2018 Federal Employee Pay Raise and COLAs

There is often confusion about the federal employee pay system. Here are some of the common misconceptions and an explanation.

The federal pay structure is complex, confusing, and the process of setting pay rates continues throughout the year. What about a 2018 federal employee pay raise? What about a COLA?

It isn’t surprising a number of readers are confused by the process. Readers have sent in questions about their 2018 pay increase (if any). Predicting what Congress or a new president may do is largely a guessing game.

But some of frequent questions from readers we can answer. Here are the answers and a couple prognostications.

The 2018 Federal Employee Pay Raise

How much of a pay raise, if any, will federal employees receive in 2018? No one knows this early in the year. We do not usually have a definite answer for the coming year until December.

Early estimates are for a 1.9% average pay raise based on assumptions for agency budgets. That is just an estimate based on what some in government think the president’s budget will include and Congress will accept. We will have a clearer picture for the overall pay raise for federal employees (including locality pay) in the next few weeks.

Legislation has been introduced by Gerry Connolly (D-VA) for a 3.2% average federal employee pay raise for 2018. 51 Democrats are co-sponsors of this legislation. It is unlikely to be approved by the full House of Representatives.

Who Gets a COLA Increase?

First, federal retirees get a cost of living adjustment that is commonly referred to as a COLA. If you have not retired, are still working as a federal employee and are getting a regular pay check from Uncle Sam, you do not get a COLA. You will probably receive a pay raise in January 2018.

The COLA increase is based on the rate of inflation as calculated by the Department of Labor. The increase is an automatic calculation based on the rate of inflation. It impacts Social Security recipients as well as federal employees. For 2017, the COLA increase was 0.3% because the official inflation rate was low.

We will know the COLA for 2018 in mid-October. At the moment, the increase would be less than 1%, but it is still early in the year. Also, there are indications the economy is picking up and the Federal Reserve may raise interest rates again based on inflation creeping up.

Many Social Security recipients and federal retirees were not happy with the small amount of the 2017 COLA. A larger increase in 2018 is likely. The actual amount of the increase becomes clearer later in the year. (See 0.3% COLA Increase for Federal Retirees and Social Security Recipients in 2017)

COLA Complexity

While the COLA calculation is straightforward, it gets complex because not every federal retiree will get the same increase.

First, for those former federal employees who are under the Federal Employees Retirement System (FERS) or FERS Special benefits employees, you may receive a different amount than other employees.

Under FERS or for FERS Special benefits, if the increase in the Consumer Price Index (CPI) is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar.

Second, to get the full COLA, without regard to whether you are in FERS or the CSRS system, you must have been getting paid as a retiree for a full year.

If you are planning on retiring late in the year, you will not get the full COLA increase in 2018. If you were not retired for the entire year, the increase is prorated. You will  receive one-twelfth of the increase for each month in which you received retirement benefits.

Third, Federal Employees Retirement System (FERS) and FERS Special Cost-of-Living Adjustments are not provided until age 62, except for disability, survivor benefits, and other special provision retirements.

Do Federal Employees Get a COLA?

Federal employees get a pay raise. A pay raise is not the same as the COLA. In 2017, the 2.1% pay raise for federal employees was more than the amount of the full COLA increase for federal employees. (See President Issues Order Finalizing 2017 Federal Employee Pay Raise) In some years, there has been a federal employee pay freeze. So, in some years, the COLA for retirees has been larger than a federal pay raise.

Misconceptions About the Federal Pay System

Based on email we have received, there are several common misconceptions about the federal pay system.

First, you do not get a COLA plus the pay raise if you are an active federal employee. Forget about any COLA that may automatically be provided to federal retirees in 2018; it does not apply to current federal employees.

Second, any pay raise figures for the federal workforce are an average.

We have gotten comments from readers complaining that our projected pay rates for the following year do not show a full increase for their city. An average means that some employees will receive more than than the average pay raise and some will get less.

Locality Pay Creates Different Pay Rates

The base pay rate increase for 2018 will be less than the overall average. The average 2018 federal employee pay raise figure is reached by taking into account locality pay rates.

This means that some federal employees in some areas will get less because they are not in a locality pay area. (See, for example, 2017 Locality Pay Rates for Federal Employees: San Francisco and DC Areas On Top)

Some readers have asked if there will be significant changes to the federal pay system under a new president and with a new Congress.

There are likely to be changes to the federal pay system in the next several years. Pay based on performance has been an elusive goal in the federal bureaucracy. There is likely to be a push to have some kind of pay for performance system under the Trump administration. (See Proposed Changes to Federal HR: From Worst Case to Possible)

The federal government is likely to see major changes to the pay system and the human resources system. Several bills have been introduced in Congress that, if passed, would substantially change the human resources system.

If it appears there will be significant changes to the federal employee pay system, or proposals to change the existing federal pay systems, we will cover these in future articles.

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