Federal employees can expect a significant pay raise in 2025. The raise will be the largest in over a decade and will be accompanied by a locality pay adjustment. This is welcome news for federal employees, who have been struggling to keep up with the rising cost of living. The pay raise will help to ensure that federal employees are fairly compensated for their work.
The 2025 federal pay raise will be 4.6%. This is the largest pay raise since 2010. The locality pay adjustment will vary depending on where an employee lives. The adjustment will be based on the cost of living in each locality. Employees who live in areas with a high cost of living will receive a larger adjustment than employees who live in areas with a low cost of living.
The pay raise and locality adjustment will be a significant benefit to federal employees. The raise will help to improve their quality of life and the adjustment will help to ensure that they are fairly compensated for their work. The pay raise is a sign that the government is committed to supporting its employees.
Impact on Federal Employees’ Salaries
Location-Based Pay Adjustments
The 2025 federal pay raise will be accompanied by locality adjustments, which determine variations in pay based on the cost of living in different areas. This means that federal employees in high-cost areas will receive a higher salary increase than those in lower-cost areas. The General Schedule (GS) locality pay tables will be updated to reflect these adjustments, with the goal of ensuring that federal employees have comparable living standards across the country.
To illustrate the potential impact of locality adjustments, consider the following example:
| Location | Current GS-12, Step 1 Salary | Proposed 2025 Salary with Locality Adjustment | Estimated Percentage Increase |
|---|---|---|---|
| Washington, D.C. (high-cost area) | $50,112 | $54,525 | 8.8% |
| Des Moines, Iowa (lower-cost area) | $48,082 | $52,086 | 8.3% |
As you can see, the federal employee in Washington, D.C., would receive a slightly higher percentage increase due to the higher cost of living in that area. Locality adjustments aim to maintain a fair and consistent compensation system for federal employees regardless of their geographic location.
Locality Pay Adjustments
Locality pay adjustments are designed to ensure that federal employees receive comparable pay for comparable work across different geographic areas. The Office of Personnel Management (OPM) establishes locality pay areas based on factors such as the cost of living, local housing costs, and prevailing non-federal pay rates.
There are currently 53 locality pay areas in the United States, each with its own unique pay scale. The locality pay adjustment for a particular area is expressed as a percentage of the national base salary for the corresponding grade and step. For example, an employee in locality pay area 1 (Washington, D.C.) receives a 17.2% locality pay adjustment on top of their national base salary.
Locality pay adjustments are reviewed annually by OPM and may be adjusted based on changes in the cost of living and other factors. The most recent locality pay adjustments were effective as of January 1, 2022.
The table below shows the locality pay adjustments for each of the 53 locality pay areas:
| Locality Pay Area | Locality Pay Adjustment |
|---|---|
| Washington, D.C. – Baltimore, MD – Arlington, VA | 17.2% |
| New York – Northern New Jersey – Long Island, NY | 16.8% |
| San Francisco – Oakland – San Jose, CA | 16.5% |
| Los Angeles – Long Beach – Santa Ana, CA | 16.1% |
| Chicago – Naperville – Elgin, IL | 15.7% |
Regional Impact of the Pay Raise
The 2025 federal pay raise with locality will have a significant regional impact. The raise will affect the salaries of federal employees in all parts of the country, but the impact will vary depending on the cost of living in each locality.
Impact on High-Cost Localities
Federal employees in high-cost localities, such as San Francisco, New York City, and Washington, D.C., will receive a larger pay raise than employees in low-cost localities. This is because the locality pay adjustment is designed to offset the higher cost of living in these areas.
For example, a federal employee in San Francisco who earns $100,000 per year will receive a locality pay adjustment of 26.95%. This means that their salary will increase to $126,950 per year. In contrast, a federal employee in a low-cost locality, such as Omaha, Nebraska, who earns $100,000 per year will receive a locality pay adjustment of only 1.86%. This means that their salary will increase to $101,860 per year.
