How does locality pay actually work, and where did it come from? | Federal News Network (2023)

Most civilian federal employees will see a slightly higher number on their paychecks in 2023, but exactly how much more largely depends on where they work.

That’s because in most years, the government breaks down the federal pay raise between a base pay raise and a locality pay raise.

The base pay raise is the amount that all federal employees on the General Schedule will get, regardless of where they work. For 2023, the base...

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Most civilian federal employees will see a slightly higher number on their paychecks in 2023, but exactly how much more largely depends on where they work.

That’s because in most years, the government breaks down the federal pay raise between a base pay raise and a locality pay raise.

(Video) GS Pay Scale Explained

The base pay raise is the amount that all federal employees on the General Schedule will get, regardless of where they work. For 2023, the base pay raise is 4.1%.

The locality pay raise is more complicated. On top of the 4.1% that everyone gets in 2023, there’s an additional 0.5% bump, totaling to a 4.6% federal pay raise overall. But the locality portion of that percentage is an average. Some federal employees might see a slightly lower percentage raise, while others might see a slightly higher one.

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It all depends on where a federal employee is located. The federal government currently defines 54 different locality pay areas, each with its own independently calculated percentage-based pay raise for civilian federal employees.

How locality pay started

The federal government established locality pay in 1990, as part of the Federal Employees Pay Comparability Act (FEPCA). FEPCA was initially meant to counter the growing wage gap between the federal and non-federal job sectors.

According to the Federal Salary Council, a council composed of federal pay experts, the overall average wage gap in 2022 between federal and non-federal occupations was 24.09%.

FEPCA authorizes the funding necessary to reduce the wage gap between federal and non-federal pay down to 5%, but since 1994, no presidential administration of either party has fully adopted FEPCA.

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Instead, presidents typically issue what’s called an “alternative pay plan,” which enacts a federal pay raise that’s lower than the gap that the Federal Salary Council calculates. President Joe Biden proposed a 4.6% federal pay raise for 2023, and that plan took effect after Congress declined to take its own action on 2023 pay.

After nearly 30 years of presidents issuing alternative pay plans, the estimated cost to reduce the federal versus non-federal pay disparity down to 5% has grown to approximately $19.2 billion. That cost is a “significant consideration,” according to the latest report from the president’s pay agent, a three-person panel composed of the Labor Department secretary, Office of Management and Budget director and Office of Personnel Management director.

How locality pay works

A common misconception is that the government sets locality pay by comparing local living costs, but that’s not actually the case. Instead, locality pay is calculated by comparing wages for federal versus non-federal employees in similar occupations, who live in the same geographic region.

That information comes from the Bureau of Labor Statistics (BLS). The bureau uses the National Compensation Survey (NCS) to measure wage disparities.

Read more: Pay

BLS can measure, for instance, the difference in wages between an engineer working for a private company, versus an engineer working for a federal agency, in the same city.

The difference in wages, or the pay gap, between the two comparable positions helps determine what the locality pay adjustment should be for a given area.

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Some economists and think tanks, however, argue that the pay gap is misrepresentative, because it doesn’t account for the value of benefits, and only relies on wages to make the calculation. Many have said that by considering the added value of benefits, federal employees are actually paid more than non-federal employees.

The president’s pay agent also said that the underlying methodology for calculating locality pay “has lacked credibility since the beginning,” and that’s part of the reason presidential administrations continue to override FEPCA.

“The current pay comparison methodology used in the locality pay program ignores the fact that non-federal pay in a local labor market may be very different between different occupational groups,” the pay agent said. “As currently applied, locality payments in a local labor market may leave some mission-critical occupations significantly underpaid while overpaying others.”

How to calculate your actual raise using locality pay

The alternative pay plan institutes a 4.6% raise for 2023, but again, that percentage is an average. Having different locality pay areas means that some feds will see a little more or less, depending on which locality area they’re part of. Taking into account all the different locality pay areas, the actual raises for 2023 range from 4.35% to 5.15%.

Federal News Network compiled a table for all GS employees to see what their 2023 pay raise will be.

