Severance Pay

Chapter 1: Section 8

General Rights and Procedures

Permanent employees who have been employed continuously for at least 12 months and who lose their jobs through no fault of their own generally are entitled to severance pay under 5 CFR 550 subpart G. This includes employees who are separated in a reduction in force because of abolishment of their positions, or who decline to accompany their positions in a transfer of function to another commuting area. 

Resignations, except for resignations pending involuntary separation (see below), are considered voluntary separations and do not carry entitlement to severance pay.

Also, if a separated employee has declined a “reasonable offer” (generally, a position in the same agency, in the same commuting area, of the same tenure and work schedule, and not more than two grades or pay levels below the employee’s current position), the worker usually will not be entitled to severance pay. In addition, severance pay is not paid to an employee who is entitled to an immediate annuity at the time of separation, a reduced annuity under a voluntary employee retirement authority, a disability annuity, or restricted pay earned as a member of the uniformed services. 

Further, severance pay is not paid to those who separate, either with or without eligibility to retire, and take a voluntary separation incentive payment (“buyout”). However, the severance pay formula does have an application in buyout situations: the maximum buyout payable to an employee receiving such an offer is the lesser of a fixed dollar amount or the amount of severance pay the employee would be entitled to, if involuntarily separated. See Chapter 9, Section 3.

The continuous service may consist of one or more civilian federal positions held over a period of 12 months without a single break in service of more than three calendar days. The positions held must have been under one or more qualifying appointments; one or more non-qualifying temporary appointments that precede the current qualifying appointment; or an appointment to a position in a non-appropriated fund instrumentality of the Department of Defense or the Coast Guard that precedes the current qualifying appointment in the Department of Defense or the Coast Guard, respectively.

The following are qualifying appointments for severance pay eligibility:

• a career or career-conditional appointment in the competitive service or the equivalent in the excepted service; 

• a career appointment in the Senior Executive Service; 

• an excepted appointment without time limitation, except under Schedule C or an equivalent appointment made for similar purposes; 

• an overseas limited appointment without time limitation; 

• a status quo appointment, including one that becomes indefinite when the employee is promoted, demoted, or reassigned; 

• a time-limited appointment in the Foreign Service, when the employee was assigned under a statutory authority that carried entitlement to re-employment in the same agency, but this right of re-employment has expired; and 

• a time-limited appointment (or series of time-limited appointments by the same agency without any breaks in service) for full-time employment that takes effect within three calendar days after the end of a qualifying appointment. 

For those separating employees who are eligible, the basic severance pay allowance is computed on the basis of the following formula: 

• one week of pay at the rate of basic pay for the position held by the employee at the time of separation for each full year of creditable service through 10 years; 

• two weeks of pay at the rate of basic pay for the position held by the employee at the time of separation for each full year of creditable service beyond 10 years; and 

• 25 percent of the otherwise applicable amount for each full three months of creditable service beyond the final full year.

For employees who are over age 40, an age adjustment allowance is added to the basic allowance. This over-40 age adjustment calls for computing 2.5 percent of the basic severance allowance for each full three months of age over age 40. 

“Rate of basic pay” means the rate of pay fixed by law or administrative action for the position held by the employee, including, as applicable, annual premium pay for standby duty, law enforcement availability pay, straight-time pay for regular overtime hours for firefighters, night differential for Federal Wage System employees, locality payments, and special rate supplements. Rate of basic pay does not include additional pay of any other kind. The weekly rate of basic pay for employees with variable work schedules is determined based on the weekly average for the last position held by the employee during the 26 biweekly pay periods immediately preceding separation. The regulations at 5 CFR 550.707(b) provide specific instructions on calculating the weekly rate for various types of variable work schedules, including part-time work and seasonal work. 

The following types of service are creditable for computing an employee’s severance pay:

• civilian service as an employee (as defined in 5 U.S.C. 2105), excluding time during a period of non-pay status that is not creditable for annual leave accrual purposes under 5 U.S.C. 6303(a); 

• service with the Postal Service or the Postal Rate Commission; 

• military service, including active or inactive training with the National Guard, when performed by an employee who returns to civilian service through the exercise of a restoration right provided by law, Executive order, or regulation; 

• service performed by an employee of a non-appropriated fund instrumentality of the Department of Defense or the Coast Guard and who moves to a civilian position with the Department of Defense or the Coast Guard, respectively, without a break in service of more than three days; and 

• service performed with the government of the District of Columbia by an individual first employed by that government before October 1, 1987, excluding service as a teacher or librarian of the public schools of the District of Columbia.

A worksheet to estimate severance pay is at www.opm.gov/policy-data-oversight/pay-leave/pay-administration/fact-sheets.

Severance pay accrues on a day-to-day basis following the recipient’s separation from federal employment. Severance payments: must be made at the same pay period intervals that salary payments would be made if the recipient were still employed (except for Defense Department employees, who may elect to receive it as a lump-sum under 5 U.S.C. 5595(i)); are computed using the recipient’s rate of basic pay in effect immediately before separation; are subject to appropriate deductions for income and Social Security taxes; and are the responsibility of the agency employing the recipient at the time of the involuntary separation that triggered the entitlement. 

The total severance pay an employee is eligible to receive is limited to one year’s pay at the rate of pay received immediately before separation. This is a lifetime limitation. Therefore, if an employee becomes eligible to receive severance pay for the second time in his federal career, the worker’s severance pay entitlement ends once the sum of the two severance periods reaches 52 weeks.  

Severance Payments and Re-Employment

Severance payments end if a recipient is re-employed by the federal government (including the U.S. Postal Service) on a non-temporary basis. Upon such re-employment, the individual begins building severance credits on top of the unpaid, residual severance amount for potential future use. In the case of temporary federal re-employment, severance payments are suspended. However, they resume when the temporary appointment expires, and continue until new federal re-employment is obtained or the severance payments are exhausted.

If the temporary appointment is full-time and begins within three days after separation from a qualifying non-temporary appointment, severance pay is terminated, not suspended. However, this type of temporary appointment is qualifying for severance pay upon expiration of the appointment. In the case of a former federal employee who gains nonfederal employment, the worker’s entitlement to federal severance pay continues until the payments are exhausted.

Resignations Pending Involuntary Separation—Under 5 CFR 550.706, employees who resign because they expect to be involuntarily separated are considered to have been involuntarily separated for severance pay purposes only if they resign after receiving: a specific written notice stating that the employee will be involuntarily separated by a particular action (for example, a reduction in force) on a particular date; or a general written notice of reduction in force or transfer of function that announces that all positions in the competitive area will be abolished or transferred to another commuting area by a particular date no more than one year after the date of the notice. If the specific or general notice is cancelled before the resignation is effected, the resignation would not be qualifying for severance pay purposes. Other types of resignations do not create an entitlement to severance pay. 

Inability to Perform Duties—An employee removed for inability to perform his or her duties may receive severance pay if the inability is caused by a medical condition beyond the employee’s control. This determination is made by the employing agency based on acceptable medical documentation provided by the employee. Also see the fact sheet at www.opm.gov/policy-data-oversight/pay-leave/pay-administration.

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