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?
What is the FAIR Act?
The FAIR Act, or the Federal Adjustment of Income Rates Act, is a legislative proposal or law designed to address federal employee pay raises. It aims to ensure fair and equitable adjustments to federal employees’ salaries to keep pace with the cost of living and maintain competitiveness with the private sector.
Typically, the FAIR Act proposes mechanisms for determining annual pay increases for federal employees, taking into account factors such as inflation rates, regional cost-of-living variations, and comparisons with private sector wages. The objective is to provide federal workers with reasonable compensation adjustments that reflect economic realities and help attract and retain talent within the federal workforce.
The specifics of the FAIR Act can vary depending on the version proposed or enacted, but its overarching goal is to establish a transparent and fair process for determining federal employee pay raises, addressing issues of parity, affordability, and efficiency in federal compensation policies.
More info: Connolly, Schatz Reintroduce FAIR Act to Give Feds a 7.4% Raise in 2025
Knowledge is Confidence!
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 31st.
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.
Deeper Dive into the 2025 Federal Pay Raise: What Federal Employees Need to Know about Annual Pay Increases and Locality Pay
Federal employees are keenly awaiting the annual pay raise, anticipated to influence both their livelihoods and work satisfaction. The significance of grasping the mechanics behind federal pay raises, the role of locality pay areas, and strategic tips for maximizing benefits cannot be understated. With the complexities of the federal pay system, understanding these elements becomes crucial. This comprehensive guide aims to demystify the 2025 federal pay raise process, providing insights into the determination, breakdown, implications, and opportunities presented by the upcoming adjustments.
How is the 2025 Federal Pay Raise Determined for Federal Employees?
Understanding the Role of the Federal Salary Council
The Federal Salary Council, an advisory body, plays a pivotal role in determining the annual pay raises for federal employees. It reviews and makes recommendations regarding the disparities in pay among federal and private sector jobs, underpinning the 2025 federal employee pay raise determination. This council evaluates various metrics to ensure that the federal pay system remains competitive and fair, crucial for attracting and retaining skilled personnel within the federal workforce.
Executive Order and Its Impact on Federal Employee Pay
The 2025 federal pay raise is significantly influenced by an Executive Order, which mandates the implementation of the pay adjustments recommended by the Federal Salary Council. This direct intervention outlines the percentage increase in both base pay and locality pay for federal employees, ensuring that their compensation is responsive to economic trends and labor market conditions. Such orders guarantee transparency and consistency in the application of pay increases across the federal pay system.
The Influence of Pay Agent Reports on Annual Pay Adjustments
Pay Agent Reports, compiled by a triad of officials, further dictate the contours of the 2025 federal employee pay raise. These reports provide crucial insight into the pay disparities between the public and private sectors, guiding the allocation of locality pay adjustments. By identifying areas with significant pay disparity, the reports play a vital role in ensuring fair and competitive salaries for the civilian federal workforce, tailoring the annual pay adjustments to bridge the identified gaps efficiently.
What Does the 2025 Pay Raise Mean for Federal Employee Pay?
Breaking Down the General Schedule Pay Increase
The General Schedule (GS) pay increase for 2025 manifests as an essential component of the federal pay raise, directly affecting the baseline salary of countless federal employees. This structured adjustment ensures a uniform rate of basic pay increase across all federal workers, aligning with the cost of living increases and market trends. The GS pay increase is a testament to the government’s commitment to maintaining a competitive and equitable pay system for its employees.
Annual Pay vs. Locality Pay Area Adjustments
Understanding the distinction between annual pay and locality pay area adjustments is crucial for federal employees. While the annual pay raise applies universally to all federal employees, locality pay adjustments are determined based on the geographic region of employment. These adjustments are designed to align federal salaries with local labor market conditions, ensuring federal employees in high-cost areas are fairly compensated, thus reflecting the distinct economic environments across different locality pay areas.
Alternative Pay Plan Insights
For some federal employees, the Alternative Pay Plan offers a deviation from the traditional GS pay scale adjustments. These plans cater to specific agencies or roles within the federal government, acknowledging unique skill sets, market demands, or recruitment and retention needs. By providing flexibility outside the standard pay system, these plans ensure that critical positions remain competitive and adequately compensated, reflecting the specialized nature of the work and the market reality.
Exploring Locality Pay Areas: How Does It Affect Your 2025 Federal Salary?
