or change in type of appointment, agencies may set the rate of basic pay of an employee by taking into account a rate of basic pay previously received by the individual while employed in another civilian federal position (with certain exceptions). This rate may not exceed the maximum rate of the employee’s grade. (5 U.S.C. 5334(a); 5 CFR 531.202 (definition of “highest previous rate”) and 531.203(c) & (d) for General Schedule employees. See 5 U.S.C. 5343 and 5 CFR 532.405 for the Federal Wage System.)

Premium Pay, Exceptions to the Biweekly Limitation—An agency may make an exception to the GS-15, step 10, biweekly limitation on premium pay during emergencies involving a direct threat to life or property. If the agency determines that such an emergency exists, the premium pay paid to an employee performing work in connection with that emergency, when added to the employee’s rate of basic pay (including any locality payment or special salary rate), must not cause his or her total pay to exceed the rate for GS-15, step 10 (including any locality payment or special salary rate), on a calendar year basis. (Note: A different limitation applies to law enforcement officers. This limitation does not apply to overtime pay earned under the Fair Labor Standards Act, or to the Federal Wage System.) (5 U.S.C. 5547(b); 5 CFR 550.106)

Superior Qualifications/Special Needs—Agencies have the authority to set pay for new appointments or reappointments of individuals to General Schedule positions above step 1 of the grade based on superior qualifications of the candidate or a special need of the agency. Under the Federal Wage System, special qualification appointments allow an employing agency to set pay at a rate above step 1 of the appropriate grade level for candidates with highly specialized skills in an occupation. See Superior Qualifications and Special Needs Pay-Setting Authority in Section 4 of this chapter.

Travel and Transportation Expenses for Interviews and/or New Appointments—An agency, at its discretion, may pay the travel or transportation expenses of any individual candidate for a pre-employment interview or pay travel and transportation expenses for a new appointee to the first post of duty. For either payment, a decision made for one vacancy does not require a like decision for any similar future vacancies. Before authorizing any payments, the agency must consider factors such as availability of funds, desirability of conducting interviews, and feasibility of offering a recruiting incentive. (5 U.S.C. 5706b; 5 CFR 572).

Waiver of Dual Pay Limitation—Agencies have authority to waive the limitation (40 hours per week) on aggregate basic pay, when “required services cannot be readily obtained otherwise” and “under emergency conditions relating to health, safety, protection of life or property, or national emergency.” This authority enables an agency to employ a full-time federal employee in a second job or to schedule a part-time agency employee with multiple part-time appointments to work more than an aggregate of 40 hours during a week. The agency pays overtime only when an individual works more than eight hours per day or 40 hours per week for the same agency. (5 U.S.C. 5533; 5 CFR 550 subpart E).

Authorities Available with OPM and/or OMB Approval

Critical Position Pay Authority—Under 5 CFR 531, 535 and 536, the Office of Personnel Management, in consultation with the Office of Management and Budget, may increase the rate of basic pay for a position that requires expertise of an extremely high level in a scientific, technical, professional, or administrative field and that is critical to the agency’s successful accomplishment of an important mission. Under this authority, employing agencies request such authority and OPM can approve rates of pay typically up to the rate for Level II of the Executive Schedule—Level I in exceptional circumstances and above Level I in rare cases. Critical position pay may be granted only to the extent necessary to recruit or retain an individual exceptionally well qualified for the position and only if use of other personnel authorities would be inadequate. This authority applies to General Schedule employees, senior level and senior scientific and technical employees, members of the Senior Executive Service, Executive Schedule officials, and certain other designated positions. It does not apply to Federal Wage System employees. Approval of critical position pay for a position does not change other conditions of employment. The pay is creditable as basic pay for all purposes except pay retention and certain adverse action provisions. An October 8, 2014 memo (at www.chcoc.gov/transmittals) encourages agencies to apply for the authority if needed, specifies that the authority applies regardless of whether a position is vacant or filled, provides a template for making requests, and commits to prompt decisions on requests. Also see 5 U.S.C. 5377 and the fact sheet at www.opm.gov/policy-data-oversight/pay-leave/pay-administration.)

