How is Your Annual Federal Pay Raise Determined and What is it Likely to Be Next Year?

By on February 10, 2016 in Pay & Benefits, Retirement with 104 Comments

Image of a businessman pressing a pay button on a touch screen

The Obama administration has issued its budget for fiscal year 2017. It includes a 1.6% average pay raise for federal employees that would start in January of 2017.

So, is this all we need to know about a pay raise for next year? Is this the final amount and just subject to OPM writing up some new figures to distribute later in the year? What about federal retirees?

Those who have been federal employees for a while know that the president’s budget recommendation is just a recommendation at this point. The 1.6% proposed pay raise is not insignificant though. In fact, for the past two years, the president’s pay raise proposal turned out to be the final amount of the raise.

That does not always happen. In fact, it is very common for Congress to decide on a different amount. If that does occur, it will not happen until later in the year.

For now, the president’s budget has been sent to Congress. Congressional reaction from the majority party can be summed up with the reaction from Senator John McCain: “”It’s dead on arrival.” In fact, the White House budget director was not invited, for the first time in 40 years, to formally present the new $4 trillion dollar budget proposal to Congress.

That does not mean the 1.6% pay raise for federal employees will not end up being enacted. There will be a lot of back and forth on this before January 2017. The proposed pay raise is not large enough to generate hostility in Congress that a higher proposed raise would create, so it may slip through as it has in the past two years, being accepted by Congress and implemented as part of the budget process late in 2016.

Last year, the amount of the 2016 pay raise became final in December. The approximate amount of the pay raise was essentially established late in August though. Since Congress did not take any action on the pay raise, President Obama issued a letter on August 28, 2015 directing a 1% pay raise with an additional amount for locality pay. That amounted to an average of 1.3% for federal employees.

And what about federal retirees? They receive a cost of living adjustment (COLA) that is computed automatically based on an inflation index. In some years, this has benefitted retirees as they receive an increase in their annuity higher than federal employees receive via a raise. In other words, what happens for active federal employees will not impact any COLA increase for federal retirees in 2017.

Last year federal retirees and Social Security recipients did not receive any COLA while current federal employees had a pay bump that averaged 1.3%. Because calculating the annual COLA for retirees is a different process, we will not know until mid-October how much of an increase, if any, there will be in 2017 for federal employee retirees and Social Security recipients.

In theory, federal employees will be paid approximately the same as they would in private sector jobs. That is difficult to accurately determine as there are many federal jobs that are not comparable to private sector jobs. The result is the political or economic interests of various groups determines the outcome of the conclusions on federal pay. One group concludes that federal workers are drastically underpaid while others contend they are substantially overpaid, particularly taking into account the benefits package for federal workers.

The result is there is no agreement. Next year’s salary increase, if any, will be determined through the political process and it will be late in 2016 before the amount of next year’s raise is finalized.

What about federal employee unions? Will they succeed in their efforts to fund a large pay raise and better benefits for federal employees in 2017?

Federal employee unions undoubtedly spend considerable time and money lobbying Congress and seeking publicity to try to increase the pay and benefits for federal employees. To paraphrase from the omnipresent GEICO ads recently airing, “it’s what you do” as a federal employee union.

No doubt, there will be a lot of huffing and puffing. Unions are seeking a raise of more than 5% from Congress and the administration.

Will it be effective? No doubt, some politicians will and already have jumped on board the bandwagon for a higher pay increase. As noted in an AFGE press release, “AFGE’s call for a 5.3% pay raise in 2017 has already won the backing of prominent lawmakers including House Minority Leader Nancy Pelosi, Rep. Gerry Connolly of Virginia, and Sen. Ben Cardin of Maryland…”

So, with 435 Representatives in the House, another 215 Representatives would have to support the AFGE position in order to pass in the House. There are 234 Republicans in the House. AFGE’s president said recently: “There is not a Republican candidate that’s running that hasn’t said they would annihilate federal employee unions and virtually every union in the country,” and “God help us all. This country will be in a serious, serious situation [if a Republican should win the White House to succeed President Obama].”

Obviously, the union is not seeking bi-partisan support for a larger pay raise or better federal benefits. In fact, AFGE announced its support last November for Hillary Clinton in her quest to become our next president.

Mixing election year politics by passionately campaigning for Democrats to throw Republicans out of office, along with the simultaneous desire to have Congress, including those Republicans running for office who would have to vote in favor of supporting higher pay and more benefits for federal employees, seems destined to fail without any expectation by those giving the speeches that a higher pay raise will actually pass in Congress.

When Will We Know the Final Pay Raise Amount?

During a presidential election year, anything can happen. It may be that events lead Congress into supporting a higher pay raise. A raise of more than 5% is highly unlikely, but 2% or even 3% could happen.

If, for example, there is an event impacting the military that leads Congress to support a pay raise of more than 1.6% for military personnel, pay for federal civilian employees could follow suit. That has happened in the past as the unions have argued for “pay parity” with the military. Sometimes that has been successful and other times it has failed.

What is more likely is that the president’s proposal of 1.6% will be adopted. Republicans will not  want to alienate a voting bloc that could impact the results of the next election, particularly in their Congressional district. Most likely, they will not legislate an alternate amount for the 2017 pay raise. The politically safe course is to just adopt the president’s proposal.

We will have a good idea of what the 2017 pay raise will be late in August. A lot will happen between now and then that could impact the final outcome.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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