Leave Calculations

On the most basic level, the difference between sick leave and annual leave for federal employees is simple: Sick leave is for illness and annual leave is for vacations. In practice, it’s a little more complicated.

Federal workers are able to accumulate 104 hours of sick leave every year of federal service. Over a 20-year career, that’s 2,080 hours, or about a year’s worth of accumulated sick leave. Both the Civil Service Retirement System and the Federal Employees Retirement System credit unused sick leave balances toward the calculation of retirement benefits.

So should you save your sick leave for retirement or a future illness and use your annual leave when you’re sick or have a doctor’s appointment? Some employees do this in order to maintain a large balance of unused sick leave in the event of a future major medical need.

When it comes to annual leave, generally employees can carry over 240 hours from one year to the next. But they begin to earn eight hours per leave period after 15 years of federal service. That’s 208 hours a year, or more than five weeks of paid vacation. When you add in accumulated carry-over leave, the value of annual leave is substantial.

So how should you factor leave considerations into your retirement planning process? As your retirement date approaches, there are several considerations to keep in mind about usage of sick leave and annual leave.

Sick leave serves the purpose of short-term disability insurance. If you have a lot of it when you retire, be happy, because that probably means you were healthy during your career.

Annual leave is paid as a lump sum payment at retirement. If you don’t use any during your last year of federal service and you retire at the end of a leave year, it’s possible to be paid for 448 hours of unused annual leave. Generally, it makes sense to retire at the end of a leave year if you want to maximize your lump-sum payment for unused annual leave.

If you retire earlier in the year, then you’ll be paid for the balance of annual leave that remains in your account. For example, if you retire in June, you could be paid for 240 hours you carried over from last year and the 96 hours you might have earned and saved by retiring at the end of leave period 12, which ends on June 24. That adds up to 336 hours of unused annual leave.

If you have a choice between using sick leave or annual leave during your final months on the job, then you may want to use your sick leave for doctor’s appointments, family and medical leave, and your own illnesses. Here’s why:

• Your unused annual leave will be paid to you in a lump sum when you retire. If you’re earning an annual salary of $50,000, this would be an hourly rate of $23.95 per hour. If you have a balance of 336 hours of unused annual leave, you would receive a gross payment of a little over $8,000 (subject to tax withholding).
• The sick leave is credited towards the calculation of your retirement benefit, but it is of less immediate value than the cash payment for your unused annual leave. Let’s say you have a balance of 336 hours of unused sick leave. That’s worth about two months of additional service credit. This would add 2/12 of 1 percent of $50,000 to your FERS retirement benefit, or $83 a year. (The value would be 2/12 of 1.1 percent if you are retiring under FERS at age 62 or later with 20 or more years of service and 2/12 of 2 percent if you are retiring under CSRS.) At the 1 percent annual accrual rate, it would take you 100 years of receiving $83 a year to recover the $8,000 that you could have received in a lump sum annual leave payment.

If you need a chart to convert your sick leave hours to service credit, look no further than OPM’s Retirement Facts Pamphlet No. 8.

One last thing: If you’ve heard the phrase “use or lose” sick leave and wondered what it refers to, you’re not alone. It’s a tongue-in-cheek nod to the extra days left over after your total federal service, including credit for unused sick leave, is computed. For retiring employees, this is the amount of available sick leave that can be used without changing the computation of the retirement benefit.

For example, if John has 30 years, nine months and 15 days of total federal service, including credit for 336 hours of unused sick leave, the 15 days would be considered  leftover days. This is because CSRS and FERS retirement benefits are computed on whole years and months of service; any fraction of a month is not counted in the computation.

You need to be careful if you plan to use up those leftover days.  First of all, you need to have a valid medical reason to use sick leave. And the conversion is not as easy as multiplying 15 days x 8  hours (the number of hours in a work day), because your retirement is computed on a 30-day month that includes weekends and holidays. You must convert the leftover days back to hours using the sick leave conversion chart.

In John’s example, his leftover 15 days is equivalent to only 87 hours, not the 120 hours that he would get by multiplying 15 x 8.

Also, trying to get your leftover days down to zero could end up costing you another month of service credit in the computation of your retirement. If you change your retirement date and your service computation date is off by a few days or more, or if you miscalculate the value of those leftover days, you could end up losing a few dollars in your monthly CSRS or FERS retirement benefit. And when you’re on a fixed income in retirement, every dollar counts.

Correction: The original version of this article used incorrect figures for determining the sick leave credit for calculating federal retirement benefits. The article has been updated to correct the error.

Photo: Flickr user Jan Kalab