OPM Computation of Interest on Back Pay System

Frequently Asked Questions

[as of May 1, 1999]

1. Who do I call if I have questions or comments about the OPM Computation of Interest on Back Pay System?

First, be sure to check the Help section of the program, including the On-Line User Documentation. You may also want to consult with experienced users of the program within your own agency.

If you still have a problem, you may call OPMs Pay and Leave Administration Division at (202) 606-2858 or send an email message to payleave@opm.gov. Please note that OPM staff in this office are not computer specialists and will not be able to resolve system compatibility problems.

2. Where can I get help if I have technical questions about how to apply the back pay law and regulations that go beyond the computation of interest?

The interest program is focused on the interest computation, not on other aspects of applying the back pay law and regulations. If you have questions that go beyond the computation of interest, you should review the back pay law and regulations. (Copies can be found in the Help section of the interest program. Please note that those copies are valid as of a particular date. You may need to make sure that back pay law and regulations have not been amended.) Also, you may want to check OPMs Web site (www.opm.gov) for any current guidance on back pay rules and policies. You may need to consult with specialists at your own agency headquarters personnel office. These specialists have established points of contact at OPM that can provide them with assistance as needed.

3. What are "outside earnings?" What exactly is the "outside earnings factor?"

Outside earnings are amounts earned by an employee during a separation from Federal service that is later determined to have been erroneous, resulting in the employees entitlement to retroactive reinstatement and back pay. Outside earnings are earnings from any job(s) the employee took to replace the lost Federal job. Do not include earnings from additional or "moonlight" jobs the employee may have had both while Federally employed and while erroneously separated. (See 5 CFR 550.805(e)(1).) Generally, outside earnings are gross earnings before any deductions. However, if an employee started a business enterprise to replace a lost Federal job, valid business losses and ordinary and reasonable business expenses may be subtracted from gross earnings.

By law, an employees back pay award must be offset by the amount of any outside earnings. If outside earnings equal or exceed the gross back pay owed during the erroneous separation, no net back pay is available to be paid to the employee. Back pay interest is figured on adjusted gross back pay--that is, gross back pay less any offset for outside earnings.

OPM regulations provide that, for purposes of computing back pay interest, the outside earnings offset must be applied as a constant percentage offset applied to each payment of back pay for each pay period during the erroneous separation. This percentage offset is determined by dividing the employees outside earnings by the total gross back pay owed to the employee (before any offsets or deductions). For example, if an employees outside earnings are $10,000 and the total gross back pay is $40,000, the outside earnings offset factor is 25% ($10,000 divided by $40,000). If the gross back pay owed for a particular pay period is $2,000, then the outside earnings offset would be $500 ($2,000 times 25%). Back pay interest would be computed based on the remaining $1,500 owed for that pay period. (See 5 CFR 550.806(b).)

4. Is it possible to have a back pay award without any interest being owed?

Yes. For example, suppose an agency erroneously pays an employee too little in a particular pay period and soon after discovers the error. If the agency issues a payment to correct the error within 30 days after the pay date when the employee was underpaid, the agency may choose to pay no interest. This is because the back pay law allows an agency to stop the accrual of interest as early as 30 days before the date of the back payment. (See 5 U.S.C. 5596(b)(2)(B)(i).) Thus, as long as the date of any underpayment is within 30 days of the back payment correcting the underpayment, the agency can provide that no interest accrues.

Another case where no back pay interest is owed is when an employees outside earnings equal or exceed the employees gross back pay. The employee is retroactively reinstated and is considered to have received the full gross back pay for purposes of retirement and other affected benefits. However, because of the outside earnings offset, the employee would receive no actual back payment and no interest would be payable. (See also question 3 above.)