How are Federal Pay Raises Determined? Step-by-Step Process

Federal Employee Pay Raise vs COLA

Federal employees typically receive an annual pay raise on the first pay period in January. This is not to be confused with the annual cost of living adjustment (COLA) that is given to retired federal employees. The COLA increases a retiree’s CSRS or FERS pension each year to keep up with a rise in inflation.  The federal employee pay raise is not a COLA.

For more information on COLAs, please check out our recent article: Newly Retired CSRS or FERS? Will You Receive a COLA?

Federal Employee Pay Raise Process

The process of determining a salary increase follows a complicated political process.

Step 1: FEPCA or Alternative Pay Plan

The Federal Employees Pay Comparability Act of 1990 (FEPCA) was an attempt to address the need for pay reform as Federal employees’ salaries were lagging salaries in the private sector. FEPCA provides guidelines to decrease the pay gap between Federal and private jobs by 5%. As of 2023, the pay gap between Federal employees and the private sector grew to 24.1% in 2022. This pay gap leads to challenges in recruitment and retention within the civil service.

Since FEPCA’s inception, every president has ignored using the FEPCA formula and has opted to use an alternative pay plan. Part of the reason is that the FEPCA formula is very costly. It would cost approximately $19.2 billion to bring the federal-private wage gap to 5%. Instead, the President can choose an alternative pay plan if Congress is informed by August 31^st.

Step 2: Approval by Congress

In previous years, Congress would pass Federal employee pay increases in an appropriations bill, however, there is no legal requirement that a Federal employee pay raise be addressed by Congress. Often Congress chooses not to pass legislation on the subject and yields to the President’s alternative pay plan offered in August.

The President will make a proposed pay increase as part of the fiscal budget. The pay increase will take effect unless Congress decides to enact a change on the 2024 budget. Usually, when the House and Senate are silent on the pay increase within the spending package, it indicates an endorsement of the President’s suggestion.

If Congress does not like the amount of the raise in the alternative pay plan, it can still pass new legislation determining the final amount.

Step 3: Issuing an Executive Order on Pay

Typically in late December, the President will issue an Executive Order setting the amount of the Federal employee pay increase. This would increase the across-the-board pay raise as well as each locality’s individual increase.

Step 4: OPM Calculations

The Office of Personnel Management (OPM) will calculate the amount of each employee’s pay increase based on every pay locality, then the pay tables are published soon after the Executive Order is issued.