Recruitment, Relocation, and Retention Incentive Payments—Upon the request of an agency, OPM may approve enhanced recruitment, relocation and retention incentives. See Recruitment, Relocation, and Retention Payments, below.

Special Rates—OPM may establish higher rates of basic pay for an occupation or group of occupations nationwide or in a local area based on a finding that the government’s recruitment or retention efforts are, or would likely become, significantly handicapped without those higher rates. See Special Salary Rates in Section 1 of this chapter.

Increased Minimum Hiring Rate (Federal Wage System)—The increased minimum hiring rate authority allows a lead agency to establish any FWS scheduled rate above step 1 as the minimum rate at which a new employee can be hired. When there is an increased minimum rate authorization for an occupation and grade at a particular location, all appointments must be made at the authorized increased minimum rate. (5 U.S.C. 5341; 5 CFR 532.249)

Special Schedules (Federal Wage System)—The special schedule authority allows OPM to establish broader FWS schedules than would normally be authorized under the special rates program. Special schedules are established for specific occupations within a geographic area when rates of pay under regular wage schedules prove insufficient for an agency to recruit or retain employees. (5 U.S.C. 5341; 5 CFR 532.254)

Unrestricted Rate Authority (Federal Wage System)—Upon the request of an agency, OPM may approve exceptions to statutory limitations on annual FWS pay adjustments for an occupation or group of occupations in a wage area or part of a wage area. (Requires specific authority in the pay limitation legislation; 5 CFR 532.801)

Physicians Comparability Allowance—Agencies may pay physicians comparability allowances to recruit and retain highly qualified government physicians. See Physicians Comparability Allowances in Section 4 of this chapter.

Title 38 Flexibilities for Health Care Employees—Upon the request of the head of an agency, OPM may delegate the discretionary use of certain Department of Veterans Affairs’ personnel authorities under 38 U.S.C. 74, to help recruit and retain employees in health care occupations performing direct patient-care services or services incident to direct patient care. (5 U.S.C. 5371).

Recruitment, Relocation, and Retention Payments

Recruitment, relocation, and retention payments—also known as the "3Rs"—are authorized for General Schedule, senior level, senior scientific or technical, career Senior Executive Service, Federal Bureau of Investigation and Drug Enforcement Administration SES, Executive Schedule, law enforcement officer, and Federal Wage System positions. The Office of Personnel Management further may approve additional categories on request from an employing agency. A list of the approved categories and other information is at www.opm.gov/policy-data-oversight/pay-leave/recruitment-relocation-retention-incentives. Under certain circumstances, the incentives can be paid on a group basis, as described below.

The incentives may not be paid to: Presidential appointees; non-career appointees in the Senior Executive Service; those in positions excepted from the competitive service by reason of their confidential, policy-determining, policy-making, or policy-advocating natures; agency heads; or those expected to receive an appointment as an agency head.

The authority is in 5 U.S.C. 5753 and 5754. These payments are subject to the limit on aggregate compensation in 5 U.S.C. 5307 and 5 CFR 530 subpart B.

Before paying an incentive, an agency must establish a plan that must include the designation of officials with authority to review and approve the payment of incentives, the categories of employees who may not receive incentives, the required documentation for determining eligibility, the amount, the payment methods that may be authorized, requirements governing service agreements, and record keeping requirements.

An agency may determine that a position is likely to be difficult to fill if the agency is likely to have difficulty recruiting candidates with the competencies (that is, knowledge, skills, abilities, behaviors, and other characteristics) required for the position (or group of positions) in the absence of a recruitment or relocation incentive based on a consideration of the factors listed in 5 CFR 575.206(b). An agency may also determine that a position is likely to be difficult to fill if OPM has approved the use of a direct-hire authority applicable to the position. For the purpose of calculating an incentive, an employee’s rate of basic pay includes a special rate under 5 CFR 530 subpart C, a locality payment under 5 CFR 531 subpart F, or similar payment under other authority, but excludes additional pay of any other kind, such as night pay and environmental differential pay.

An incentive is not part of an employee’s rate of basic pay for any purpose.