Defining Locality Pay Areas for the Federal Workforce
Locality pay areas are geographical regions identified for additional pay adjustments above the base GS pay, aimed at addressing the cost of living and pay disparity with the private sector. These areas allow for tailored compensation strategies that attract and retain talent in regions where the federal government competes with higher-paying private sector jobs. Newly identified regions, such as the four new locality pay areas, demonstrate the system’s adaptability to changing economic landscapes.
How Locality Pay Adjustments Are Calculated
The calculation of locality pay adjustments is a meticulous process that considers various economic indicators and labor market analyses to ensure fairness and competitiveness. These adjustments, a critical component of the 2025 federal pay raise, are designed to bridge the gap between federal and private sector pay within specific geographic locales, thereby supporting the federal employee pay comparability act’s objectives and ensuring that federal salaries remain competitive across different regions.
The Impact of Locality Pay on Federal Civilian Pay
The incorporation of locality pay significantly shapes the overall compensation package of federal civilian employees. It ensures that those in locales with high living costs or significant private-public sector pay disparities receive appropriate adjustments, thus safeguarding the living standards of the federal workforce. The planned 2025 adjustments aim to further refine this balance, underlining the federal government’s commitment to its employees’ financial well-being and job satisfaction.
Key Challenges Federal Employees Might Face with the 2025 Pay Increase
Navigating Federal Pay System Complexities
The complexities of the federal pay system pose challenges for employees attempting to understand or predict changes in compensation. With various factors influencing pay adjustments, including executive orders, pay tables, and locality pay areas, federal workers must remain informed and adaptable. The system’s intricacies demand diligence and awareness from employees, especially regarding their rights and potential impacts of the annual federal employee pay raise.
Understanding Pay Comparability Act and Its Relevance
The Federal Employee Pay Comparability Act serves as a cornerstone for determining pay raises and adjustments. Understanding its provisions and relevance is crucial for federal employees as it directly impacts their compensation. This act ensures that federal pay is competitive with the private sector, thereby addressing recruitment and retention challenges. However, navigating its implications can be complex, requiring employees to stay informed about how it influences annual pay adjustments.
Dealing with Variances in Pay Rate Adjustments Across Locales
Variance in pay rate adjustments across different locality pay areas can create disparities within the federal workforce. These discrepancies pose challenges for federal employees, particularly those in newly established or adjusted localities, as they adapt to the evolving pay landscape. Understanding these variances and their implications on personal compensation requires vigilance and engagement with reliable information sources, such as the Office of Personnel Management (OPM) and official pay tables.
Essential Tips for Federal Employees to Maximize the 2025 Pay Raise Benefits
Effective Strategies to Leverage Annual Pay and Locality Adjustments
Maximizing the benefits of the 2025 pay raise and locality adjustments requires a strategic approach. Federal employees should consider their entire compensation package, including base pay, locality adjustments, and any applicable alternative pay plans, to understand their financial landscape fully. Engaging in financial planning and seeking resources for personal finance management become pivotal in leveraging the annual pay raise effectively.
Staying Informed: Keeping Up with Executive Orders and Pay Tables
Remaining informed about executive orders, pay tables, and updates from the Federal Salary Council and Pay Agent Reports is essential for federal employees. These resources offer valuable insights into upcoming changes and adjustments in the federal pay system. By staying current, employees can better anticipate and plan for their financial future, ensuring that they fully benefit from the annual pay raise and locality pay adjustments.
Engaging with the Office of Personnel Management (OPM) for Pay Increase Insights
Lastly, actively engaging with the Office of Personnel Management (OPM) can provide federal employees with critical insights into the pay raise process. OPM’s guidance and resources are invaluable for understanding the nuances of federal pay adjustments and ensuring that employees are well-equipped to navigate the changes. Proactively seeking information and clarification from OPM can demystify the pay raise process, empowering federal employees to make informed decisions about their compensation and career trajectories.
Reach Out to Us!
If you have additional federal benefit questions, reach out to our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we focus on retirement planning for federal employees. Learn more about our process designed for the career federal employee.
Preparing for a federal retirement? Check out our scheduled federal retirement workshops. Sign up for our no-cost federal retirement webinars here! Make sure to plan ahead and reserve your seat for our FERS webinar, held every three weeks. Want to have PlanWell host a federal retirement seminar for your agency? Reach out and we’ll collaborate with HR to arrange an on-site FERS seminar.
Want to fast track your federal retirement plan? Skip the FERS webinar and start a one-on-one conversation with a ChFEBC today. You can schedule a one-on-one meeting here.