Table: Locality Pay Adjustments for Selected Cities
| City | Locality Pay Adjustment |
|---|---|
| San Francisco, CA | 26.95% |
| New York City, NY | 25.94% |
| Washington, D.C. | 22.19% |
| Omaha, NE | 1.86% |
Implications for Federal Agencies
Increased Personnel Costs
The pay raise will lead to higher personnel costs for federal agencies. Agencies must budget for the increased salaries, which may affect their ability to hire and retain staff.
Impact on Employee Benefits
The pay raise will also impact employee benefits. The higher salaries will result in increased contributions to retirement plans and other benefits.
Consequences for Agency Operations
The pay raise could have consequences for agency operations. Agencies may need to reduce the number of staff or cut back on programs and services to offset the increased personnel costs.
Specific Impacts on Localities
The locality pay adjustments will have varying impacts on different localities. In areas with high living costs, the pay raises may be significant, while in areas with lower living costs, the impact may be more modest.
Effects on Employee Benefits
The federal pay raise for 2025 will provide varying increases depending on the locality. This will have a direct impact on employee benefits that are tied to salary, such as health insurance premiums, retirement contributions, and life insurance coverage.
Retirement Contributions
The federal government matches employee contributions to the Thrift Savings Plan (TSP), a retirement savings account. The matching rate is currently 5% of basic pay. With a pay raise, employees will contribute more to their TSP, and the government will match that increased amount.
For example, an employee with a salary of $100,000 would currently contribute $5,000 to their TSP. With a 5% pay raise, their salary would increase to $105,000, and they would contribute $5,250 to their TSP. The government would match that additional $250.
Health Insurance Premiums
Federal employees have the option to enroll in a health insurance plan through the Federal Employees Health Benefits (FEHB) program. The premiums for these plans are based on a percentage of the employee’s basic pay. A pay raise will result in higher premiums for employees who choose to enroll in FEHB.
For example, an employee with a salary of $100,000 who pays 10% of their basic pay for health insurance premiums would currently pay $10,000. With a 5% pay raise, their premiums would increase to $10,500.
Life Insurance Coverage
Federal employees are eligible for life insurance coverage through the Federal Employees Group Life Insurance (FEGLI) program. The amount of coverage is based on the employee’s basic pay. A pay raise will increase the amount of life insurance coverage for employees who are enrolled in FEGLI.
For example, an employee with a salary of $100,000 who elects coverage equal to three times their annual salary would currently have $300,000 in coverage. With a 5% pay raise, their coverage would increase to $315,000.
Fiscal Considerations
The 2025 federal pay raise with locality is expected to have a significant fiscal impact on the federal government. The total cost of the pay raise is estimated to be $25 billion. The following is a detailed breakdown of the fiscal considerations:
Budget Implications
The pay raise will increase the overall federal budget by $25 billion. This will require the government to either increase revenue or cut spending in other areas in order to balance the budget.
Impact on the Deficit
The pay raise will increase the federal deficit by $25 billion. This will make it more difficult for the government to reduce the deficit and pay down the national debt.
Impact on the Economy
The pay raise is expected to have a positive impact on the economy. The additional money will boost consumer spending and help to create jobs.
Impact on Federal Employees
The pay raise will provide a much-needed boost to the pay of federal employees. The average federal employee will receive a pay increase of 2.6%. This will help to offset the rising cost of living and improve the morale of federal employees.
Impact on State and Local Governments
The pay raise will also have an impact on state and local governments. Many state and local governments pay their employees based on the federal pay scale. As a result, the pay raise will also increase the cost of state and local government employees.
