Processing, Paying, or Terminating an Individual Retention Incentive
A retention incentive is a compensation flexibility available to help Federal Agencies recruit and retain employees. A retention incentive may be paid to an eligible individual in a General Schedule (GS), senior-level (SL), scientific or professional (ST), Senior Executive Service (SES), Federal Bureau of Investigation and Drug Enforcement Administration (FBI/DEA) SES, Executive Schedule (EX), law enforcement officer, or prevailing rate position. The U.S. Office of Personnel Management (OPM) may approve other categories for coverage upon written request from the head of an executive Agency.
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, make it essential to retain the employee, and the employee would be likely to leave the Federal service or transfer to another position in the Federal Service in the absence of a retention incentive.
Service Agreement
Before receiving a retention incentive, an employee must sign a written agreement to complete a specified period of service with the Agency. The service period must begin on the first day of a pay period and end on the last day of a pay period. The service agreement must specify the retention incentive percentage rate established for the employee, the method and timing of incentive payments, the conditions under which an agreement will be terminated by the Agency, any Agency obligations if a service agreement is terminated (including the conditions under which the Agency must make an additional payment for partially completed service), and any other terms and conditions for receiving and retaining retention incentives. A written service agreement is not required if the Agency pays the retention incentive in biweekly installments and sets the biweekly installment payment at the full retention incentive percentage rate established for the employee.
The following guidelines apply to retention incentives:
- The employee receiving the retention incentive must have a rating of record under an official performance appraisal or evaluation system of at least Fully Successful or equivalent.
- The retention incentive is computed based on the employee’s adjusted salary.
- For employees on pay retention (J, K, U, V, 3, or R), the adjusted salary is not used in the computation. For these employees, the incentive is computed using step 10 of the employee’s current grade on the locality pay table or the special salary rate table, whichever is higher.
- 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 including locality pay or special rate supplement at the beginning of the service agreement period. With OPM approval, this cap may be increased not to exceed 50 percent (based on a critical Agency need).
- A retention incentive may be paid in installments after the completion of specified periods of service during the full-service period; or as a single lump-sum payment after the completion of the full period of service required by a service agreement.
- An Agency may not pay a retention incentive as an initial lump-sum payment at the start of a service agreement period or in advance of fulfilling the service or installment period for which the incentive is being paid.
- Excess retention incentive payments that exceed the applicable aggregate pay limitation may be deferred and paid in a subsequent calendar year.
- Presidential appointees (except career SES appointees); noncareer appointees in the SES; those in positions excepted from the competitive service by reason of their confidential, policy-determining, policy-making, or policy-advocating natures; Agency heads; those expected to receive an appointment as an Agency head; or SES limited-term appointees or SES limited-emergency appointees when the appointment must be cleared through the White House Office of Presidential Personnel, are not eligible to receive a retention incentive.
- Payment of a retention incentive is subject to the aggregate limitation on pay under Title 5.
- An Agency must review the determination to pay a retention incentive at least annually to determine whether payment is still warranted and certify this determination in writing.
Personnel Document Processing
Following is the OPM guidance for processing a retention incentive using Nature of Action Code (NOAC) 827, Retention Incentive.
Retention Incentive when employee receives biweekly payments in equal percentage and no service agreement is required:
|
Payment Amount |
Authority Code |
Authority |
|---|---|---|
|
Payment is 25% or less for an individual. |
VPN |
5 USC 5754(d)(3)(A) |
|
Payment is terminated. |
VPX |
Reg 575.311 |
Retention Incentive when a service agreement is required, and employee is likely to leave Federal service:
|
Payment Amount |
Authority Code |
Authority |
|---|---|---|
|
Payment is 25% or less for an individual. |
VPR |
5 USC 5754(e) |
|
Payment is above 25% for an individual. |
VPS |
5 USC 5754(f) |
|
Payment is terminated. |
VPY |
Reg 575.311 |
Retention Incentive when a service agreement is required, and employee is likely to leave for a different position in the Federal service:
|
Payment Amount |
Authority Code |
Authority |
|---|---|---|
|
Payment is 25% or less for an individual. |
VPA |
Reg 575.314 |
|
Payment is above 25% for an individual. |
VPB |
Reg 575.314 |
|
Payment is terminated. |
VPC |
Reg 575.314(g) |
The processing of Retention Incentive (NOAC 827) generates biweekly lump-sum payments in equal percentage. Agencies that wish to pay in other increments must pay the employee via SPPS Web or the manual pay process. The Earnings and Leave Statement serves as the employee notification and replaces the need for a Standard Form 50, Notification of Personnel Action. The Agency may also send written notifications to the employees.
Termination of a Retention Incentive
Per OPM guidance:
- Discretionary - An Agency may unilaterally terminate a retention incentive service agreement based solely on the management needs of the Agency, in which case the employee is entitled to retain any retention incentive payment attributable to completed service and to receive any portion of a retention incentive payment owed by the Agency for completed service.
