Your 2007 Pay Raise Will Be…

The process of determining the 2007 pay raise amount is moving along slowly. But, while the process is moving, there is no final answer on the question of how much employees will be getting in their paychecks next year.

How much will your final pay raise be in 2007?

No one really knows and the final answer may not be available until sometime in 2007. But the complex process of making a decision is slowly meandering through the system. Another step was taken this week when President Bush issued a letter changing the locality pay formula.

The result will be that some federal employees will be getting more money next year and some will be getting less with the deciding factor being your geographic work location. The new formula to be used was apparently decided on because of the increasing pay gap between the private and public sectors in some cities, such as New York and San Francisco. And, while switching formulas is good news for some federal employees, those in other cities and the “Rest of U.S.” category will get a smaller locality boost.

Most readers probably don’t care about the math involved but want to know “how much will my pay be in 2007?”
8.6% Would Cost $8.8 Billion in One Fiscal Year

The President’s letter to the Speaker of the House and the President of the Senate reads, in part:

Under title 5, United States Code, civilian Federal employees covered by the GS and certain other pay systems would receive a two-part pay increase in January 2007: (1) a 1.7 percent across-the-board adjustment in scheduled rates of basic pay derived from Employment Cost Index data on changes in the wages and salaries of private industry workers, and (2) a 6.9 percent locality pay adjustment based on Bureau of Labor Statistics’ salary surveys of non-Federal employers in each locality pay area. According to the statutory formula, for Federal employees covered by the locality pay system, the overall average pay increase would be about 8.6 percent.

The result is that the President has “determined that it would be appropriate to exercise my statutory alternative plan authority to set an alternative January 2007 locality pay increase.”

Impact on the Workforce

The law also requires an assessment about the impact of the President’s action on the federal workforce and its ability to recruit a well-qualified workforce. His letter notes that “since any pay raise above what I have proposed would likely be unfunded, agencies would have to absorb the additional cost and could have to freeze hiring in order to pay the higher rates. Moreover, GS ‘quit’ rates continue to be very low (2.0 percent on an annual basis), well below the overall average “quit” rate in private enterprise.”

The final amount of the pay raise is not final. It appears the average pay raise may be 2.2% which is the amount that has been approved for military personnel. Congress could decide to give civilian employees a raise of 2.7%. When troops are engaged in combat missions in Iraq and Afghanistan, it seems unlikely that civilians would receive a higher raise than military personnel but the Congressional outcome is still uncertain. The President’s letter quoted above assumed the raise for federal civilians will be 2.2%.

Winners and Losers Under the New Formula

If the final raise is 2.2% (rather than 2.7%) and 0.5% is given to locality pay raises, the new formula would result in a raise of 1.81% for federal employees in the “rest of the U.S.” Under the previous formula used for pay raises, the “rest of the US” would have received a raise of 2.03%.

But, for the large number of federal employees in the Washington, DC metropolitan area, the news is better. Under the old formula, they would have received a raise of 2.4%. With the new and improved version, their raise would come in at 2.64%.

New York City feds would get a raise of 3.02%.

The reality is that you still do not know the final amount of the 2007 pay raise. The President will issue an executive order after Congress decides on the final amount. In previous years, this has sometimes meant a retroactive raise for federal employees as the final decision was not made until after the new year. That could happen again this time.

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. Follow Ralph on Twitter: @RalphSmith47