United States General Accounting Office

GAO Report to the Chairman, Committee on

the Budget, House of Representatives

May 1997 FEDERAL CIVILIAN

PERSONNEL

Cost of Lump-Sum

Annual Leave

Payments to

Employees Separating

From Government

GAO/GGD-97-100

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-276038 

May 29, 1997

The Honorable John R. Kasich

Chairman, Committee on the Budget

House of Representatives

Dear Mr. Chairman:

Employee pay and benefits is one of many areas of the federal budget

receiving congressional attention because of scarce federal resources.

This report was prepared in response to your request that we examine one

such benefit—a federal civilian employee’s entitlement under 5 U.S.C.

5551(a) to receive a lump-sum payment for any accumulated, unused

annual leave upon separation from federal service.

Specifically, as agreed with your office, the objectives for our examination

were to determine (1) the governmentwide costs of providing the

lump-sum annual leave payment and recent trends in these costs, (2) the

basis for and consistency of agency practices in making the payment,

including the sufficiency of guidance to ensure that employees who have

similar pay and amounts of unused annual leave receive similar payments,

and (3) any personnel cost savings that could be achieved from limiting

the lump-sum leave payment to the employee’s pay rate at the time of

separation, instead of the current method of determining payment, which

assumes the employee remains in service until the entire leave balance has

expired.

Results in Brief In calendar year 1996, the cost of lump-sum leave payments to separating

civilian employees was about $562 million governmentwide. Between 1985

and 1996, lump-sum payments averaged about $595 million per year (in

constant 1996 dollars). The costs ranged from a low of about $355 million

in 1991 to a high of about $700 million in 1992, when downsizing resulted

in large numbers of separations.

The Office of Personnel Management (OPM) has not provided formal

written guidance regarding lump-sum payments since 1993, and the other

sources of guidance that are available to agencies are insufficient to

ensure consistent agency payment practices. As a consequence, employees

separating from different agencies with the same rates of pay and amounts

of unused annual leave may not receive the same payment amount.

Congress gave OPM specific authority to prescribe lump-sum payment

regulations in 1992, and OPM has drafted regulations and told us that it

Page 1 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

intends to publish them in the summer of 1997. In the meantime, agencies

must rely on the language of the statute and Comptroller General

decisions, but these sources do not cover all situations. An OPM survey of

agency practices revealed that although there appeared to be a high degree

of commonality in the types of pay that agencies were including in the

payment, practices diverged for some types of pay.

Based in part on our information and analysis, the Congressional Budget

Office (CBO) estimated that agencies could realize personnel cost savings

of $18 million over 5 years if lump-sum annual leave payments were

limited to the rate of pay at the time of separation, instead of the current

method of assuming the employee had remained in service until the entire

leave balance had expired. However, such a limitation would not ensure

consistent treatment of employees and might cause some workforce

disruptions if it were to cause employees to use all or a substantial part of

their accumulated leave before separation.

Background To expedite entry of federal civilian employees into the Armed Forces

during World War II, Congress authorized agencies to make lump-sum

payments for accumulated, unused annual leave to employees who were

separating from federal civilian service to enter the armed forces.

Previously, the Dual Compensation Act had prohibited federal civilians

entering the armed services from receiving compensation from both

civilian office and military pay if the combined amounts exceeded $2,000

per year and agencies were not authorized to “buy back” an employee’s

accumulated, unused leave. When employees retired or otherwise left

federal service, agencies commonly carried them on the payroll in a

“terminal leave” status until they had exhausted all unused annual leave.

These practices potentially could have delayed federal civilian employees’

entry into military service until their leave was exhausted.

Agencies’ authority to buy back a separating employee’s accumulated,

unused annual leave was extended to all employees in 1944 (58 Stat. 845).

Under this statute, any employee who leaves federal service with unused

annual leave is to receive a lump-sum payment for that accumulated leave.

The lump-sum payment is calculated based on the pay that the employee

would have received for the leave, as if the employee had remained in

service until the leave was exhausted. To illustrate the calculation method,

if an employee’s date of separation had been January 3, 1997, and he or

she had 200 hours of unused annual leave, the lump-sum leave payment

would have been calculated as if the employee actually worked an

Page 2 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

additional 25 days, excluding any holidays. The payment, therefore, would

include any pay increases the employee would have received during those

days due to any scheduled General Schedule (GS) pay increase, if the

increase was authorized before the employee’s separation.1

 The lump-sum

payment has been limited to some extent over the years. In 1980, Congress

narrowed the definition of annual leave that agencies are to use in the

calculation and prohibited crediting hours for any holiday occurring after

separation. In 1991, Congress also excluded from the calculation method

two specific types of premium pay for employees serving in foreign

areas—post differential pay and danger pay allowance.

