The pay cap for federal salaries impacts varying localities differently. A recently proposed bill would remove the limit.
Non-executive employees on the General Schedule (GS), for the most part, are subjected to pay cap, which equals the pay cap for political appointees and those on Level IV of the Executive Schedule. In 2023, this annual limit is $183,500. The ceiling imposed on federal pay goes up when there is an annual raise for federal employees, but only by the “across-the-board” amount. The pay caps do not take locality into account.
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For 2023, the annual pay raise was an average of 4.6%, comprised of a 4.1% increase that all GS employees received and then locality pay. Because locality is not taken into account when lifting the pay cap, employees who are at or near the salary limit before the raise goes into effect will not receive the full pay boost for their locality portion, if they get any locality increase at all.
Locality and the Pay Cap
Various localities hit the pay cap at the upper steps along the GS ladder while several locality designations don’t even reach the salary limit at the highest level: GS-15, step 10. In the locality that includes Washington, DC, for example, the salary cap is hit at GS-15, step 7, meaning any employee at or above this level won’t receive the locality portion of the 2024 federal pay raise. There are currently 18 localities where multiple steps on the GS table have reached the cap.
The locality designation that includes Albany, NY was one of the areas that did not reach the limit across the GS echelons in 2023, but was very close for GS-15, step 10 with a salary of $182,485. Hypothetically, if there is a 4.7% across-the-board raise for 2024, but feds in Albany get 5.5%, here’s how that would impact the raise of those GS-15, step 10 employees:
- $182,485 x 4.7% = $8576.76 increase
- $182,485 + $8576.76 = $191,061.76
The pay cap would also increase by 4.7%:
- $183,500 x 4.7% = $8624.50
- $183,500 + $8624.50 = $192,142.50
The Albany employee at GS-15, step 10 is still under the limit in this situation, but they would also be entitled to the 0.8% extra boost for locality:
- $182,485 x 5.5% = $10,036.68
- $182,485 + $10,036.68 = $192,521.68
At this point, the cap of $192,142.50 has been exceeded by $379.18, meaning GS employees at level 15, step 10 in this metropolitan area would not be receiving their full 5.5% raise. The problem gets worse with cities where the cost-of-living is high, such as Washington, DC, San Francisco, CA, and Houston, TX.
Pay Compression Relief Act
A handful of House Democrats from the DC/Maryland/Virginia area introduced a bill this month to tackle the problem, defining the issue as “pay compression.” Led by DC representative Eleanor Holmes Norton and sponsored by Gerry Connolly of VA, along with three more Congressional representatives from Maryland, the bill aims to factor in locality when annual raises go into effect. With salary increases not being dampened by a pay cap, the hope is that recruitment and retention efforts across the federal workforce will be bolstered.
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**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
