The Office of Personnel Management (OPM) has issued its final rule to change the pay boundaries for approximately 17,000 federal employees in the Federal Wage System (FWS) which is about 10% of FWS employees. The final rule follows a proposed rule that OPM issued last fall.
The new rule primarily affects FWS employees of DOD and its components, although employees of many other agencies, including the Department of Veterans Affairs (VA), are impacted.
Key Points of the New Rule
For federal employees who are impacted, these are the critical elements of which to be aware.
Alignment of Pay Areas
The final rule revises the criteria for defining FWS wage areas to be more consistent with the GS locality pay areas. The rule modifies the geographic boundaries of FWS wage areas, aiming for greater uniformity with GS boundaries.
OPM says this addresses a long-standing situation which it said was unfair. The rule states:
OPM determined that the changes to the regulatory criteria used to define and maintain FWS wage areas will address the lack of equity that arises when FWS workers within a given GS locality pay area are paid from two, three, or more different wage schedules, while the GS employees who work alongside them are all paid from the same salary schedule.
Effective Date
The changes will be implemented on October 1, 2025, at the start of FY 2026. This delay is intended to give agencies time to plan for the fiscal impact of the changes.
Pay Increases
Most affected FWS employees will receive pay increases, with about 85% (about 14,500 employees) expected to see a rise in their wages. However, in some wage areas, employees will be placed on lower wage schedules (around 3% or about 500 employees) and either be covered by pay retention rules or experience a reduction in pay if they are not eligible to retain a rate of pay.
The pay increases will vary considerably, based on wage area and grades. For example, pay increases for FWS employees in Monroe County, PA, who will be moved to the New York, NY, wage area, will vary from around $0.49 per hour at grade WG-01 to $7.85 per hour at grade WG-15 based on current wage levels.
Budgetary Considerations
The realignment is projected to increase payroll by approximately $140 million per year, which is about 1% of the current FWS payroll.
Implementation Timeline
The final rule will delay implementation of wage area changes until the beginning of FY 2026 to allow agencies to plan for increased payroll expenses. While this delay impacts employees, it aims to ensure a smoother transition and long-term equity. Wage rate increases will occur initially, with subsequent adjustments based on future surveys and existing pay cap and floor provisions.
Changes to the survey areas will be staggered across fiscal years 2026 to 2028. The staggered approach to implementing wage area surveys until 2028 allows the Department of Defense time to conduct full-scale wage surveys in survey areas that will expand significantly, in some cases doubling, in geographic size.
