How Are Locality Pay Rates Computed?

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By on January 2, 2018 in Pay & Benefits, Q&A with 0 Comments

Close up of a businessman's hand putting coins in a jar overlaid against a city skyline depicting a locality pay concept

Q: How are the locality calculations done? As an example, my locality adjustment in the New York City area was 31.22% in 2017 and went up to 32.13% in 2018. This is an increase of .91%. Now if you add the across the board increase of 1.4% in 2018 this should amount to a 2.31% increase. So why is our increase only 2.10%?

A: Answering this question is not easy, but let me start by mentioning that the GS pay system actually is made up of two parts – the underlying GS pay scale, and an add on known as the locality pay adjustment. ┬áThe GS pay scale is the same everywhere in the world, but the locality pay adjustments are designed to take into account that in certain locations in the U.S. the GS pay scale is not very competitive with the local labor market rates. So each locality pay area was to be adjusted by an amount that brought the GS rates into alignment with local market rates.

Unfortunately, almost from the very beginning, the claim has been made that the locality pay adjustments didn’t represent the “real” market rates in each locality, so there has never been a full application of the locality adjustments. Instead, in most years there is an adjustment to the GS pay scale, and then an additional amount of money is set aside to adjust the locality rates. For 2018 the President authorized an across the board increase of 1.4% and locality pay adjustments that will cost about .5% of payroll.

As the questioner points out, that means the GS pay scale is adjusted by 1.4%. While I have not seen the formulae used by OPM to make these calculations, my understanding is that the locality pay adjustments are designed to accomplish two goals – not to exceed the overall budget figure, which in 2018 that is .5% of payroll budget; and to provide an increase in the locality rate in proportion to the difference between the GS rates and the market rates in the locality.

And the questioner is correct, that results in different outcomes for different locality pay areas –┬áthe RUS locality pay area received a total of 1.67 percent general and locality pay increase for 2018, while NYC received a total of 2.10 percent general and locality increase.

Wayne Coleman is a federal pay expert available to help your agency avoid premium pay claims through on-site training. Contact him for more information.

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About the Author

Wayne Coleman is a compensation consultant whose career at various Federal agencies and in private practice spans almost 40 years. During this time he has written about and provided training on overtime and premium pay, on the principles of FLSA coverage and exemption, and on related Federal compensation issues. Wayne is available to help your agency avoid premium pay claims through consulting services and training. You can contact him at [email protected].

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