How Locality Pay Is Determined
Locality adjustments are paid within each area determined to have a Federal - non-Federal pay disparity greater than 5%. There currently are 32 locality pay areas, including a Rest of U.S. area. It applies to GS employees in the continental United States (CONUS) only. It does not cover employees overseas.
Employees entitled to a higher rate of basic pay than the locality rate for their area receive the higher rate. For example, special salary rates may apply to occupations for which agencies have a difficult time recruiting candidates and retaining employees, and the Government pays these employees a higher rate than is paid to other GS employees at their grade and step.
Locality pay is considered in applying various pay-setting rules (including maximum payable rate, promotion, transfer, and pay retention) and in computing hiring and retention incentives and rating-based awards expressed as a percentage of pay.
Prior to January 1994, GS personnel were generally paid the same amount (for a given grade and step) regardless of where they worked. This system ignored the growing reality of regional differences in salaries and wages across the United States, and this led to a perception that in many locations federal civil service salaries were increasingly uncompetitive with those in the private sector, thus affecting recruiting and retention efforts by federal agencies.
In January 1994, the Federal Employees Pay Comparability Act of 1990 (FEPCA) introduced a "locality pay adjustment" component to the GS salary structure. Both Republican and Democratic administrations have complained about the methodology used to compute locality adjustments and the projected cost of closing the pay gap (as determined by FEPCA) between federal salaries and those in the private sector.
In December 2007, the President's Pay Agent reported that an average locality pay adjustment of 36.89 per cent would be required to reach the target set by FEPCA (to close the computed pay gap between federal and non-federal pay to a disparity of five per cent). By comparison, in calendar year 2007, the average locality pay adjustment actually authorized was 16.88 per cent. As a result, FEPCA has never been fully implemented.
Under FEPCA, the Bureau of Labor Statistics conducts annual surveys of wages and salaries paid to non-federal workers in designated locality pay areas. Surveys are used to determine the disparity, if any, between federal and non-federal pay in a given locality pay area. The Federal Salary Council (created by FEPCA) prepares recommendations concerning the composition of the designated locality pay areas and the annual comparability adjustment for each area, as well as an adjustment for all other workers outside these areas, referred to as "Rest of U.S.".
The council's recommendations are transmitted to the President's Pay Agent (also created by FEPCA), which then establishes, modifies, or disestablishes individual locality pay areas and makes the final recommendation on pay adjustments to the president, who may either accept the agent's recommendations or (in effect) reject them through the submission of an alternative pay plan.