Scope and

Methodology

To identify the costs of lump-sum leave payments and recent trends in

these costs, we obtained from OPM a summary of the costs of lump-sum

leave payments governmentwide for a 12-year period—calendar years 1985

through 1996. OPM retrieved this information from data reported monthly

by agencies on a standard form (SF-113A). OPM requests agencies, among

other things, to report “monies paid for annual leave to employees who

have separated from the Federal Government.” OPM uses information from

this form primarily to monitor changes in civilian employment levels in

agencies, which it summarizes in public reports entitled “Federal Civilian

Workforce Statistics: Employment and Trends as of [month, year].” OPM

does not publish in these monthly reports the information that it gathers

on lump-sum leave payments from this standard form. OPM retrieved and

summarized this information at our request. To adjust for the effects of

inflation, we converted the historical cost data that OPM provided us to

constant 1996 dollars using the gross domestic product price index

published by the U.S. Department of Commerce, Bureau of Economic

Analysis.

To determine the basis for and consistency of agency practices in making

lump-sum leave payments, including the sufficiency of guidance to ensure

that employees with similar pay and hours of accumulated, unused leave

receive similar payments, we reviewed (1) the legislative history and

development of the statutory criteria, (2) prior OPM guidance contained in

the now-abolished Federal Personnel Manual, (3) the status of OPM’s

1

Most federal civilian employees can accumulate up to 30 days (240 hours) of annual leave that may be

carried forward from year to year. Any leave accumulated beyond this ceiling at the beginning of a new

leave year is subject to forfeiture, whereby the employee must “use it or lose it.” Employees working

outside the United States generally may accumulate 45 days of leave before forfeiture. Currently,

members of the Senior Executive Service (SES) can accumulate leave up to 90 days (720 hours) before

forfeiture. In addition, SES members who had accumulated more than 90 days of annual leave before

October 14, 1994, (when there was no earning ceiling for SES members) are authorized under some

circumstances to retain as a personal leave ceiling any higher amount that they had earned before

October 14, 1994.

Page 3 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

rulemaking on lump-sum payments, (4) administrative decisions of the

Comptroller General,2

 and (5) applicable court cases. We also reviewed

unpublished documents that OPM provided at our request, including a

document summarizing the results of an informal survey of agency

practices that OPM conducted between 1995 and 1996.

To identify any personnel cost savings associated with limiting the

lump-sum leave payments to the employee’s pay rate at the time of

separation, we obtained historical information from OPM on the personnel

cost of annual leave and the number of employees separating from federal

service. CBO used this and other historical data that we gathered, along

with its own data and information, to estimate the 5-year savings for fiscal

years 1998 to 2002.

As agreed with your office, we did not independently verify the accuracy

or completeness of the cost, workforce, or other data and information that

OPM provided us during this review. Concerning OPM’s survey of agency

lump-sum payment practices, OPM officials did not want to identify

agencies by name, in part, because OPM’s information on these practices

had been obtained informally and was not verified. Although we did not

verify OPM’s personnel cost data, we independently gathered data on one

federal agency’s lump-sum payments and used those data to test the

reasonableness of the governmentwide data that OPM provided. We made

available a draft of this report to OPM for review and comment. OPM’s

comments are discussed at the end of this letter. We conducted our review

from January 1997 through March 1997 in accordance with generally

accepted government auditing standards.

Trends in Costs of

Lump-Sum Leave

Payments

In calendar year 1996, the total cost of lump-sum leave payments to federal

civilian employees was about $562 million. Between 1985 and 1996, these

costs averaged about $595 million per year (constant 1996 dollars). As

shown in figure 1, the costs ranged from a low of about $355 million in

1991 to a high in 1992 of about $700 million.3

2

The Comptroller General’s authority to make administrative determinations, involving federal civilian

employees’ compensation and leave, was transferred to the Director of OPM by the “General

Accounting Office Act of 1996” (P.L. 104-316, Oct. 19, 1996).

3

According to OPM, this cost data cover employees in all work schedules, pay systems, types of

service, and all agencies except certain intelligence-related agencies.

Page 4 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

Figure 1: Governmentwide Costs of

Lump-Sum Leave Payments, CY

1985-1996 (1996 dollars in millions)

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

0

200

400

600

800

700

355

562

Lump-sum leave payments (1996 dollars in millions)

Total government

Source: GAO analysis of unpublished OPM data.

