Although there are now only around 200,000 such employees in appropriated and nonappropriated fund activities, there were around 700,000 during the Vietnam War era when the FWS was established as a single job grading and pay system. Image: Paulik_by/Shutterstock.com
By: FEDweek StaffFollowing is the portion of a notice of proposed rules to change boundary lines under the Federal Wage System for blue-collar federal employees, more commonly called the wage grade system, explaining how that pay system differs from the General Schedule system for white-collar employees, including in how locality boundary lines are drawn.
There are two major job classification and pay systems in use by the Federal government. The GS covers around 1.5 million employees, and the FWS covers around 200,000 employees with around 170,000 in the appropriated fund system and around 30,000 in the nonappropriated fund system.
Note that the nonappropriated fund system is not the subject of this proposed rule, which is limited to the appropriated fund system’s wage area definition criteria and conforming geographic area definitions. Craft, trade, and laboring workers are covered by the FWS and are employed directly by the Federal government with wage levels set according to prevailing private sector rates.
Although there are now only around 200,000 such employees in appropriated and nonappropriated fund activities, there were around 700,000 during the Vietnam War era when the FWS was established as a single job grading and pay system. Until 1965, each Federal agency had authority to determine local prevailing rates and establish wage area boundaries for its prevailing rate employees. Consequently, prevailing rate employees at the same grade level in the same city working for different agencies received different wage rates. In 1965, President Lyndon B. Johnson addressed these inequities by ordering Federal agencies to coordinate their wage-setting activities under the leadership of the Civil Service Commission. The Commission established the National Wage Policy Committee (NWPC), which was composed of the heads of the major employing agencies and the heads of the major Federal employee unions, to seek advice on how to administratively combine separate agency pay systems into a Coordinated Federal Wage System (CFWS). The NWPC worked diligently and collaboratively to develop and recommend policies for the new CFWS.
In 1972, President Richard M. Nixon signed Public Law 92-392, the Prevailing Rate Systems Act, which established the current FWS. The FWS incorporated most of the existing administrative policies of the CFWS. Since 1972, the Commission and its successor agency, OPM, have been responsible for overseeing the policies for administering the FWS after receiving advice from FPRAC. The FWS now covers about 170,000 appropriated fund craft, trade, and laboring employees. These employees are located in 130 separate wage areas throughout the country and in overseas locations. The geographic definitions of wage areas have remained largely the same since the late 1960s with changes occurring primarily as a result either of military base closures and realignments that left a wage area without enough FWS employees to participate in local wage surveys or of Metropolitan Statistical Area redefinitions.
Each FWS wage area consists of a survey area and area of application. A survey area includes the counties, cities, and towns where DOD, the lead agency for appropriated fund wage areas, collects and analyzes private sector wage data to produce annual wage schedules for each of the 130 wage areas. An area of application includes the survey area and nearby counties, cities, and towns where the wage schedules for a wage area also apply.
One of the key statutory principles underlying the FWS is that pay rates are to be maintained in line with prevailing levels of pay for comparable levels of work in the private sector within a local wage area. Because the FWS is a prevailing rate system, its wage schedules are market sensitive in the sense that the schedules are based on annual local wage surveys. However, all FWS wage schedules have been subject to appropriations legislation each year since FY 1979 to control maximum allowable adjustment amounts (“pay cap provision”) and since FY 2004 to provide for guaranteed minimum adjustment amounts based on the annual pay adjustments received by GS employees where they work (“floor increase provision”). The difference in rates of pay among wage areas reflects that the prevailing cost of labor varies by wage area as measured by annual local wage surveys carried out collaboratively by management and labor as required by law; however, the difference in rates also reflects the differential effects the appropriations provisions have had on the payable wage rates each year. This proposed rule assumes that the pay cap4 provision and floor increase provision will continue in future years through appropriations legislation.
The geographic definitions of wage areas for FWS employees covered by the 5 CFR 532.211 wage area criteria are different than the pay areas for the 1.5 million employees under the GS. This is because the two pay systems evolved separately and have followed different criteria for defining pay area boundaries for the last 30 years. When the Federal Employees Pay Comparability Act of 1990 (FEPCA) was enacted to implement locality pay for the GS beginning in 1994, the legislation did not require that GS locality pay areas and FWS wage areas have the same geographic coverage. FEPCA did not specify the method for defining geographic pay area boundaries for GS locality pay areas. Instead, FEPCA established the Federal Salary Council (FSC), comprised of experts in pay and labor relations and representatives of employee organizations, to provide advice on how to best administer the GS locality pay system and close gaps between GS and non-Federal pay levels. The FSC meets annually.
FWS wage areas consist of a survey area containing a number of counties surrounding a major military installation or Department of Veterans Affairs (VA) Medical Center where the Department of Defense (DOD) measures prevailing private sector wage levels and an area of application containing additional counties where DOD does not collect wage data but wage schedules apply.
GS locality pay areas consist of a core set of counties generally mirroring the definition of a Combined Statistical Area (CSA) or Metropolitan Statistical Area (MSA), and in some cases, additional area of application counties that are added to the locality pay area based on analyses of regional commuting pattern data. The Bureau of Labor Statistics measures non Federal labor costs in the locality pay areas and OPM determines overall pay disparities between GS and comparable non-Federal employment in the whole of each locality pay area on behalf of the President’s Pay Agent.5 As of 2024, there are 58 GS locality pay areas including a Rest of United States (RUS) area that covers the counties in the country that are not defined to individual locality pay areas. The FWS does not have this RUS concept for wage area definitions but instead has every county defined to an individual wage area’s area of application or survey area. We note that future changes to GS locality pay areas would not automatically apply to FWS wage areas. OPM, on advice from FPRAC, would review FWS wage areas when updates to CSA and/or MSA definitions are published by OMB or when there are significant changes to employment interchange measures. This policy is consistent with longstanding protocols OPM has followed to administer the FWS.
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