- Mandatory with Service Agreement - An Agency must terminate a retention incentive service agreement when:
- Conditions change such that the original determination to pay the retention incentive no longer applies (such as when the Agency assigns the employee to a different position that is not within the terms of the service agreement) or when payment is no longer warranted.
- The employee is entitled to retain any retention incentive payment attributable to completed service and to receive any portion of a retention incentive payment owed by the Agency for completed service.
- The employee is demoted or separated for cause (e.g., for unacceptable performance or conduct), receives a rating of record below Fully Successful or equivalent during the service period, or otherwise fails to fulfill the terms of the service agreement. In such cases, the employee is entitled to retain retention incentive payments previously paid by the Agency that are attributable to the completed portion of the service period.
- The employee received retention incentive payments that are less than the amount that would be attributable to completed service. The Agency is not obligated to pay the employee any outstanding incentive payments attributable to completed service unless such payment was required under the terms of the retention incentive service agreement.
- Mandatory with No Service Agreement - For retention incentives that are paid in biweekly installments when no service agreement is required, an Agency must reduce or terminate the retention incentive when:
- Conditions change such that the original determination to pay the retention incentive no longer applies (such as the Agency assigns the employee to a different position that is not within the terms of the original determination), or payment at the original level is no longer warranted.
- The employee is demoted or separated for cause or receives a rating of record of less than Fully Successful or equivalent. An Agency may unilaterally terminate a retention incentive based solely on the management needs of the Agency.
Deleting/Modifying a Retention Incentive in the Current Processing Pay Period
In the event an incentive agreement is terminated or changed in the pay period it was processed, the Agency must process a rollback prior to the processing of the Payroll Processing System (PAYE) for the current processing pay period, to delete the incentive personnel action from the employee's personnel history or modify the amount of the award payment. If the Agency submitted an SPPS Web request to pay the incentive, the Agency must submit an SPPS Web request to terminate or change the incentive.
Note: There are no OPM requirements for corrections or cancellations of NOAC 827, Retention Incentive. When a retention incentive is incorrect or erroneously processed, the Agency must process NOAC 827 with the appropriate legal authority code to terminate the incentive. The Agency must then process actual payouts for underpayments or establish a debt for overpayments via SPPS Web or the manual pay process. The Agency may also restart retention incentives paid on a biweekly lump-sum basis with a correct percentage by processing an additional NOAC 827 with the appropriate authority code.
SPPS Web Processing
The Agency should submit an SPPS Web request for each retention incentive they will be paying, to include applicable transaction codes (TC) and which withholdings should be withheld.
The SPPS Web Procedure manual discusses these payments.
- To Search for a transaction in SPPS Web, on the SPPS Web Main Menu, select Adjustment List. The Adjustment list page is displayed.
- Complete the applicable fields on the Adjustment List page.
- After completing the fields, select the Search button. If any transactions have been processed for the employee based on the search criteria, they are displayed. The Status code field (Status) on the Adjustment List page indicates the status of transactions during the current processing period.
OR
If no transaction is found, the message No documents found for search criteria, will display.
Note: A transaction must be established in SPPS Web before the requested change may be implemented.
Note: If the search does not return the specified transaction, the transaction must be established before the payment or adjustment record may be processed.
- Select the Social Security number (SSN) for the transaction that is to be adjusted by double clicking the SSN. The Miscellaneous Payment page is displayed.
- Complete the applicable fields on the Miscellaneous Payment page.
- After completing all functions, select the Save button to apply all changes and update the record.
- Select the OK button.
Note: Accounting must validate against Management Accounting Structure Codes System if stored accounting is to be used. Select Copy to copy stored accounting information from one pay period record to the pay period record being processed.
Tax Withholding
The gross amount of the incentive award is recorded as supplemental income to the employee, as well as Federal Insurance Contributions Act (FICA), Medicare, Federal, State, and local income tax deductions. The employment tax withholding due on supplemental wages is calculated under the flat rate method.
- The correct amount of Federal income tax withholdings is calculated by taking a flat 28 percent of the supplemental wages.
- State taxes are calculated based on the employee's current withholdings.
- Social Security tax and Medicare tax withholdings are calculated at the usual rates and are in addition to the 28 percent Federal income tax withholding.
Reporting to OPM
Agencies are required to report annually to OPM on their use of the retention incentive authority. Before March 31 of each year, Agencies must submit their reports for the previous calendar year. The reports must contain:
- Number of employees who received retention incentives.
- Job classifications of the employees who received retention incentive benefits.
- Cost to the Federal Government of providing retention benefits.
- The Agency to which each employee would likely transfer to in the absence of a retention incentive.
- Each employee's official worksite and the geographic location of the Agency to which each employee would likely transfer in the absence of a retention incentive; and
- Other information, records, reports, and data as OPM may require.
Note: To assist Agencies with reporting, SPPS Web includes a Retention Incentive report identifying retention incentive payment transactions.