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But it’s important to look at how exactly you get to that end percentage.

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To calculate your actual pay raise, first add the base pay percentage, followed by the locality pay percentage. The steps below explain how to do that:

  • Multiply your current base salary by this year’s base pay raise percentage
  • Add the result from step 1 to your current base salary
  • Multiply the result from step 2 by this year’s locality pay raise percentage for your locality pay area
  • Add the result from step 3 to your answer from step 2 (rounding up)

Here’s an example. Let’s say a federal employee who is GS-7, step 1, lives in the Washington, D.C. area. In 2022, their base salary was $38,503. The employee is in the Washington-Baltimore-Arlington, DC-MD-VA-WV-PA locality pay area, which for 2023 means their locality pay increase is 32.49%. What is their salary in 2023?

  • Multiply $38,503 by 0.041, to get $1,579
  • Add $1,579 to $38,503, to get $40,082
  • Multiply $40,082 by 0.3249, to get $13,023
  • Add $13,023 to $40,082, to get $53,105

The employee’s actual salary for 2023 is $53,105.

If you don’t want to do the math, the Office of Personnel Management offers a simple GS salary calculator on its website. The agency also has a chart compiling base pay for 2022, as well as one for base pay for 2023.

Who gets locality pay?

Most federal employees on the General Schedule receive locality pay each year, which is determined by their physical location.

Currently, there are 53 distinct locality pay areas, plus a 54th “Rest of U.S.” category that encompasses any GS employees not living in one of those 53 regions.

The president’s pay agent just approved the addition of four new locality pay areas: Fresno, California; Reno, Nevada; Rochester, New York; and Spokane, Washington.

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Additionally, the pay agent expanded the Richmond, Virginia, Boston, Detroit and Seattle locality pay areas to include more surrounding counties.

But none of those changes will go into effect until 2024 at the earliest. A presidential administration first has to publish regulations on the new localities before they become official.

And not everyone working for the federal government receives a locality pay raise. Here’s a list of who doesn’t receive locality pay:

  • Employees paid under the senior level, scientific and professional pay systems
  • Members of the Senior Executive Service
  • Employees paid under critical pay authority
  • Senior executives in temporary organizations
  • Prevailing rate employees
  • Executive Schedule employees
  • Any position that has basic pay higher than the Executive Schedule level 4

FAQs

How locality pay is determined? ›

Determining a Locality Rate

To determine an employee's locality rate, increase the employee's "scheduled annual rate of pay" by the locality pay percentage authorized by the President for the locality pay area in which the employee's official worksite is located. Locality pay areas are defined in 5 CFR 531.603.

Is federal locality pay based on where you live? ›

An employee's pay is based on the location of their official duty station. For a remote worker, their locality pay will be based on the city and state of their home (or other approved alternative location where they are authorized to work and regularly perform their duties).

When did locality pay start? ›

The agency followed up Tuesday and clarified that the new locality pay area applications will kick in on Jan. 4, and will apply to federal workers' paychecks beginning on the first day of the first pay period beginning on or after Jan. 15.

How does locality adjustment work? ›

Locality relates to the region where the employee works. This factor adjusts the base rate of pay for the cost of living in a geographic area. While each position is assigned to a specific grade, and each employee is assigned to a step within that grade, the pay rate will vary by location.

Does locality pay get taxed? ›

Locality Pay is Taxable.

Locality Pay is subject to taxes as any other income would be; that means… Federal Income taxes, (State Income taxes), Social Security tax and Medicare Tax. Locality Pay *is counted* in your High-3 Salary for Federal Retirement.

Do companies pay differently based on location? ›

Many remote organizations follow a location-based pay model to keep their salaries both competitive and cost-effective. However, location-based pay isn't faultless. The execution is complicated and often leads to frustrating pay cuts for employees.

How does locality pay affect retirement? ›

Yes, the locality pay adjustment is included as part of your base pay when calculating your annuity. There is no adjustment made to where you live after you are retired. Although locality pay is part of the FERS annuity calculation, it's not as big of a factor as other variables that go into the benefit formula.

