How a Government Shutdown Affects Pay and Benefits for Federal Employees

When Congress fails to pass appropriations or a continuing resolution, many federal agencies funded by annual budgets must suspend operations. This results in a “shutdown furlough,” during which employees are either placed on unpaid leave or designated as “excepted” to continue working. Although pay may be delayed, federal guidance ensures that employees’ pay and benefits are ultimately restored once funding resumes. Still, it’s important for employees to prepare for temporary income disruptions and to understand whether they fall into an excepted or furloughed category.

Who Keeps Working and Who Doesn’t

During a lapse in funding, employees generally fall into three groups:

• Excepted employees must continue working because their duties are necessary for public safety, property protection, or other essential government functions.
• Exempt employees are funded through non-appropriated sources and are not affected by the shutdown.
• Furloughed employees are instructed not to work until appropriations are restored.

Pay and Retroactive Compensation

Federal law requires that all affected employees, both those furloughed and those who continue working, receive retroactive pay once funding is approved. Back pay covers full standard compensation, including base pay, overtime, differentials, and applicable allowances. However, payment timing depends on agency payroll processing, so many workers experience short-term cash-flow gaps until the funds are disbursed.

Leave and Time Off

A shutdown automatically cancels any paid leave (annual, sick, or otherwise) scheduled during the lapse in funding. Unpaid leave remains in effect. Employees who were unable to use “use-or-lose” annual leave due to the shutdown are entitled to have that leave restored once operations resume.

Benefits Coverage

Despite the delay in pay, benefits coverage continues uninterrupted. Federal Employees Health Benefits (FEHB), dental and vision insurance, and other programs remain active throughout the shutdown. Any missed premium deductions are taken retroactively after payroll restarts. The Thrift Savings Plan (TSP) also stays operational, though employee contributions may pause temporarily until pay resumes.

Service Credit and Accruals

Time spent on furlough counts toward leave accrual, within-grade increases, and retirement service credit once back pay is issued. As a result, a shutdown does not reduce an employee’s long-term service record or benefits eligibility.

What About the DRP?

Federal employees participating in the Discontinued Service Retirement Program (DRP) are also protected under the Government Employee Fair Treatment Act of 2019, which guarantees retroactive pay during a shutdown. However, that protection only extends through their official separation date. Once the DRP participant’s departure is finalized, they no longer qualify for additional back pay, even if the shutdown continues beyond that date.

For help navigating your complex federal benefits, reach out to a Federal Retirement Consultant (FRC®) who can provide a comprehensive benefits analysis.