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Grade and pay retention

What is Grade Retention?

A bureau/operating unit must offer grade retention to an employee when he/she is reduced in grade as a result of a reclassification of duties or a reduction-in-force. An employee may also be offered grade retention when management anticipates downgrading as a result of a reorganization or reclassification decision announced in writing.

"Employee" means an individual who is employed by the bureau/operating, including an employee who is moved from a position under a prevailing rate schedule to a prevailing rate position with a lower representative rate, or from a wage grade position to a GS position with a loss of pay, provided the employee was employed on other than a temporary or term basis just prior to the placement. To be eligible for grade retention, the employee must have served in the retained grade or in a higher grade for at least 52 weeks prior to the reduction-in-force; or the position in which the employee is being reduced must have been classified at the higher grade for at least one year prior to the reclassification action resulting in the downgrade. 

Grade Retention Terminates

Grade retention terminates when the two-year grade retention period ends, the employee is promoted to the same or a higher grade than the retained grade, the employee refuses an offer of a position equal to or higher than the retained grade, or the employee has a break in service of one workday.

If, at the end of the two-year period of grade retention, an employee's rate cannot be encompassed within the rates of the grade to which he or she is reduced, the employee retains his or her rate. Pay retention is mandatory when: 

  • The two year period of grade retention ends; 
  • The employee does not meet eligibility criteria for grade retention but has been demoted as a result of reduction-in-force or reclassification; 
  • Special rates are terminated or reduced; 
  • The individual is involuntarily reassigned to a non-special rate position or a position with lower special rates; or 
  • The employee is placed in a position under an upward mobility agreement, career intern program, or internal development program. 

Optional pay retention. In addition to these specific situations, management may also offer pay retention to eligible employees whose pay would otherwise be reduced by management action. 

Pay Retention Terminates

Pay retention terminates when the employee has a break in service of one day, becomes entitled to a rate of basic pay (or declines a reasonable offer of position with a rate of basic pay) equal to or better than the retained rate, or is demoted for cause or at his/her own request.

Exclusions from Grade and Pay Retention

Grade and pay retention do not apply to an employee who: 

  • Is not an employee as defined in 5 USC § 2105. This exclusion does not include prevailing rate employees; 
  • Is reduced for cause or on personal request; 
  • Fails to satisfactorily complete a supervisory or managerial probationary period; 
  • Is removed from the SES and entitled to return to a civil service position other than an SES position; or
  • Is paid in excess of the maximum for GS-15 or a rate for senior level positions. 

Pay Setting for Grade Retention

Saved grade. An employee on grade retention is paid for two years as if a reduction-in-grade had not occurred. The grade held immediately prior to the action which entitled the employee to grade retention is saved. In other words, a GS-15/07 is paid as a GS-15/07 for the period of grade retention. The employee gets within-grade increases at the retained grade and 100 percent of all general increases for the retained grade. The two-step promotion rule is applied to the grade and step retained. The employee continues to get any locality pay that is applicable for the grade retained.

On grade retention, there is no reduction in pay. It doesn't matter that there might be a rate in the lower grade which is higher than the employee's saved rate. The employee has saved grade for two years and may not be reduced in pay unless he or she requests it in writing or is reduced for cause. 

Movement on Grade Retention

Basic pay setting rules mandate that an employee be paid from the schedule which is applicable to the occupational series and geographic location for the position occupied. When an employee is on retained grade, he or she should be paid from the schedule which is applicable to the occupational series of the position retained and to the geographic location of the position which the employee occupies after any move. A GS employee who is retaining a special rate, and often a wage grade employee who is retaining grade, may have two or more pay entitlements as a result of changing geographic location or changing pay schedule while on grade retention. In such cases the employee is entitled to pay under the schedule, which is the most advantageous. 

Pay Setting on Pay Retention

Entering pay retention.

When grade retention ends and pay retention begins, the employee's retained rate must be compared to the rates for the grade of the position to which the employee has now been reduced. If an employee's rate of basic pay received immediately prior to the beginning of pay retention can be accommodated among the rates for the grade of the position the employee now occupies, the employee must be placed at that step which equals or exceeds the employee's retained rate.

Pay retention terminates.

If the employee's retained rate exceeds the maximum for the grade he/she now occupies on pay retention, the employee is entitled to the lower of the rate of basic pay paid to the employee immediately before becoming eligible for pay retention; or 150 percent of the maximum rate of basic pay payable for the grade now occupied.

Generally, the employee retains the same rate of pay held just prior to entering pay retention. For example, if the maximum for GS-9 equals $36,123 but the GS-9 employee's retained rate immediately before pay retention begins is $38,107, the employee is going to continue to be paid at $38,107 because it is less than $54,184 (1.50 times $36,123).

General Increase

While on pay retention, the employee is entitled to 50 percent of the increase in the maximum step of the grade for the position held at the time of the increase.


Given: the employee's retained rate is $38,107.
The rate for GS-9, step 10 = $ 36,123 before a general increase of 4.2 percent is applied. The rate for GS-9, step 10, after the increase is $37,640 ($36,123 x 1.042). Applying a 50 percent increase, pay is set as follows:

$37,640 minus 36,123 = $1517 amount of increase

$1517 times 1/2 = $758.50 (round up for anything over 50 cents)

$38,107 + 758 = $38,865 employee's new retained rate

Since the employee gets only half the general increase while all the rates in the grade are increased by 100 percent of the general increase, eventually the top step of the grade "catches up" or exceeds the rate the employee is retaining. This usually takes about three general increases.

When "catch up" occurs, i.e., when an employee's retained rate equals or is less than the maximum rate for the grade of the position held, pay retention terminates and the employee is placed in the top step of the grade.

Promotion While on Pay Retention

The two step promotion rule says that, on promotion, an employee must receive a pay increase which is the equivalent of a two step-increase in the grade from which promoted. An employee who is on retained grade when promoted must receive an increase equal to two steps of the grade retained. However, an employee on pay retention is treated as if he/she were at the tenth step of the grade for purposes of setting pay in the new grade.


A GS-14 employee has a retained rate of $74,000. The maximum for GS-14 is $73,619. The amount of the step in GS-14 is $1,888. The employee must get at least $3,776 (2 x $1,888) on promotion. Set pay in GS-15 as follows:

$73,619 plus $3776 = $77,395

On the GS-94 schedule, $77,395 falls between steps 5 and 6 of GS-15 so the employee's pay is set at GS-15/6. Pay retention is terminated.


5 U.S.C. §§ 5361-5366
5 CFR Part 536

Reviewed and updated November 14, 2019