What is the federal pay raise for 2023? ›

Late last month, President Biden issued an executive order formalizing an average 4.6% pay increase for civilian federal workers in 2023. The raise is split between a 4.1% across-the-board increase in basic pay and a 0.5% boost to locality pay.

Can you be fired for working remotely? ›

Your Contract Specifies Remote Work

If you signed a contract that says your work is done from home, but your boss changes their mind and calls you in, then they can't fire you for not wanting to do that. If they fire you or they refuse to pay your income, then you have the law on your side and you may sue them.

What percentage of federal employees are GS-14? ›

GS 12 21.2% GS 11 14.0% GS 10 1.0% GS 9 8.6% GS 8 3.5% GS 7 7.6% The general schedule pay scale was established in 1949.

What is the highest GS pay grade? ›

The General Schedule has 15 grades--GS-1 (lowest) to GS-15 (highest).

How often do federal employees get raises? ›

FEPCA established a two-part annual pay adjustment for General Schedule (GS) employees of the federal government. Under FEPCA, there is an across-the-board pay adjustment and a locality pay adjustment. Locality pay varies by pay locality.

Is locality pay different from cola? ›

COLA was tax-free. Locality Pay is taxable. Going from COLA to Locality Pay means your taxable income is higher. Not only will you be paying more taxes – but you're likely to get hit by what I call 'hidden' tax increases.

Is GS 12 a high position? ›

GS-12 is the 12th paygrade in the General Schedule (GS) payscale, the payscale used to determine the salaries of most civilian government employees. The GS-12 pay grade is generally held by white-collar employees in mid-level positions.

Do federal wage grade employees receive locality pay? ›

All federal employees receive pay adjustments above the base rate chart in the form of locality pay adjustments. To determine what your annual pay will be for your location view our Locality Pay Charts.

Do postal workers pay federal taxes? ›

As a Postal Service employee, you are personally responsible for ensuring correct federal, state, and local taxes are deducted from your pay.

What are 3 things that local taxes pay for? ›

Local taxes fund government services including police and fire services, education and health services, libraries, road maintenance, and other programs and projects which benefit the community at large. Many of these services also receive federal funds in the form of grants.

Who is exempt from local income tax? ›

Certain income, such as Social Security benefits, Unemployment Compensation, military pay, interest and dividends are not taxable.

Do remote workers get paid less? ›

No wonder everyone wants in. Within the professional services industries in the U.S., remote workers are twice as likely to earn above the local median pay for non-remote workers in the same industry: 17% to 58% more, found a recent study of nearly 36,000 companies by payroll and benefits firm Gusto.

Why is Google cutting pay for remote workers? ›

Google's Salary Cuts for Remote Workers Renew Location-Based Pay Debate. Earlier this month, tech firm Google told its employees their pay will be lowered if they switch to working from home permanently and the remote location has lower labor costs than where their former offices are located.

How do remote companies determine salary? ›

Remote establishes a salary baseline at the 65th percentile within the market for each position based on cost of living and alignment to industry standards. That means salary considerations at Remote start at 15% above the market median.

Do retired postal workers get Social Security? ›

A newer program called the Federal Employees Retirement System (FERS) replaced CSRS. Workers who participate in FERS are eligible for Social Security.

How much will federal retirees get in 2022? ›

5.9% 4.9%

How many years do you have to work for the federal government to get a pension? ›

You must work at least 5 years with the Federal Government before you are eligible for a FERS Federal Pension, and for every year you work, you will be eligible for at least 1% of your High-3 Average Salary History. Automatic deductions that can range from .

What will the federal minimum wage be in 2024? ›

For the default policy based on the Raise the Wage Act of 2021, the minimum wage would be $9.50 in 2023, $11.00 in 2024, $12.50 in 2025, $14.00 in 2026, and $15.00 in 2027 and would be indexed to changes in median wages thereafter.