According to OPM officials, most of the 1992 costs can be attributed to an

unusually large number of lump-sum payments made by the U.S. Postal

Service, which underwent a major downsizing in that year. Figure 2 shows,

for the 12-year period of 1985 through 1996, the trend in the cost of

payments to federal civilian employees for most of the government (top

line), executive branch agencies excluding the U.S. Postal Service (middle

line), and the U.S. Postal Service (bottom line).4

 Payments by the U.S.

4

Unlike most federal civilian employees that have a 240-hour ceiling on the number of annual leave

hours that can be carried forward to another leave year before forfeiture, the ceiling for the Postal

Service varies. For the vast majority of Postal Service employees (i.e., members of bargaining unions)

the ceiling is 440 hours (55 days).

Page 5 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

Postal Service increased tenfold between 1991 and 1992, from about

$35 million to more than $378 million. Also, payments by nonpostal

agencies nearly doubled between 1992 and 1993, from about $316 million

to about $605 million.

Figure 2: Effect of U.S. Postal Service

Payments on Governmentwide Costs,

Cy 1985-1996 (1996 dollars in millions)

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

0

200

400

600

800

Lump-sum leave payments (1996 dollars in millions)

U.S. Postal Service

Nonpostal executive branch

Total government

Source: GAO analysis of unpublished OPM data.

Appendix I contains the specific cost data we acquired from OPM and

converted to 1996 dollars for each of the 12 years included in our trend

analysis.

Page 6 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

Guidance Currently

Insufficient to Ensure

Consistent Agency

Practices

OPM has not provided formal written guidance on lump-sum payments

since 1993.5 OPM has drafted regulations and told us that it intends to

publish them in the summer of 1997. In the meantime, agencies must rely

on the language of the statute and Comptroller General’s decisions, but the

guidance is incomplete and therefore insufficient to ensure consistent

agency payment practices.

OPM Is Developing

Regulations to Provide

Formal Written Guidance

As the central human resource management agency for the federal

government, OPM prescribes policies and procedures that agencies are to

follow regarding civilian employee pay and benefits. CFR title 5 part 630

includes regulations on the accumulation and use of annual leave and part

550 includes regulations on pay administration. OPM currently has no

regulations or other written guidance on lump-sum leave payment

calculations.

OPM requested that Congress provide OPM specific statutory authority to

regulate lump-sum leave payments in June 1991, as part of a larger

proposal intended to correct problems arising from OPM’s implementation

of its title 5 pay authorities. In October 1992, Congress provided OPM the

requested authority in a provision of The Technical and Miscellaneous

Civil Service Amendments Act of 1992.

6

 However, the act specified no

deadline for OPM action, and OPM has not as yet formally proposed

regulations on lump-sum leave payments. In April 1997, OPM officials said

that draft rules have been prepared and are awaiting the OPM Director’s

approval. According to these officials, a notice of proposed rulemaking

should be issued by the end of June 1997.

Other Guidance Available

to Agencies Is Incomplete

OPM believes that there is a high degree of commonality in agency

approaches to making lump-sum leave payment calculations because basic

pay is the primary type of pay in a lump-sum payment, and both the

Comptroller General and OPM have provided guidance on some types of

payments in the past. While there may be a high degree of consensus on

the types of pay that agencies include in lump-sum payments, OPM has

recognized that agency practices differ for some types of pay.

5

Prior to December 1993, OPM’s Federal Personnel Manual (FPM) chapter 550-2 and a related

supplement provided instruction to agencies regarding the calculation of lump-sum leave payments.

These issuances were eliminated in December 1993 when most of the FPM was abolished as part of an

effort to reduce the administrative burden of personnel rules on agencies.

6

This provision is codified at 5 U.S.C. 5553.

Page 7 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

As discussed below, practices differ for some types of pay because the

guidance available to agencies is incomplete. In particular, the lump-sum

payment provision of 5 U.S.C. 5551 does not define the term “pay.” The

Comptroller General’s decisions have interpreted the statutory language

only to the extent necessary to resolve disputes over particular payments

agencies have made. As a consequence, available guidance does not set

forth a complete listing of the types of pay that should be included.

The insufficiency of guidance on the types of pay agencies are to include is

important because many employees are entitled to numerous additional

pay and allowances that may, or may not, be considered as part of their

basic pay. As part of an ongoing effort to study the feasibility of issuing

regulations on lump-sum leave payments, OPM in March 1995 informed

agencies that it had identified at least 11 types of pay for which there was

at that time no definitive statutory or administrative determination on

whether the pay should be included in the lump-sum payment calculation.

