Timeline of 2024 that led to 2.0% federal pay raise slated for 2025. Also – how the pay increase will impact financial planning for federal employees.
2025 Federal Pay Raise Update and Your Financial Plan
How We Got Here: 2.0% Average Federal Pay Raise 2024 Timeline
As reported in August, the Biden Administration’s proposed 2% average pay raise for federal workers in the fiscal 2025 budget proposal is what feds can expect in January. Here is the Federal Pay Raise 2024 timeline, showing how we arrived at the 2.0% pay increase:
- January: 2024 Pay Raise goes into effect on January 1st, giving feds an average raise of 5.2 percent.
- February: FAIR Act is introduced in Congress, proposing feds receive a 8.7% raise next year. (Despite the support of federal unions, it did not pass.)
- March: White House recommends 2.0% raise in 2025 budget proposal.
- June: House committee does not override 2.0% suggestion in appropriations bill.
- August: President Biden affirms 2.0% figure in alternative pay plan letter to Congress (formality), lays out 1.7% across the board raise, 2.0% average increase with locality factored in.
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How Will the Annual Federal Pay Raise Next Year Impact Your Financial Plan?
Details of the 2% Average Pay Increase
The proposed 2% average pay increase for federal employees in 2025 is designed to provide a modest boost to the salaries of civilian federal employees. With inflation, rising health care premiums, and the fact that the 2.0% pay bump is considerably less than the 5.2% 2024 federal pay raise, military and civilian federal workers may need to pay closer attention to their budgets and finances to stay on track for a successful retirement from the federal government.
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Comparison with 2024 Federal Pay Raise
When compared to the 2024 federal pay raise, which saw a 5.2% increase, the proposed 2% is more modest. The 2024 federal pay raise was one of the largest in recent years, reflecting the administration’s response to economic challenges and the need to support federal employees during a period of significant inflation.
Impact on Federal Employee Salaries
The impact of the 2% average pay raise on federal employee salaries will vary depending on the employees’ current pay grades and locality adjustments. For many federal workers, this increase in their basic pay will help a little to offset rising living costs. Wage growth in general contributes to overall job satisfaction and retention within the federal workforce, as competitive salaries are a key factor in attracting and retaining skilled employees.
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Federal Employee Pay and Locality Adjustments
Understanding Locality Pay Adjustments
Locality pay adjustments are a crucial aspect of the federal pay system, designed to account for variations in living costs across different regions. The 2025 pay raise will include updates to locality pay, ensuring that federal employees in high-cost areas receive appropriate compensation. These adjustments are determined by the Federal Salary Council and are intended to ensure that federal employees’ pay remains equitable regardless of their geographic location.
Locality Pay vs. Across-the-Board Raise
It is important to distinguish between locality pay and base pay when discussing federal employee compensation. Base pay refers to the standard salary for a given pay grade, while locality pay is an additional amount added to account for regional cost-of-living differences. The 2% average pay raise takes into account the 1.7% across-the-board increase and then the average overall pay raise for feds with locality included. Depending on location, the federal pay raise would be less or more than the 2.0 percent.
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What is the Process for Implementing the 2025 Pay Raise?
Since 2016, the RAISE Act has been introduced to try and give feds a generous boost in pay. Although it has never passed, it acts as the first benchmark as to what feds can expect for the upcoming year. Congress can give the federal workforce a pay raise through this bill or other legislation, but in recent years has not passed anything that influenced the annual pay of the civilian federal workforce.
Approval Process and Executive Orders
In accordance with the federal employee pay comparability act (FECA), the White House’s pay agent must issue an alternative pay plan by the end of August. Without action from Congress, as discussed above, the raise for civilian feds is enacted when the president signs an executive order around the end of the year, usually the last weeks of December.
Timeline for Pay Raise Implementation
Employees of federal agencies can expect to see the extra income at the end of the first pay period of a calendar year as it takes effect January 1, 2025.
Reach Out to Us!
If you have additional federal benefit questions, contact our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we are federal employee financial advisors with a focus on retirement planning. Learn more about our process designed for the career fed.
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