What is the COLA for retirees in 2023? ›

2023 Cost of Living Adjustment (COLA)

Based on the increase in the Consumer Price Index, there will be an 8.7 percent Cost of Living Adjustment (COLA) for most retired pay and Survivor Benefit Plan annuities effective Dec. 1, 2022. Retirees will see the change in their Dec.

What is the minimum salary in California 2023? ›

1. What is the minimum wage in California? Effective January 1, 2023, the minimum wage is $15.50 per hour for all employers. Some cities and counties have higher minimum wages than the state's rate.

Can employers watch you working from home? ›

The bottom line is that, in most cases, your boss can track everything you do. You may be uncomfortable with your employer monitoring your daily work and productivity, but there's little (if anything) you can do to change that.

Who gets fired first in layoffs? ›

LIFO rule, or otherwise known as ''Last One Hired is the First One Fired'' method is used in prioritising layoffs based on seniority. Application of the Last In First Out policy tends to put young people at a disadvantage, as they are the ones with the least tenure.

Are remote workers more likely to get laid off? ›

And if so, who's in the cross-hairs? A recent survey by software maker Beautiful.ai finds that remote workers may be first to go. The survey of 3,000 managers finds that 60% agree it's likely remote employees would be laid off first. Only 20% said that's not very unlikely.

What military rank is a GS-14 equivalent to? ›

Lieutenant Colonel

Who is the largest employer in the world? ›

The United States Department of Defence is the largest employer in the world, employing 2.86 million people in total. Both civilian employees and serving personnel are included in this group.

Who is America's largest private employer? ›

2,300,000 employees | +0 from 2021

The largest retailer in the world, Walmart did over half a trillion dollars in global sales in 2021. The Arkansas-based company operates more than 11,000 stores across 25 different countries.

What GS level is equivalent military? ›

Using your military rank

GS-1 through GS-4 is equivalent the rank E-1 through E-4. A GS-5 position would equate to E-5 or E-6, depending on the position. GS-6 then compares to E-7, GS-7 to E-8, and GS-8 to E-9. Above GS-8 begins incorporating the knowledge and experience of officer classes.

Is GS 13 a high position? ›

The GS-13 pay grade is generally reserved for top-level positions such as supervisors, high-level technical specialists, and top professionals holding advanced degrees. Positions at GS-13 and above are known as Career Competitive.

Is GS-15 a high rank? ›

GS-15: This is the highest grade available for Federal employees, typically reserved for supervisors or managers, and extremely specialized. Any advancement past this grade would be going into the Senior Executive Service.

How many days of vacation do federal employees get? ›

Leave and Holidays

The federal government offers generous vacation, sick leave and holiday policies. Federal employees start with 13 days of paid vacation days a year, and the number of days increases with length of service. Employees may carry up to vacation 30 days into the following year.

What annual raise is good? ›

A good pay raise ranges from 4.5% to 5%, and anything more than that is considered exceptional. Depending on the reasons you cite for a pay raise and the length of time that has passed since your last raise, you could request a raise in the 10% to 20% range.

Can I negotiate my GS step? ›

Under the government pay system, it can be difficult to negotiate a higher GS level—as the pay grades are called under the government's General Schedule—than the one listed in the job description. But each grade has 10 steps that come with a higher salary and career advancement, and those step levels are more flexible.

Who determines locality pay? ›

The President makes the final decision on the rates payable. Locality pay adjustments must be made when non-Federal pay exceeds Federal pay by more than 5 percent. Locality pay does not apply outside the continental United States.

Do all employees get COLA? ›

Workers who belong to a union may have a cost-of-living adjustment, sometimes referred to as a cost-of-living allowance, built into their contract. One example is the COLA required for U.S. Postal Service workers. For most employees, though, cost-of-living adjustments are made at the discretion of their employer.

Is locality pay based on where you live or work? ›

Certain location-based pay entitlements (such as locality payments, special rate supplements, and nonforeign area cost-of-living allowances) are based on the location of the employee's official worksite associated with the employee's position of record.

What military rank is a GS-12 equivalent to? ›

Pay grades GS-10, 11 and 12 are roughly equivalent to a first lieutenant or captain in the army, or to lieutenants and lieutenant-commanders in the navy.