Before receiving an incentive, an employee generally must sign a written agreement to complete a specified period of employment with the agency (see the exception under Retention Incentives, below). The service agreement must specify the length, commencement, and termination dates of the service period; the amount of the incentive; the method and timing of incentive payments; the conditions under which an agreement will be terminated by the agency; any agency or employee obligations if a service agreement is terminated (including the conditions under which the employee must repay an incentive or under which the agency must make additional payments for partially completed service); and any other terms and conditions.

An agency may unilaterally terminate a service agreement based solely on the management needs of the agency, in which case the employee is entitled to incentive payments attributable to completed service and to retain any payments already received that are attributable to uncompleted service. An agency must terminate a service agreement if an employee is demoted or separated for unacceptable performance or conduct, receives a rating of record lower than "fully successful" or equivalent during the service period, or otherwise fails to fulfill the terms of the service agreement. In such cases, the employee may retain any incentive payments attributable to completed service, but must repay any portion of the incentive attributable to uncompleted service.

An agency must notify an employee in writing when it terminates a service agreement. The termination of a service agreement is not grievable or appealable.

Under Compensation Policy Memorandum 2009-11, agencies must certify that the incentives are paid only when necessary to support agency mission and program needs. CPM 2010-04 set additional standards for justifying payments, ordered agencies to more closely monitor their programs with greater scrutiny of costs and benefits, and began a program of OPM tracking usage on an ongoing basis. OPM reviews an agency’s 3Rs incentive plans, including designation of the proper approval authority, documentation of individual incentive decisions, and agency 3Rs incentive data for compliance with applicable regulations. OPM may require corrective actions or revoke an agency’s 3Rs authority if the agency fails to comply with applicable laws and regulations.

CPM 2011-10 capped spending on the payments by agency to the level of 2010. Followup guidance extended those limits indefinitely, although CPM 2016-01 allowed agencies to exceed them on the basis of a critical agency need to recruit and retain highly qualified employees, subject to OPM and OMB review. The memos are at www.chcoc.gov/transmittals. 

Recruitment Incentives—An agency may pay a recruitment incentive to a newly appointed employee if the agency has determined that the position is likely to be difficult to fill in the absence of an incentive. “Newly appointed” refers to the first appointment (regardless of tenure) as an employee of the federal government, an appointment following a break in service of at least 90 days from a previous appointment as a federal employee, or, in certain cases, an appointment following a break in service of less than 90 days.

For each determination to pay a recruitment incentive, an agency must document in writing the basis for determining that the position is likely to be difficult to fill in the absence of a recruitment incentive, the amount and timing of the incentive payments, and the length of the service period. The determination to pay a recruitment incentive must be made before the prospective employee enters on duty in the position for which recruited.

An agency may target groups of similar positions that have been difficult to fill in the past or that are likely to be difficult to fill in the future and may make the required determination to offer a recruitment incentive on a group basis.

An agency must monitor its use of recruitment incentives to ensure that its practices are consistent with the law and regulations. Rules at 5 CFR 575.105(b) further require that an agency review group recruitment incentive at least annually to determine if they are still warranted, and set standards for making that decision.

A recruitment incentive may not exceed 25 percent of the employee’s annual rate of basic pay in effect at the beginning of the service period multiplied by the number of years (including fractions of a year) in the service period (not to exceed four years). With OPM approval, this cap may be increased for either individual or group incentives to 50 percent based on a critical agency need, as long as the total incentive does not exceed 100 percent of the employee’s annual rate of basic pay at the beginning of the service period. (See 5 CFR 575.109(c).) The incentive may be paid as an initial lump-sum payment at the beginning of the service period, in installments throughout the period, as a final lump-sum payment upon completion, on in a combination of these methods. An incentive may be paid to an individual not yet employed who has received a written offer of employment and signed a written service agreement.

The employee’s required service period may not be less than six months and may not exceed four years. The service period must begin upon the commencement of service with the agency and end on the last day of a pay period. The commencement of the service period may be delayed under certain conditions described in 5 CFR 575.110(b).

