There Will Be a 4.6% Federal Pay Raise in 2023. What Does That Mean for Federal Workers?

Prices are rising across the country, and Americans feel pain at the grocery store and the gas pump. If you’re a federal worker, you’re probably wondering if your pay will keep pace with skyrocketing inflation in 2023.

The good news is that president Joe Biden approved an average 4.6% pay raise for civilian federal employees next year. The question now is: Is the raise for federal salaries enough?

This guide has everything you need to know about the 2023 federal pay raise, including adjustments to federal government salaries, including; base pay and locality pay, special pay rates, and the recruitment outlook for federal jobs. We’ll also briefly cover other annual costs of living adjustments, such as federal retirement and VA benefits. 

Find Out How Much Your Federal Salary Raise Will Be

The overall increase to federal worker salaries can be calculated by applying to your annual basic pay. To see how much your raise will be, check the GS Pay Scale by clicking below.

Remember that federal employees may receive an additional ‘Special Rate’ increase to their GS base rate. The Office of Personnel Management (OPM) announced they would review any adjustments made for special pay rates.

4.1% Across-The-Board Base Government Pay Raise

In 2022, federal workers received a pay raise of 2.7%. The federal government sets pay annually in one of two ways.

A federal pay raise can be approved by Congressional legislation or through an alternative pay plan issued by the president. 

The spending legislation passed by the House of Representatives didn’t include a pay raise for federal employees.

However, the Senate explicitly endorsed Biden’s alternative pay plan in its draft financial services and general government spending bill. 

Biden’s alternative pay plan decision calls for a 4.1% across-the-board base pay increase for all civilian federal employees covered by the general schedule and other specific pay systems. This pay raise will take effect during the first applicable pay period following January 1, 2023.

The 2023 federal pay increase will be the largest in 20 years.

It is intended to help federal agencies address recruitment and retention challenges by assisting them to compete in the labor market with their private sector counterparts.

The competitive pay raise to federal salaries will likely encourage talented federal employees not to abandon federal positions for jobs in the private sector. In addition, hopefully, it will encourage new applicants to more federal job positions.

0.5% Increase for Federal Employee Locality Pay

While most of the 4.6% pay increase comes from the across-the-board base pay raises, there is also a 0.5% average increase in locality pay. Locality pay is a regional adjustment for areas where the cost of living is high or the talent competition is particularly fierce. 

Locality pay is set on a case-by-case basis using federal salary data compiled by the Bureau of Labor Statistics, which surveys 48 locality pay areas throughout the lower 48 states, Alaska, Hawaii, and US territories. 

In places where private sector pay is growing unusually fast, locality pay will increase by more than 0.5%. The San Francisco Bay area currently has the highest locality pay bonus, with an adjustment of 42.74% of the General Schedule pay scale. 

Is the 2023 Federal Pay Raise Enough to Beat Inflation?

An average 4.6% increase may sound like a lot, it’s the highest in decades, but inflation has stayed above 8% for most of 2022.

What’s more, there continues to be a substantial pay gap between federal agencies and employers in the private sector, affecting the government’s ability to attract and retain civilian federal workers. 

Recent years have significantly lower pay raises for federal employees than private sector workers.

Federal government salaries consistently lags behind salaries in the private sector by nearly 23%, according to the Federal Salary Council. 

Federal employee unions like the National Treasury Employees Union argue that the pay gap for federal employees is a national emergency.

Union officials say massive increases in private sector wages warrant more significant raises for federal civilian workers. Many members of Congress agree. Some 60 House Democrats pushed for a 5.1% increase.

Government Recruitment Outlook for 2023

In addition to a federal pay raise, the government plans to expand its workforce. There are currently 2.2 million civilian federal employees on the federal government’s payroll. A close examination of federal government salaries is needed to compete with the private sector,

The government plans to recruit and hire 82,300 workers, emphasizing those possessing critical skill sets. These positions often demand higher federal salaries and can be found in highly competitive industries.

The Biden Administration plans to augment federal HR with new technologies and data analysis capabilities to facilitate this hiring push.

The Office of Personnel Management will likely see a massive injection of funding. The OPM’s latest funding request asked for a budget of $418 million, an increase of $88 million over the previous fiscal year. 

Federal Government Salaries with High Recruitment Demand

2023 Cost of Living Adjustment (COLA) for Federal Civilian Retirees

If you’re a federal employee, you’re probably wondering if your pay raise next year will keep pace with the unprecedented price increases (SSA COLA RAISE) we see in all sorts of essential goods and services nationwide.

Retired civilian federal employees can expect a significant cost-of-living bump in their 2023 pensions. Based on current trends, cost of living adjustments (COLA) will likely be around 8.6 percent, owing to higher-than-normal inflation in 2022. 

The federal government sets the COLA for the Federal Employee Retirement System (FERS Retirement), the Civil Service Retirement System (CSRS Retirement), and Social Security annually in October based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The CPI-W isn’t to be confused with the CPI-U, an index of how price changes affect urban consumers. The CPI-W focuses specifically on the impact of higher prices on urban wage earners and salaried clerical staff.

This year, inflation was mild in the first quarter, but it hovered around 9% for June, July, and August. 

How is COLA Calculated?

The COLA is set based on year-to-year changes in the CPI-W. Officials use the average percent changes in CPI-W for the third-quarter months of July, August, and September. 

CSRS COLA vs. FERS COLA

The CSRS is the legacy retirement benefit system implemented in the 1920s. Though it was phased out in the 1980s, the system still covers some federal employees. FERS was implemented for all federal employees who entered civil service on or after January 1, 1987.

COLA for CSRS retirees is usually slightly higher than adjustments for former federal employees covered by FERS. Check out the FERS Cola raise for 2023. It depends on the COLA for the year.

If the CSRS COLA is:

• Less than 2%, then the FERS COLA is the same
• 2-3%, then the FERS COLA is 2%
• Above 3%, after which the FERS COLA is equal to the CSRS COLA minus 1%.

Summary of Federal Worker Salaries

The 4.6% federal pay increase—including a 4.1% across-the-board pay raise and an 0.5% average increase in locality pay—is the most significant pay raise federal employees have seen in two decades. However, pay for federal civilian employees still lags behind that in the private sector by nearly 23%.

At the same time, the outlook for federal jobs is bullish. This year witnessed growing recruitment in the public sector, and the trend will continue in 2023. The federal workforce is set to expand by more than 82,000 jobs.