How many years of experience do you need for a GS-12? ›

For example, to qualify for a GS-12 grade (or equivalent) level, you must have a minimum of 1 year of specialized experience equivalent to a GS-11 grade (or equivalent) level.

What is the two step rule for GS promotion? ›

The two-step promotion rule states that a GS employee promoted to a position in a higher grade is entitled to basic pay at the lowest rate of the higher grade that exceeds his or her existing rate of basic pay by not less than two step increases of the grade from which promoted.

How does locality pay work? ›

In the locality pay program, Federal pay is compared to non-Federal pay for the same levels of work. The results of such pay comparisons can be found in annual recommendations of the Federal Salary Council and in annual reports of the President's Pay Agent.

What is most GS employee can make? ›

Non-executive federal employees, for the most part, are subjected to a salary limit equivalent to the pay cap for political appointees, or Level IV of the Executive Schedule, which in 2022 is $176,300.

How does OPM determine pay? ›

The rates are computed based on an employee's annual rate of basic pay, including any applicable special rate supplement or locality payment. (Note: Overtime pay for nonexempt employees is computed under the Fair Labor Standards Act, subject to some special rules for Federal employees.

Why do companies pay differently based on location? ›

Maximizing compensation costs

Location-indexed salaries help you strategize economically on how best to keep your compensation costs on a budget. By hiring talents in areas with varied costs of living, the company can pay different salary scales to employees with the same talent, roles, and responsibilities.

Does high 3 average salary include locality? ›

Locality Pay *is* considered when calculating your High 3 Salary, but COLA is not. If you had time in an area with high Locality Pay, be especially sure to review your entire career before automatically assuming your High-3 are your last three years of service.

What is local pay structure? ›

Local pay structures

This is where pay varies according to the workplace location, even within individual occupations. Two inter-related factors contribute to local pay variation: Differences in the cost of living.

Are OPM annuity payments for life? ›

An annuity terminates on the day the annuitant dies or the date of other terminating events provided by title 5, U.S. Code, Section 8345(c), et seq.

What does GG mean in federal employee? ›

GG (GENERAL GOVERNMENT) - A pay plan for grades similar to the General Schedule. The GG pay plan is used by many agencies who hire employees on a temporary or term basis.

How many hours are in a work year OPM? ›

General Schedule employees' annual salaries are based on 2,080 hours, or 260 workdays, even though there are usually one or two additional workdays in a calendar year for which employees are also paid.

Why do some places pay every 2 weeks? ›

Saves time: Paying employees biweekly instead of weekly requires an employer to process payroll only once every two weeks which reduces time spent on payroll processing and the likelihood of payroll errors, which can be equally time-consuming.

How much will my Social Security be reduced if I have a pension? ›

We'll reduce your Social Security benefits by two-thirds of your government pension. In other words, if you get a monthly civil service pension of $600, two-thirds of that, or $400, must be deducted from your Social Security benefits.

What is the average pension of a federal employee? ›

Average Annuity Amounts Under CSRS and FERS

The average monthly annuity among civilian federal employees who retired under CSRS in FY2018 was $4,973, whereas new FERS annuitants received an average annuity of $1,834 per month.

How much is the average pension in the US? ›

Average Retirement Income In 2021

According to U.S. Census Bureau data, the average retirement income for retirees 65 and older in the United States decreased from $48,866 in 2020 to $47,620 in 2021.

Will council workers get a pay rise in 2022? ›

It will be backdated to 1 April 2022 and averages out to around 7% across the pay spine with the flat rate seeing those at the bottom of the spine (the lowest paid) receive a 10.5% increase with those at the top, just over 4%.

Can you negotiate a local government salary? ›

It's a common misconception that you can't negotiate salary after an agency makes an offer. Indeed, you can.

What are the three types of pay? ›

Three methods employers use to compensate employees include salary, hourly wage and commission. The method you select depends largely on the nature of each job position. For example, commission is the typical payment method in sales positions while salary is typical in management positions.

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