Relocation Incentives—An agency may pay a relocation incentive to a current employee who must relocate (permanently or temporarily) to accept a position in a different geographic area if the agency determines that the position is likely to be difficult to fill in the absence of an incentive. A relocation incentive may be paid only when the employee’s rating of record under an official performance appraisal or evaluation system is at least “fully successful” or equivalent.

A position is considered to be in a different geographic area if the worksite of the new position is 50 or more miles from the worksite of the position held immediately before the move. If the worksite of the new position is less than 50 miles away, but the employee must relocate to accept the position, an authorized agency official may waive the 50-mile requirement and pay the employee a relocation incentive. In all cases, an employee must establish a residence in the new geographic area before the agency may pay the employee a relocation incentive. Under 5 CFR 575.205(b), the employee must maintain residency in that area in order to continue receiving it. Each agency defines the range of the new geographic area for this purpose.

For each relocation incentive authorized, an agency must document in writing the basis for determining that the position is likely to be difficult to fill in the absence of a relocation incentive, the amount and timing of the incentive payments, the length of the service period, and that the worksite of the new position is in a different geographic area than the previous position. The determination to pay a relocation incentive must be made before the employee enters on duty in the position at the new duty station.

An agency may waive the case-by-case approval requirement when the employee is a member of a group of employees subject to a mobility agreement or when a major organizational unit is being relocated to a new duty station.

A relocation incentive may not exceed 25 percent of the employee’s annual rate of basic pay in effect at the beginning of the service period multiplied by the number of years (including fractions of a year) in the service period (not to exceed four years). With OPM approval, this cap may be raised to 50 percent (based on a critical agency need), as long as the total incentive does not exceed 100 percent of the employee’s annual rate of basic pay at the beginning of the service period. (See 5 CFR 575.209(c).) The incentive may be paid as an initial lump-sum payment at the beginning of the service period, in installments throughout the service period, as a final lump-sum payment upon completion of the service period, or in a combination of these methods.

The service period must begin upon the commencement of service at the new duty station and end on the last day of a pay period. The commencement of the service period may be delayed under certain conditions described in 5 CFR 575.210(b).

Retention Incentives—An agency may pay a retention incentive to a current employee if the agency determines that the unusually high or unique qualifications of the employee or a special need of the agency for the employee’s services makes it essential to retain the employee and that the employee would be likely to leave in the absence of a retention incentive. Under 5 CFR 5 CFR 575.306, the agency must consider and document the quality and availability of the potential sources of employees identified in its succession plan. Also, an agency must review all retention incentive authorizations at least annually to ensure they are still warranted and end them if they are not.

An agency may pay a retention incentive to an employee who would be likely to leave for a different position in the federal service before the closure or relocation of the employee’s office, facility, activity, or organization, but not for any other reason. Incentives also may be paid to a group of employees under the same standards. See the fact sheet at www.opm.gov/policy-data-oversight/pay-leave/pay-administration.

A retention incentive may be paid only when the employee’s rating of record under an official performance appraisal or evaluation system is at least “fully successful” or equivalent.

An agency must establish a single retention incentive rate for the employee, expressed as a percentage of the employee’s rate of basic pay, not to exceed 25 percent. With OPM approval, this cap may be increased to 50 percent based on a critical agency need. (See 5 CFR 575.309(e).) The incentive may be paid in installments after the completion of specified periods of service within the full period of service required by the service agreement or in a single lump sum after completion of the full period of service required by the service agreement. An agency may not pay a retention incentive as an initial lump-sum payment at the start of a service period or in advance of fulfilling the service period for which the retention incentive is received. A retention incentive installment payment may be computed at the full retention incentive percentage rate or at a reduced rate with the excess deferred for payment at the end of the full service period.

An agency may not offer or authorize a retention incentive for an individual prior to employment with the agency. An agency may not begin paying a retention incentive during the service period established by an employee’s recruitment or relocation incentive service agreement. However, a relocation incentive may be paid to an employee who is already receiving a retention incentive.

