Federal Pay Raise 2025: Key Details Every Federal Employee Should Know

President Biden announced federal pay raise 2025 and has formalised his plan to provide civilian federal workers with an average pay increase of 2% in 2025, a notable reduction compared to the 5.2% rise in 2024 and 4.6% in 2023. In a letter to congressional leaders on 30 August, Biden outlined that federal employees will receive a 1.7% boost to their base pay, alongside an average 0.3% increase in locality pay, resulting in an overall average increase of 2%.

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Federal Employee Pay Raise 2025 Breakdown

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2025 federal employee raise update is that Biden first proposed this pay raise as part of his fiscal year 2025 budget. His decision, confirmed on Friday, aims to continue efforts to recruit and retain a skilled workforce with fair compensation. "We must attract, recruit, and retain a skilled workforce with fair compensation in order to keep our government running, deliver services, and meet our nation’s challenges today and tomorrow," Biden wrote.

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Each year, the president is required to issue an alternative pay plan to prevent larger automatic increases in locality pay, which would otherwise be enacted under the Federal Employees Pay Comparability Act of 1990. In this case, Biden's plan reflects fiscal constraints and labour market conditions, ensuring that the federal workforce remains competitive without imposing significant budgetary strain.

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While federal employees are set for a 2% pay rise in 2025, some have expressed disappointment, particularly given the proposed 3.5% increase for military personnel. Federal employee unions, such as the National Active and Retired Federal Employees Association (NARFE), have voiced concerns that the raise falls short of expectations. NARFE President William Shackelford called the increase "disappointing," especially when compared to private sector wage growth and ongoing inflation, which could erode the purchasing power of federal workers.

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Efforts to secure a higher pay raise, such as the Federal Adjustment of Income Rates (FAIR) Act, introduced by Representative Gerry Connolly and Senator Brian Schatz, proposed a 7.4% raise earlier in the year. However, neither the House nor the Senate has included provisions for an alternate pay increase in their appropriations bills, signalling tacit support for Biden's 2% plan.

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To make the pay rise official, President Biden must issue an executive order by the end of 2024, after which the Office of Personnel Management (OPM) will publish new pay tables for each locality. The raise will take effect in January 2025, at the start of the first full pay period of the year.

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Federal Pay Raise 2025 is Not a COLA Adjustment

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The 2025 social security cola estimate for federal employees has been estimated to be 2.7%. This means that retired federal employees will see their annuity payments increase by 2.7% in 2025. The COLA is calculated using a specific formula and is automatically added to retired federal employees' annuity payments.

However, the process for deciding on a federal employee pay raise for 2025 is more complex. It involves political decision-making and is not as straightforward as the annual COLA for retirees.

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AFGE's Response to President Biden’s 2025 Federal Pay Raise Proposal

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Nation’s Largest Federal Employee Union Criticizes Proposed 2025 Federal  Pay Raise

The evidence is undeniable – federal employees are significantly underpaid compared to their counterparts in the private sector, even when performing jobs requiring similar skills and experience. While President Biden’s proposed 5.2% raise for next year would be the largest in over 40 years, it still falls short of addressing the substantial double-digit pay gap between federal and non-federal workers.

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WASHINGTON – Everett Kelley, National President of the American Federation of Government Employees, shared his concerns regarding President Biden’s proposed fiscal year 2025 budget:

“We appreciate President Biden's efforts to ensure corporations and the wealthy contribute their fair share in taxes, extend Medicare’s solvency, and increase funding for critical federal programmes.

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However, we are deeply disappointed that this budget does not maintain pay raise parity between civilian and military federal employees. A 4.5% raise for civilian workers, aligning with the military, would be consistent with the Employment Cost Index (ECI) and show compliance with the Federal Employee Pay Comparability Act (FEPCA).

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At present, civilian federal workers earn 27.5% less than private sector employees. A 2% pay rise for civilian federal employees in 2025 will do little to close this gap. While we recognise efforts to address pay compression, these steps only scratch the surface of the broader issue of inadequate federal pay.

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Without tackling the problem of low wages, the federal government will continue to face challenges in recruiting and retaining top talent, as the burden of insufficient pay remains a persistent obstacle.”

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Also read - Thrift Savings Plan

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2025 Federal Pay Raise vs. Inflation

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According to the Consumer Price Index (CPI) data from the Department of Labor, the current economic conditions indicate an annual inflation rate of 3.5% as of the end of March. However, inflation is expected to taper off to 2.2% by the end of the year. While some federal employees living in high cost-of-living areas may receive a raise higher than the flat 2.0% due to locality pay, it is unlikely to fully keep pace with the rising prices.

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However, federal employees have an opportunity to outpace inflation through their Thrift Savings Plan (TSP). By maintaining a disciplined investment strategy and properly allocating their funds among the five index funds, employees can achieve better returns. To learn how to develop such a strategy, join our zero-cost TSP Webinars held every month!

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In conclusion, the debate over federal employee pay raise 2025 reveals significant concerns and varying proposals. President Biden's budget suggests a 2% increase, diverging from previous years and prompting criticism from unions like the AFGE advocating for a 4.5% raise to align with military increases and address wage gaps. This decision, made amidst complex political negotiations, underscores ongoing challenges in federal compensation policies and their impacts on recruitment and retention within the government workforce. The final outcome remains uncertain pending further legislative deliberations.