2026 Federal Paycheck Forecast: 3% Growth in the Cards?

The Office of Management and Budget (OMB) recently proposed a 3% federal pay raise for 2026, sparking keen interest among government workers. While this preliminary figure is not final, it has drawn the attention of Feds looking to understand the potential impact on their financial futures.

However, before adjusting your budget, it’s important to understand exactly what goes into federal pay raises and how factors from budgets to politics can influence the final outcome.

Historical Context of Federal Pay Raises

A look back at the variances between proposed and actual increases over the past several years gives some insight into the complexities involved. 

• 2023: The Biden Administration approved a 4.1% across-the-board raise to fed employee’s basic pay, as well as an average 0.5% increase in their locality pay. This total figure of 4.6% marks the largest wage increase for fed workers since 2002. However, this is notably lower than the proposed increase of 5.1%.
• 2024: Despite the FAIR Act proposing an 8.7% pay raise for Feds, the final budget resulted in a 4.7% across-the-board increase, plus a 0.5% locality-based adjustment, creating an average increase of 5.2%.
• 2025: In early 2024, the FAIR Act proposed a 7.4% raise for 2025. In May, the Biden Administration released a recommended budget that included an increase of just 2.0% – the lowest since 2021. 

The disparity between proposed and actual pay raises is influenced by a trio of factors: current and projected economic conditions, the political climate, and budgetary considerations.

Economic factors such as inflation rates, GDP growth, and employment statistics influence the perceived affordability and necessity of wage increases. Politically, a combination of the priorities of the administration in power and congressional support or opposition shapes the narrative and feasibility of proposed raises. For example, election years often see higher proposed raises as part of broader political strategies. 

Lastly, budget considerations, such as available fiscal resources and competing government priorities, dictate the extent of possible pay adjustments.

The Process of Determining Federal Pay Raises

The process of determining federal pay raises involves a structured interplay between the executive branch, Congress, and established federal laws.

The President’s Budget Proposal

The President’s proposed budget typically outlines the administration's priorities and fiscal outlook for the upcoming year. It includes recommended pay adjustments for federal employees. This proposal serves as a benchmark, setting the tone for subsequent discussions and legislative actions.

Congressional Involvement

Congress has the authority to alter the President's proposed pay raise, either increasing or decreasing the amount. Congressional decisions are often influenced by broader legislative priorities, current economic conditions, political negotiations, and feedback from various stakeholders within the government workforce.

Federal Laws

Statutory requirements, such as the Federal Employees Pay Comparability Act (FEPCA), influence pay raise decisions. FEPCA was created to more closely align federal salaries to those in the private sector, to prevent talent drain and ensure competitive compensation. It also provides a framework for implementing locality pay, which adjusts base pay rates depending on geographic differences in living costs and private-sector wages.

Timeline for Pay Raise Decisions

The President's budget proposal is typically submitted to Congress in February and is followed by months of deliberations and adjustments. Congress must pass appropriations bills, including final decisions on federal pay raises, by October 1 – the start of the new fiscal year. However, if there are delays, such as those caused by political standoffs or budgetary disputes, pay raises can be deferred or modified after this deadline.

How likely is a 3% pay raise in 2026?

While the Biden Administration released the OMB document advising federal agencies to plan for a 3% employee pay raise in 2026, it's important to note that he will not be president when this decision comes into play. The new president may suggest a vastly different government employee salary increase for 2026. Additionally, congressional input, economic factors, and other influences have the potential to completely change the outlook for 2026 pay raises.