A year with a large bonus or many overtime hours can produce an unusually large earnings total. For a federal employee preparing for retirement, that can raise a reasonable question: does the larger total also increase the salary used to calculate a FERS pension?
Not necessarily. The Federal Employees Retirement System uses a high-3 average based on retirement-creditable basic pay, not every dollar received. Knowing which pay belongs in that calculation is a different task from adding up paychecks, looking at take-home pay, or choosing the three largest annual earnings totals.
Benefit Reviews is a private educational website. It is not affiliated with, endorsed by, or acting on behalf of OPM or any government agency. This article explains general rules; your employing agency and OPM determine the official pay record and retirement benefit.
What OPM Means by High-3
OPM's FERS computation guidance defines high-3 as the highest average basic pay earned during any three consecutive years of service. Those years are usually the final three years, but an earlier period can apply if the average basic pay was higher.
The word consecutive matters. High-3 is not a selection of three unrelated high-earning years from different points in a career. OPM's handbook also explains that the averaging period does not have to begin on January 1 or the first day of a month. Breaks in service require the agency to apply the rules for consecutive periods of service rather than treating a gap as ordinary paid employment.
The calculation considers the rates of basic pay and how long each rate was in effect. A higher rate that begins partway through the averaging period does not replace the rate for every earlier month. OPM's retirement handbook, Chapter 50, describes that time-weighted approach.
Basic Pay Is Not the Same as Gross or Take-Home Pay
A pay statement can show several earnings categories and several deductions. Gross earnings combine payments that may have different retirement treatment. Take-home pay is the amount left after deductions. Neither figure, by itself, identifies the basic-pay rate that belongs in a high-3 calculation.
OPM describes basic pay as the basic salary for the position, including qualifying salary increases for which retirement deductions are withheld. Retirement deductions are a useful record to review, but an unfamiliar payroll code or a possible deduction error still needs confirmation from payroll or HR. A personal spreadsheet does not settle the official classification.
What Generally Counts
The Applicable Basic Salary Rate
The retirement-creditable salary rate for the position is the starting point. A qualifying grade, step, or other basic-pay change can enter the average for the time the new rate applies. It does not automatically turn the entire three-year period into service at that higher rate.
General Schedule Locality Pay
For employees covered by the applicable General Schedule locality-pay rules, locality pay is not simply an extra payment excluded from retirement. OPM's Administering Locality Rates fact sheet states that a locality rate is basic pay for retirement deductions and benefits.
Use the actual payable rate shown in the official records. If that rate already includes locality pay, adding a separate locality amount again would double-count it. Employees covered by special rates or other pay systems should have payroll identify the applicable rate instead of assuming that every listed rate can be added together.
Certain Pay Categories With Specific Rules
Not every payment outside a salary-table base rate has the same treatment. OPM's retirement handbook, Chapter 30, for example, includes night differential for prevailing-rate wage employees in basic pay but excludes night differential for General Schedule employees.
The handbook also identifies specified premium-pay categories with their own retirement treatment and limits. These are category-specific rules, not a reason to count all premium pay or ordinary overtime. The pay authority, employee coverage, and agency records must be checked together.
What Generally Does Not Count
- Ordinary overtime payments. OPM's general FERS explanation excludes overtime from high-3 basic pay. Separately authorized premium-pay categories require their own review; an overtime-related label alone does not resolve the treatment.
- Bonuses and cash awards. A larger payment does not become retirement-creditable basic pay simply because it rewards performance or appears on the same statement as salary.
- A lump-sum payment for accrued and accumulated leave. OPM's retirement handbook excludes this payment from basic pay. It is separate from the salary record used to calculate high-3.
These distinctions explain why a year with more money received is not necessarily a year with a higher retirement-creditable salary. The site's annual-leave lump-sum guide discusses the separate leave-payment process; it should not be treated as an addition to high-3.
How This Connects to Unpaid Leave, Phased Retirement, and COLAs
An unpaid absence is not automatically a zero-pay entry in the high-3 average. OPM's extended nonpay-status guidance says creditable nonpay periods within the normal aggregate six-month calendar-year limit that fall in the average-salary period use the basic-pay rate in effect during those periods. Nonpay time beyond that normal limit and special categories require separate review.
Our leave-without-pay article explains those credit rules in more detail. The point here is narrower: the amount actually deposited during an absence does not, by itself, establish the salary rate used for retirement.
If part-time service or federal phased retirement is involved, ask the agency to explain average salary, service credit, and the applicable annuity computation separately. This general pay-category guide does not calculate a phased or part-time benefit.
Finally, high-3 and a pension cost-of-living adjustment answer different questions. High-3 is a salary input in the benefit calculation; a FERS pension COLA is an adjustment to an eligible retirement benefit under separate rules. A COLA announcement is not an instruction to increase every salary figure in a personal high-3 worksheet.
Records and Questions for Your Agency
An organized review can focus on the pay history rather than on a preferred retirement outcome. Keep relevant personnel actions, including SF-50s, available alongside earnings statements and any agency retirement estimate.
- Which pay rate is retirement-creditable, and does it already include locality pay or an applicable special rate?
- What were the effective dates of salary changes during the proposed high-3 period?
- Does an earlier consecutive service period need review because its average basic pay may have been higher?
- Which differential or premium-pay codes count under the rules for this position and retirement coverage?
- Are breaks in service, nonpay periods, part-time service, or record corrections relevant to the calculation?
These questions fit into the records review in the Retirement Road Map. They do not establish eligibility, guarantee a pension amount, or recommend a promotion, transfer, work schedule, or separation date.
Common Questions
Does FERS high-3 always use the final three years of employment?
No. OPM defines high-3 as the highest average basic pay during any three consecutive years of service. The final three years are common, but an earlier consecutive period can apply if its average basic pay was higher.
Does General Schedule locality pay count toward high-3?
Yes. OPM treats the applicable locality rate as basic pay for retirement deductions and benefits. Use the actual payable rate confirmed by payroll; do not add locality pay again if it is already included in that rate.
Do overtime and bonuses count toward FERS high-3?
OPM's general FERS guidance excludes ordinary overtime payments and bonuses. Certain authorized premium-pay categories have separate rules, so the agency must verify any special category rather than treating every extra payment alike.
Does an annual-leave lump-sum payment increase high-3?
No. OPM's retirement handbook excludes a lump-sum payment for accrued and accumulated leave from basic pay. The leave payout is separate from the retirement-creditable salary used in high-3.
Official Sources and Scope
Sources substantively reviewed October 28, 2026: OPM's FERS Computation, Administering Locality Rates, CSRS and FERS Handbook Chapter 30, Chapter 50, and extended nonpay-status fact sheet. Handbook examples may reflect their original publication period; this guide does not adopt historical deduction rates or provide an exhaustive list of special pay authorities. Confirm current category-specific treatment with your agency and OPM.
Educational Disclaimer: This article provides general information and is not legal, tax, benefits, or investment advice. It does not determine retirement eligibility, certify pay or service credit, calculate an individual high-3 or pension, or recommend a pay, employment, or retirement election. Treatment depends on official records, coverage, pay authority, and applicable rules. Consult your agency's HR or benefits office and your own attorney, tax advisor, benefits administrator, or appropriately qualified, independent, licensed professional regarding your circumstances. Benefit Reviews does not offer securities, investment management, or investment advisory services and is not responsible for decisions or actions based on this information.