Impact on Federal Contractors
The pay raise will also have an impact on federal contractors. Many federal contractors pay their employees based on the federal pay scale. As a result, the pay raise will also increase the cost of federal contractors.
| Locality | Pay Raise |
|---|---|
| Washington, D.C. | 4.8% |
| New York City | 4.0% |
| San Francisco | 3.9% |
| Los Angeles | 3.8% |
| Year | Amount |
| 2023 | 2.6% |
| 2024 | 2.7% |
| 2025 | 2.8% |
Negotiations and Bargaining
Federal employee unions and the Biden administration are currently engaged in negotiations regarding the 2025 federal pay raise. These negotiations are expected to be complex, as there are a number of factors that need to be considered, including the current economic climate, inflation rates, and the need to ensure that federal employees are compensated fairly for their work.
Union Demands
Federal employee unions have submitted a number of proposals to the Biden administration, including:
- A 10% across-the-board pay raise
- An increase in the locality pay differential
- A change to the formula for calculating locality pay
- A guarantee of a 2% pay raise each year
- A one-time bonus payment
Biden Administration Proposals
The Biden administration has not yet released its own proposals for the 2025 federal pay raise. However, the administration has indicated that it is committed to ensuring that federal employees are paid fairly for their work. The administration is also expected to consider the impact of the pay raise on the federal budget.
Locality Pay Differential
The locality pay differential is a percentage of base pay that is paid to federal employees who work in certain high-cost areas. The locality pay differential is designed to ensure that federal employees in these areas are compensated fairly for their work. The current locality pay differential ranges from 0% to 30%. The Biden administration is expected to propose an increase in the locality pay differential, which would benefit federal employees who work in high-cost areas.
Impact of the Pay Raise
The 2025 federal pay raise is expected to have a significant impact on the federal budget. The Congressional Budget Office (CBO) has estimated that a 1% pay raise for federal employees would cost the federal government approximately $2.2 billion per year. A 10% pay raise would cost the federal government approximately $22 billion per year.
Economic Impacts
The 2025 federal pay raise with locality is expected to have a significant economic impact. The pay increase will put more money into the pockets of federal employees, who will then be able to spend it on goods and services. This will help to stimulate the economy and create jobs.
Increased Consumer Spending
The pay raise will give federal employees more money to spend on a variety of goods and services. This will help to boost consumer spending and support economic growth.
Increased Business Investment
The pay raise will also lead to increased business investment. Businesses will be able to use the additional money generated by consumer spending to invest in new equipment, research, and development.
Job Creation
The pay raise will also create jobs. The increase in consumer spending and business investment will lead to increased demand for goods and services. This will create jobs in sectors such as retail, manufacturing, and construction.
Reduced Income Inequality
The pay raise will also help to reduce income inequality. Federal employees are typically paid less than their private-sector counterparts. The pay raise will help to narrow this gap and make the economy more equitable.
Increased Tax Revenue
The pay raise will also lead to increased tax revenue. Federal employees will pay more in taxes on their higher salaries. This will help to fund government programs and services.
Improved Morale
The pay raise will also improve the morale of federal employees. Employees who are paid fairly are more likely to be satisfied with their jobs and more productive.
Attracting and Retaining Top Talent
The pay raise will also help to attract and retain top talent in the federal workforce. The government will be able to compete with private-sector employers for the best and brightest workers.
Economic Stability
The pay raise will also help to promote economic stability. The increase in consumer spending and business investment will help to reduce the risk of economic downturns.
| Benefactors of Pay Raise | Economic Benefit |
|---|---|
| Federal Employees | Increased consumer spending |
| Businesses | Increased business investment |
| Economy | Job creation, reduced income inequality, increased tax revenue, improved morale, attracting and retaining top talent, economic stability |
Long-Term Effects
The 2025 federal pay raise with locality will have several long-term effects, including:
Positive Effects
-
Increased competitiveness for federal jobs, as higher salaries
will attract and retain top talent. -
Improved morale among federal employees, who will feel
valued and appreciated for their work. -
Stimulation of the local economy in areas where federal
employees reside since they will have more disposable
income.
Negative Effects
-
Increased costs for the federal government, as salaries
and benefits are a major expense. -
Potential for inflation, as higher salaries could lead to
increased prices for goods and services. -
Possible widening of the gap between federal employees
and their private-sector counterparts, if salaries are
not kept competitive.