Table 1 shows OPM’s identification of these “undetermined” types of pay,

along with past determinations on the types of pay that should be included

or excluded from lump-sum leave payments and available OPM data on the

fiscal year 1995 costs.

Page 8 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

Table 1: Types of Pay Included and

Excluded From Lump-Sum Leave

Payments and Fiscal Year 1995 Cost of

Premium Pay for Nonpostal Executive

Agencies

Dollars in thousands

Type of Pay

Included or

excluded from

lump-sum payment

Cost of premium

pay for nonPostal

executive agencies

(FY 1995)

Overtime $2,783,990

Administratively uncontrollable Included b

Regularly scheduled Excluded b

Irregular/unscheduled Excluded b

Fair Labor Standards Act Undetermined b

Physicians comparability allowance Undetermined 393,868

Holiday 241,962

No work performed Excludeda b

Work performed Excluded b

Night differential 268,603

Federal Wage System Included b

Other Undetermined b

Sunday Undetermined 213,136

Supervisory differential Undetermined 112,948

Hazardous duty Undetermined 56,647

Post differential 53,710

Nonforeign Included b

Foreign Excludeda b

Remote work site allowance Undetermined 6,761

Other 537,688

Availability pay Included b

Cost of living Included b

Standby duty pay Included b

Danger pay: foreign Excludeda b

Environmental differential Excluded b

Retention allowance Excluded b

Evacuation Undetermined b

Quarters allowance Undetermined b

Johnston Island Undetermined b

Uniform allowance Undetermined b

Total $4,669,313

aExcluded explicitly by statute (5 U.S.C. 5551).

bCost unknown.

Source: GAO analysis of OPM published and unpublished data.

Page 9 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

Differences in Types of Pay

to Include in Payment

Calculations

In 1995, OPM surveyed agency personnel directors on how they were

defining pay for the purpose of making lump-sum payments and the types

of pay that they believed should be included. OPM told us that, based on the

results of the survey, there appeared to be a high degree of commonality in

the kinds of pay that agencies were including, but that agency practices

diverged for some types of pay. As an illustration of the problem, they

noted that court cases had been brought against the federal government in

recent years, involving disputes about the types of pay agencies have

included or excluded in lump-sum payments. For example, in March 1995

the Justice Department agreed to settle with 696 former federal

employees. The settlement included lump-sum back-pay claims totaling

about $570,000, or $819 per former federal employee. OPM also said that

(1) agencies held different views on the types of pay that should be

included and that, as a consequence, (2) practices were likely to continue

to differ until the issue was clarified—either through the issuance of

binding regulations or the enactment of statutory changes.

OPM identified four different agency views on the types of pay that should

be included in lump-sum leave payment calculations. The most restrictive

would limit lump-sum payments to basic pay. A second approach would

count only the pay that is currently included in retirement computations

(i.e., basic pay, annual premium pay for standby duty or administratively

uncontrollable overtime work, and availability pay). A third would count

any pay received by an employee while in a paid leave status (e.g.,

retention allowances, physicians comparability allowances) in addition to

the pay components of the second approach. Finally, the least restrictive

approach would include all pay that employees would have received if

they had continued to work.

Personnel Cost

Savings From

Eliminating Pay

Increases After

Separation

As the previous agencies’ views suggest, there are many ways in which the

cost of lump-sum payments to separating employees could be calculated.

As noted in the background section of this report, Congress has in the past

revised the calculation method to restrict the kinds of pay that can be

included in the calculation.

We were asked to identify the personnel cost savings that could be

achieved from limiting the lump-sum payment to the employee’s rate of

pay at the time of separation, instead of the current method of payment,

which assumes the employee remains in service until the entire leave

balance has been exhausted. If Congress enacted such a limitation, no GS

pay increases that go into effect following the employee’s separation

Page 10 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

would be added to the payment calculation. According to CBO, the savings

from such a limitation would be modest. As shown in table 2, CBO

estimated that agencies would realize total savings of $18 million over the

fiscal year 1998 to 2002 period, if Congress limited payments to the rate of

pay in effect on the day the employee separates from federal service.7

Table 2: Five-Year Cost Savings

Dollars in millions

FY 1998 FY 1999 FY 2000 FY 2001 FY 2002

Budget authority 3 3 4 4 4

Outlays 3 3 4 4 4

Source: CBO.

