There have always been areas of the country where non-federal pay has been higher than that for GS employees. To try to offset those differences, the Federal Employees Pay Comparability Act was passed in 1990. Under that authority, locality rates have been established to bring GS pay more closely in line with that in the private sector.

The Bureau of Labor Statistics annually conducts studies and identifies areas where the discrepancy is large enough for the President’s Pay Agent to propose to the White House that locality rates be established or changed.

The Pay Agent – consisting of the heads of Labor, OMB and OPM – several years ago endorsed adding the following new locality rate areas, as recommended by a lower-level advisory body. These were: Albany, NY; Albuquerque, NM; Austin, TX; Charlotte, NC; Colorado Springs, CO; Davenport, IA; Harrisburg, PA; Laredo, TX; Las Vegas, NV; Palm Bay, FL; St. Louis, MO; and Tucson, AZ. Last year, that lower body added Kansas City to the list.

However, because the President issued alternative pay plan recommendations for 2014 and 2015 that held locality rates at the 2013 levels – that is, the entire raise of 1 percent each year was paid across the board with no difference by locality — no action was taken to create new localities.

That changed recently, however, when OPM at the Pay Agent’s direction proposed rules to establish those 13 new areas as new localities for 2016. (Note: It also proposed extending the borders of some of the pre-existing localities to take in outlying areas.)

If those recommendations are put into effect – very likely, but there’s still no guarantee — the salaries of federal employees in the new geographic areas will be higher than they are now.

How much higher? That’s to be determined, based on the next round of BLS data to be presented in the fall, along with a decision on how large the total 2016 raise will be, how much of it will be designated toward locality pay, and exactly how the money is allocated among localities.

Locality pay has not closed the pay gaps with the private sector as the 1990 law intended. Far from it. But it does make a difference in federal salaries by location, as the following example will show. I’ve picked one GS grade and step – GS-12, step 5 – and compared it with the current pay for the locality with the highest annual pay rate, the metro area with the highest number of GS employees, and the rate for the rest of the U.S. (RUS) locality outside the metro areas:

San Francisco-Oakland-San Jose: $94,181
Washington-Baltimore: $86,564
RUS: $79,554

As you can see, annual pay rates can differ widely depending on where you work. The difference between working in San Francisco-Oakland-San Jose and Washington-Baltimore is $7,617. And the difference between it and the RUS is a whopping $14,627.

Just so there’s no misunderstanding, pay is determined by the location of the job, not by where you live. And if you transfer from one locality pay area to another, your pay will be reset to the pay for your grade and step in the new area, whether that’s higher or lower.

When you retire, your annuity will be based on the average of your highest three consecutive years of pay (specifically, your highest-paid consecutive 78 pay periods). Thus, working in a higher-paid locality translates into a higher annuity too, compared with someone in a lower-paid locality at an equal grade with an equal service time.

Incidentally, the high-3 period applies regardless of when it occurred in your career. Thus a late-career move to a lower-paying locality could mean that unlike most employees, your high-3 will not be based on your final three salary years.

On the other hand, a late-career move to a higher-paying locality could boost your annuity significantly.

The key point to note for now is that locality pay counts as “Basic” pay for purposes of high-3. We’ll delve more deeply into high-3 next week.