For retention incentives that are paid in biweekly installments when no service agreement is required, an agency must review each determination to pay the incentive annually to determine whether payment is still warranted and certify this determination in writing. An agency must reduce or terminate the retention incentive whenever payment at the original level is no longer warranted. In addition, an agency must terminate a retention incentive authorization when no service agreement is required if the employee is demoted or separated for cause, receives a rating of record of less than “fully successful” or equivalent, or the agency assigns the employee to a different position. (See 5 CFR 575.311(g).)

Group Retention Incentives—Group-based retention incentives may be paid under 5 CFR 575 subpart C to eligible individuals who are in General Schedule, law enforcement officer, or Federal Wage System positions or other categories for which the payment of retention incentives has been approved by OPM at the request of the head of an employing agency.

An agency may pay a retention incentive to a group or category of current employees if the agency determines that the unusually high or unique qualifications of the employees or a special need of the agency for the employees’ services makes it essential to retain the employees in the group and that there is a high risk that a significant number of employees in the targeted group would be likely to leave in the absence of a retention incentive. This determination must be documented in writing. A retention incentive may be paid to an employee only when the employee’s rating of record under an official performance appraisal or evaluation system is at least “fully successful” or equivalent.

An agency must narrowly define the targeted group of employees to be paid a group retention incentive using factors that relate to the employees’ unusually high or unique qualifications or the special need for the employees’ services that makes it essential to retain the employees in the group and their likelihood to leave. Appropriate factors may be occupational series, grade level, distinctive job duties, unique competencies, assignment to a special project, minimum agency service requirements, organization or team designation, geographic location, and required rating of record.

An agency must establish a single retention incentive rate for each group of employees, expressed as a percentage of the employee’s rate of basic pay, not to exceed 10 percent. With OPM approval, this cap may be increased to 50 percent (based on a critical agency need). See 5 CFR 575.309(e).

An agency may pay a group-based retention incentive to any individual in the targeted group if all other conditions and requirements for payment of a retention incentive are met.

Pay Banding

In pay banding, also called broad banding, agencies collapse the 15 General Schedule grades into a smaller number of pay ranges or bands. For example, an agency might establish four bands encompassing the GS 1-5, the GS 6-11, the GS 12-13, and the GS 14-15 levels. The number of bands and the way the grades are assigned to the bands vary by organization.

Pay banding gives managers more flexibility in pay setting by creating pay ranges much broader than those of single GS grades. The aim is to enable agencies to hire promising applicants at a higher rate of pay and to retain high-performing employees by increasing their pay at a faster pace than is possible under the GS scale.

The agency determines how employees move within and across pay bands. In pay banding systems, the amount of a pay increase within a band is based on the employee’s skills or competencies, job performance, contributions, or similar measures; most do not have automatic increases within a band. Money earmarked in the GS system for within-grade, general, and quality step increases often is pooled and used to fund the pay increases determined by employee performance evaluations. Commonly, money in the pay pool is paid out according to a shares system, with each share worth a given dollar amount and with higher-rated employees being given more shares. Employees who have already reached their pay band’s cap may receive a bonus, which does not count toward retirement crediting, rather than a pay raise, which does. A high performing employee could move to the top salary of a pay band much more quickly than is possible in the GS system. In contrast, a low- or marginal-rated employee might get no incentive pay, and only part—or even none—of a general increase.

An employee might move to the next higher band through promotion, or even without a promotion, depending on how the pay banding system is defined.

Another typical feature of pay banding systems is occupational groupings. Similar to the consolidation of General Schedule grades, there typically is consolidation of job classifications into a small number of career paths—for example, science and engineering research; professional and administrative management; engineering, scientific and medical support; business and administrative support; and others as pertinent to the agency. The pay bands for each may vary in number but typically correspond to what is deemed under GS classification systems to be entry level, apprentice, journeyman, full performance, and senior level accomplishment in those occupational groups, with a managerial level often added on top. Also see Section 7 in Chapter 8.

Note: When an employee moves, without a break in service, to a General Schedule position from a non-GS pay system that features pay banding, and that system provides that an employee will be converted to GS equivalent rates immediately before leaving the non-GS pay system, the employee is considered a GS employee in applying the pay-setting provisions of 5 CFR 531 subpart B, and the grade and pay retention provisions of 5 CFR 536. The conversion-out procedures under these systems vary.

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