Limiting the lump-sum payment to the employee’s pay at the time of

separation would not clarify the types of pay that agencies are to include

in the payment, and therefore, would not increase the consistency of

agency payment practices. As OPM said, agency practices are likely to

remain different until OPM prescribes regulations or Congress enacts

legislation specifying the types of pay that agencies are to include in

lump-sum leave payments.

Workforce Management

Issues Could Arise

Workforce management issues also could arise, depending on employee

responses to limiting the lump-sum payment to the employee’s pay at the

time of separation. If a separating GS employee used his or her maximum

accumulated leave (30 days) and accruing leave (26 days) in the final year

of service, the employee could be absent for as many as 56 days—which is

about 22 percent of the work year. The employing agency would need to

manage around this disruption, unless it could fill the position prior to the

employee’s separation. However, the likelihood of large numbers of

employees doing so is probably small. To illustrate this point, table 3

shows how small the maximum reduction in payments that separating

employees in January 1996 would have been at various GS pay levels if the

7

The savings CBO estimated are personnel cost savings that would be available for other agency

purposes. Savings from discretionary spending program changes contribute to additional deficit

reduction only if the Budget Enforcement Act caps on discretionary spending are lowered. Savings

that individual agencies would realize depend on particular agency circumstances. As our analysis of

OPM workforce data showed, the number of accrued hours of leave that are credited, the value of a

leave hour, and the types of pay that are counted all will affect lump-sum payment costs. Also, the 1985

to 1996 lump-sum payment cost trends presented in this letter showed that payment costs (hence,

savings) could be materially affected by factors that are not a part of the lump-sum payment

calculation. Some factors, such as when an agency downsizes, could be hard to anticipate and would

affect agencies differently.

Page 11 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

net 2.54 percent pay increase had been eliminated from their lump-sum

leave payments.

Table 3: Illustrations of the Maximum

Reduction in Lump-Sum Leave

Payments to GS Employees From

Eliminating January 1996 Net Pay

Increase of 2.54 Percent

Pay level/number of unused

leave days

Lump-sum leave payment

current policy

Maximum reduction in

payment after limitation

Average GS-15 pay level ($88,185)

10 days $3,380 $86

30 days 10,141 258

56 days 18,930 481

Average 1996 GS pay level governmentwide ($42,139)

10 days $1,615 $41

30 days 4,846 123

56 days 9,046 230

Average GS-5 pay level ($23,529)

10 days $902 $23

30 days 2,706 69

56 days $5,051 $128

Source: GAO analysis of OPM data.

Agency Comments We received oral comments on a draft of this report from OPM on April 24,

1997. OPM officials who provided comments included the Associate

Director for Human Resources Systems Service, the Deputy Chief of Staff,

the Assistant Director for Compensation Policy, and a Team Leader in the

Office of Workforce Information. They generally agreed with the

information presented in this report and said the report fairly presents the

current situation OPM faces in developing regulations on lump-sum leave

payments. Comments of a technical and clarifying nature made by these

officials were incorporated in this report where appropriate.

We are sending copies of this report to the Ranking Minority Member of

the Committee, the Director of OPM, and other interested parties. Copies

will also be made available to others upon request.

Page 12 GAO/GGD-97-100 Lump-Sum Leave Payments
B-276038 

The major contributors to this report were Assistant Director Margaret T.

Wrightson and Senior Evaluator John J. Tavares. If you have any questions

on this report, please call me at (202) 512-9039.

Sincerely yours,

Michael Brostek

Associate Director

Federal Management and

 Workforce Issues

Page 13 GAO/GGD-97-100 Lump-Sum Leave Payments
Appendix I 

Cost of Lump-Sum Payments for Annual

Leave, CY 1985-1996

1996 dollars in millions

Calendar year

Governmentwidea

civilian workforce

Nonpostal

executive branch

agencies U.S. Postal Service

1985 $594 $512 $76

1986 613 531 76

1987 580 501 73

1988 674 583 84

1989 539 432 100

1990 587 460 119

1991 355 315 35

1992 700 316 378

1993 661 605 48

1994 643 585 46

1995 628 564 51

1996 562 490 63

12-year average $595 $491 $96

aThis cost data cover, according to OPM, employees in all work schedules, pay systems, types of

service, and all agencies except certain intelligence-related agencies.

Source: Unpublished OPM cost data converted by GAO to 1996 dollars.

(410103) Page 14 GAO/GGD-97-100 Lump-Sum Leave Payments
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