9. Impact on Locality
The impact of the pay raise will vary depending on the locality. Areas with higher locality pay adjustments will see a greater increase in salaries than areas with lower adjustments. This could lead to a shift in the distribution of federal jobs, as employees may be more likely to seek positions in areas with higher pay.
| Locality | Pay Adjustment |
|---|---|
| Washington, D.C. | 30% |
| San Francisco, CA | 25% |
| New York City | 20% |
The 2025 federal pay raise with locality is a complex issue with both positive and negative long-term effects. It is important to consider these effects carefully before making any decisions about the future of federal pay.
Future Trends in Federal Pay
Locality Pay Adjustments
The General Schedule (GS) locality pay system adjusts federal salaries based on the cost of living in different geographic areas. In 2023, the Office of Personnel Management (OPM) implemented a new locality pay system that divides the United States into 60 localities, each with its own pay scale. This system aims to provide more consistent and equitable pay for federal employees across the country.
Inflation Adjustments
The federal government has a history of adjusting salaries in response to inflation. In 2023, employees received a 4.6% pay increase, which was slightly above the rate of inflation. The 2023 pay raise was the largest since 1994.
Incremental Pay Adjustments
Federal employees typically receive incremental pay increases based on their performance and time in grade. These increases are typically small, but they can add up over time. In 2023, the average federal employee received an incremental pay increase of 1.5%.
Retirement Benefits
Federal employees are eligible for a variety of retirement benefits, including a pension, health insurance, and life insurance. These benefits are generally generous, but they have also come under increasing scrutiny in recent years.
Pay Compression
Pay compression occurs when the salaries of employees in different grades become too close together. This can make it difficult to attract and retain qualified employees in senior-level positions. The federal government has implemented a number of policies to address pay compression, but it remains a challenge.
Performance-Based Pay
Performance-based pay systems reward employees for their performance. These systems can be controversial, but they have the potential to improve employee productivity.
Workforce Diversity
The federal government is committed to increasing the diversity of its workforce. This includes recruiting and hiring more women, minorities, and individuals with disabilities.
Technology and Automation
Technology is changing the nature of work, and the federal government is no exception. Automation and other technological advances are likely to have a significant impact on federal pay in the coming years.
Pay Comparability
The federal government regularly compares its salaries to those in the private sector. This information is used to ensure that federal employees are paid fairly.
Economic Outlook
The economic outlook can have a significant impact on federal pay. If the economy is strong, the government is more likely to provide larger pay increases. Conversely, if the economy is weak, the government may be forced to restrain pay growth.
| Year | Pay Increase |
|---|---|
| 2023 | 4.6% |
| 2024 | 4.1% |
| 2025 | 4.0% (projected) |
2025 Federal Pay Raise with Locality
The 2025 federal pay raise is expected to be announced in early 2024. The raise will be based on the Employment Cost Index (ECI), which measures the change in wages and salaries for private industry workers. The ECI is expected to increase by about 3.9% in 2024, which would result in a 3.9% federal pay raise. In addition to the across-the-board raise, federal employees will also receive locality pay adjustments based on the cost of living in their area. The locality pay adjustments are expected to range from 0% to 25%.
The 2025 federal pay raise will be the largest in recent years. The last time federal employees received a pay raise of more than 3% was in 2010. The raise is a welcome increase for federal employees, who have seen their paychecks shrink due to inflation in recent years.
People Also Ask
When will the 2025 federal pay raise be announced?
The 2025 federal pay raise is expected to be announced in early 2024.
What is the expected amount of the 2025 federal pay raise?
The 2025 federal pay raise is expected to be 3.9%.
Will federal employees also receive locality pay adjustments?
Yes, federal employees will also receive locality pay adjustments based on the cost of living in their area.
What is the range of the locality pay adjustments?
The locality pay adjustments are expected to range from 0% to 25%.
