At the time of this writing, there is uncertainty as to the amount of the 2025 pay raise. In August, President Biden formalized his proposed 2.0 percent average pay raise, stipulating that 1.7 percent would be devoted to an across-the-board increase to basic pay and setting aside 0.3 percent to average locality pay increases. This compares to the 4.5 percent increase planned for military service members in 2025.
More than two dozen lawmakers have urged President Biden to revise his pay plan to increase the 2025 federal employee pay increase to 4.5 percent, equal to the military service member pay increase effective January 2025. The lawmakers also noted that late changes to the President’s pay raise plans have happened before. In December 2016 President Obama submitted an alternative federal pay plan to Congress that increased the federal civilian pay increase to 1.6 percent, the same amount as military service members were to receive starting in January 2017.
President Biden must issue an executive order finalizing his 2025 pay plan and OPM must publish updated pay tables before the end of 2024. The rest of this column discusses what will be known, no matter the amount of the 2025 federal civilian pay increase.
When Will the 2025 Federal Employee Pay Increase Become Effective?
Federal employees’ pay increases always become effective on the first day of the new leave year. The leave year does not coincide with the calendar year. For example, the 2024 leave year started January 14,2024 and will end on January 11,2025, consisting of 26 two-week pay periods. The working schedule for full-time federal employees is a standard 80-hour bi-weekly work schedule, working eight hours per day, Monday through Friday.
The 2025 federal employee pay increase becomes effective on the first day of the 2025 leave year, January 12, 2025. That means that employees will not see the 2025 federal employee pay increase on their paychecks until they are paid for period one of leave year 2025, sometime in late January or early February 2025. The following example illustrates:
Example 1: David is a federal employee working in Washington DC. His 2024 “adjusted basic pay” (as shown on his most recent SF 50, Notice of Personnel Action) is $107,200. If the 2025 pay increase for federal employees working in the Washington DC area is 2.0 percent, then David’s 2025 projected “adjusted basic pay” will increase 2.0 percent (1.02 times $107,200) to $109,344. David should receive an updated Form SF 50 from his Personnel Office or Human Resources Office reflecting the 2.0 percent pay increase sometime in late January or early February 2025.
Other Federal Employee Benefits Affected by the 2025 Pay Increase
In addition to the salary increase resulting from the 2025 federal civilian employee pay increase, other federal employee benefits are affected by the pay increase, including:
- CSRS and FERS retirement contributions. A CSRS-covered employee contributes biweekly 7.0 percent via payroll deductions of his or her bi-weekly gross salary into the CSRS Retirement and Disability Fund. A CSRS Offset employee contributes 0.8 percent. A FERS-covered employe contributes bi-weekly either 0.8 percent, 3.1 percent or 4.4 percent into the FERS Retirement and Disability Fund, depending in which year the FERS-covered employee was hired into federal service. If the 2025 pay increase for federal employees working in the Washington area is 2.0 percent, then the amount that a CSRS/CSRS-Offset or FERS-covered employee will be contributing to the CSRS Retirement and Disability Fund or FERS Retirement and Disability Fund will increase by 2.0 percent.
- FERS-covered employee’s agency automatic one percent of gross pay (SF 50 salary) TSP contribution. FERS-covered employees receive from their agency an automatic one percent of an employee’s gross pay (current year SF 50 “adjusted basic pay” contribution,. Since the annual salary increase is applied to a FERS-covered employee’s SF 50 salary, the amount of the agency automatic one percent TSP contribution will increase by the amount of the annual salary increase. The following example illustrates:
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Example 2. Janet is a federal employee covered by FERS and works in the Washington DC area. During leave year 2024 Janet’s SF 50 “adjusted gross pay” is $116,700. Assuming a 2025 federal pay increase of 2.0 percent for employees working in the Washington DC area, Janet’s SF 50 “adjusted gross pay” will increase to $119,034 (1.02 times $116,700). Janet’s agency automatic one percent of SF 50 “adjusted gross pay” contribution will increase from $1,167 (1.0 percent of $116,700) to $1,190 (1.0 percent of $119,034), an increase of $23.
- Federal employees who are enrolled in the Federal Employee Group Life Insurance (FEGLI). Federal employees enrolled in FEGLI will see an increase in some of their life insurance coverage amounts as a result of the 2025 pay increase. In particular, the FEGLI Basic Insurance Amount (BIA) and the FEGLI Option B (Multiple of Salary) coverage, FEGLI BIA is equal to the employee’s current year SF 50 “adjusted basic pay” rounded up to the next $1,000 plus $2,000. The “Multiple of Salary” is one, two, three, four or five multiples of an employee’s SF 50 “adjusted basic pay”, rounded up to the next $1,000. The following example illustrates:
Example 3. Elizabeth is a federal employee, age 52, working in the Washington D.C. area. She is enrolled in FEGLI BIA and FEGLI “Multiple of Salary” (three multiples). During leave year, Elizbeth’s SF 50 “adjusted basic pay” is $135,600. Assuming a 2.0 percent salary increase for Washington, DC employees for leave year 2025, Elizabeth’s SF50 “adjusted basic pay” will increase to $138,312 (1.02 percent times $135,600). Elizabeth’s 2025 leave year FEGLI BIA will then equal:
$139,000 ($139,312 rounded up to the next $1,000) plus $2,000= $141,000
Elizabeths’ 2025 FEGLI “Multiple of Salary” (three multiples) will then be:
3 times $139,000 ($138,312 rounded up to next $1,000) = $417,000.
Employee Action Plan to Confirm Receipt of Full Amount of 2025 Pay Increase
Federal employees are advised to confirm they are receiving the full amount of the federal employee salary and benefits increase resulting from the 2025 salary increase. The following are two recommendations for current employees:
- Updated SF 50 (Notice of Personnel Action). Sometime in late January or early February, all employees should receive an updated SF50 in their Electronic Personnel Folder (eOPF). Employees should confirm all of the updated information in the e OPF is correct. Specifically, they should check:
Box 12A - Basic Pay
Box 12B – Locality Pay
Box 12C – Adjusted Basic Pay
Box 27 - FEGLI
Box 30 – Retirement Plan
Box 31 – Service Computation Date
- First Leave and Earnings Statement (LES) for leave year 2025. Employees should confirm: (1) Bi-weekly gross pay that reflects the 2025 pay increase; (2) Employee TSP contributions- traditional TSP and Roth TSP; (3) FERS employee agency TSP automatic and matching contributions are correct; (4) 2025 FEHB program bi-weekly premiums are correct; (5) If enrolled in the Federal Employees Dental and Vision Insurance Program (FEDVIP), 2025 dental and/or vision insurance premiums are correct; (6) If enrolled in FEGLI, verify amount of coverage and bi-weekly premium costs for FEGLI BIA and any FEBLI optional coverages; and (7) If enrolled in the Federal Long Term Care Insurance Program (FLTCIP), confirm any change in premiums which may have recently occurred.
Employees who have problems or questions about their updated salary and benefits resulting from the 2025 federal employee salary increase are advised to contact their Personnel Office or Human Resources Office for assistance.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.