Closing March 2023 pay disparities to leave no more than a 5-percent remaining pay disparity as envisioned by FEPCA would require locality pay increases averaging 21.47 percent. Image: Twenty-four_Photos/Shutterstock.com
By: FEDweek StaffFollowing are key sections from a recent report by the Federal Salary Council suggesting that the federal pay-setting process be reconsidered, in light of continued large pay gaps with the private sector.
Locality pay percentages have not increased rapidly since locality pay was first implemented in 1994. The goal of the Federal Employees Pay Comparability Act of 1990 (FEPCA) was to increase locality pay over a 9-year period beginning in 1994 so that only a 5-percent pay disparity remained in each locality pay area by the end of that period. However, since 1995, the locality pay increases that would have been implemented under FEPCA have not been implemented. Since 1995, locality pay increases have been limited each year either by Presidents exercising their alternative pay plan authority under 5 U.S.C. 5304a or by Congress specifying smaller pay increases than those authorized by FEPCA. As a result, all locality pay percentages now in effect are below those that would have been implemented under FEPCA absent another provision of law. For example, the “full FEPCA” 2024 locality pay percentage for the Rest of US locality pay area would be 28.13 percent rather than 16.82 percent. However, it should also be noted that the President’s Pay Agent has expressed reservations regarding the validity of the locality pay methodology since the beginnings of locality pay, which is a major reason why “full FEPCA” locality pay percentages have not been implemented.
Closing March 2023 pay disparities to leave no more than a 5-percent remaining pay disparity as envisioned by FEPCA would require locality pay increases averaging 21.47 percent. It is also worth noting that the overall remaining pay disparity including implemented locality payments has been greater than 20 percent since March 2007.
Consistently providing the full amount authorized under current law for the base GS increase would be a significant improvement. The GS base rates to which locality pay percentages are applied are adjusted using the formula in 5 U.S.C. 5303(a). For the January 2024 pay adjustment, the relevant formula provided an increase for base GS rates equal to the percentage increase in the Employment Cost Index (ECI), wages and salaries, private industry workers, between September 2021 and September 2022, less half a percentage point. The ECI increased by 5.2 percent in September 2022, making the base GS increase in 2024 4.7 percent under the current statutory formula.
Under the President’s alternative plan for 2024, the across-the-board increase for base GS rates was 4.7 percent (as under the statutory formula), with locality pay increases averaging 0.5 percent, resulting in an overall average increase of 5.2 percent for civilian Federal employees, which is equal to the full ECI . . . this total increase was to be the highest total increase in the history of locality pay. This was a major step in the right direction and will benefit the Federal workforce. However, now may be a good time to consider a strategy for future January pay adjustments.
. . . in many past years since locality pay was implemented in 1994, increases in base GS rates were less than what would be authorized under 5 U.S.C. 5303(a). Providing smaller base pay increases exacerbates pay disparities throughout the country and has the effect of increasing the locality pay dollars needed to close pay disparities in locality pay areas. As an example, a number of the former Rest of US research areas established as separate locality pay areas since 2016 only marginally exceeded the pay disparity standard upon their establishment as separate locality pay areas—which requires a pay disparity 10 percentage points above that for the Rest of US over an extended period. Since pay disparities are calculated by comparing base GS rates to non-Federal rates, the question emerging with respect to areas such as these from a review of historical pay increases is whether providing the full ECI for a base GS increase would be a better way of addressing pay disparities for some of these areas. That might be better than creating new locality pay areas and possibly waiting for years for their locality pay percentages to grow much beyond that for the Rest of US. The President could then use any amount reserved for locality pay increases to vary those so that the areas with higher pay disparities could receive larger increases to reduce their pay disparities.
Consistently providing meaningful locality pay increases each year—at least 0.5 percent of the GS payroll but preferably 1.0 percent or more—would also be helpful. The goal of locality pay is to reduce significant pay disparities. The greater an overall amount is for locality pay increases, the more locality pay percentages can be adjusted based on current pay disparities. The smaller an overall amount is for locality pay increases, however, the less implemented locality pay percentages will reduce pay disparities and reflect changes in local labor markets as shown by BLS salary data.
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