Festive Cheer for Federal Employees!
October 16, 2024
2026 Federal Pay Raise - Is The Federal Employee Pay Raise 3% This Time?
The Office of Management and Budget (OMB) has advised that federal agencies should plan for a 3% pay raise for civilian employees starting in January 2026. However, the President will make the final decision later on federal pay raise 2026.
For military pay raises, agencies like the Defense Department are encouraged to consult with their OMB representatives to estimate the amount, but no specific figure has been confirmed yet.
Looking back, President Biden proposed a 2% pay raise for federal civilian employees in January 2025, which is notably lower than the 5.2% raise they received in 2024. Federal employees also saw a 4.6% raise in 2023 and 2.7% in 2022.
On the military side, the President’s budget for FY2025 suggests a 4.5% pay increase for military service members, which both the House and Senate agree on in the FY2025 National Defense Authorization Act (NDAA). The House version of the NDAA even includes a nearly 20% raise for junior enlisted service members.
While the 3% raise for federal civilian employees in 2026 is still just a recommendation and could change, it has already caught the attention of many government workers. It's important to remember that federal pay raises are influenced by many factors, including budget constraints and political decisions, so the final outcome may differ.
Let Us See The Data in Table From 2023 To 2026 Federal Pay Raise
Historical Context of Federal Pay Raises
2023:
- Across-the-board raise: 4.1%
- Locality pay increase: 0.5%
- Total increase: 4.6%
- This was indeed the largest wage increase for federal workers since 2002.
2024:
- Across-the-board raise: 4.7%
- Locality pay increase: 0.5%
- Total increase: 5.2%
- The FAIR Act proposed a higher raise (8.7%), but the final budget approved a lower increase of 5.2%, in federal pay increase 2024.
2025
- FAIR Act proposal: 7.4%
- Biden Administration proposal: 2.0%
- Final increase: The final increase for 2025 has not been determined yet. The Biden Administration's proposal is just a recommendation, and the actual increase will be decided through the budget process.
Intorducing Federal Pension Advisors, We know that planning for your financial future can feel overwhelming at times. The journey toward financial freedom is not always straightforward, and it often comes with its own set of challenges. And that is why we are here for you and for your sterss free retirement planning.
Our independent advisors are here to prepare you for and support you through a fulfilling retirement. Our services like, Financial planning, wealth management, etc can help you with your financial advice and retirement. You can also checkout our calculators especially for federal employees, TSP calclulator, FERS pension calculator, Paycheck calculator.
The Process of Determining Federal Employees Pay Raise
1. Inflation Measurement:
The primary driver for federal employee pay raise adjustments is inflation, which is measured by the Consumer Price Index (CPI). The CPI tracks changes in the cost of living, including everyday expenses such as housing, food, healthcare, and transportation. When inflation rises, the government may adjust federal pay to help employees keep pace with the increased cost of living. Without such adjustments, federal workers could experience a reduction in purchasing power, as their salaries wouldn’t stretch as far. The government closely monitors CPI fluctuations to ensure pay raises are aligned with inflation trends.
2. Economic Analysis:
Beyond inflation, the country's overall economic health is a critical factor. Key indicators such as Gross Domestic Product (GDP) growth, unemployment rates, and interest rates provide insight into the broader economic landscape. When the economy is performing well, there is typically more room for wage increases.
Conversely, during times of economic downturn or stagnation, the government may be more cautious in granting pay raises, as doing so could strain public finances. For example, high unemployment might lead to an emphasis on job creation rather than wage growth.
3. Budget Constraints:
The federal government operates within a defined budget, and its financial health directly impacts decisions on federal pay. In times of budgetary constraints, such as when the national debt is rising or deficits are expanding, the government may face tough choices about where to allocate funds.
federal employee pay raise may be deferred, limited, or reduced to ensure essential services and other critical expenditures are maintained. In some cases, even when there is pressure to increase wages, the government may prioritize spending on infrastructure, defense, or social programs over wage adjustments.
4. Comparison to Private Sector:
The government regularly compares federal salaries to those in the private sector to maintain competitive compensation. If wages in the private sector are rising significantly, the government may need to offer larger raises to attract and retain qualified talent.
Without competitive pay, the public sector could struggle to compete for skilled workers, especially in high-demand fields like technology, healthcare, and engineering. Conversely, if private sector wage growth is slow, the government may feel less pressure to increase federal pay.
5. Legislative Process:
Federal employees pay raise are not automatically applied each year. Instead, they are determined through a legislative process, where Congress has the authority to pass laws or resolutions that establish the guidelines for pay increases.
This process can be influenced by political dynamics, such as the priorities of the current administration, party control of Congress, and public opinion on government spending. In some cases, Congress may approve pay raises that align with inflation, while in other case
6. Presidential Approval:
After Congress passes legislation on federal employees pay raise, the President plays a key role by either approving or vetoing the proposed increases.
The President’s stance on pay raises often reflects the administration’s overall economic policies and goals. For instance, a President focused on reducing government spending might be more inclined to veto or limit pay increases, while a President aiming to stimulate economic growth or support middle-class workers may advocate for more generous raises. Presidential approval is the final step in the process, solidifying the outcome for federal employees.
In conclusion, the process of determining federal employee pay raise 2026 is complex, involving several factors such as inflation, economic conditions, budget constraints, and comparisons with private sector salaries. While the Office of Management and Budget (OMB) has suggested a 3% raise for civilian employees in 2026, this figure is not final and may change depending on the President’s decision, economic circumstances, and political priorities. Historically, federal pay raises have varied, with a significant 5.2% increase in 2024 following a 4.6% rise in 2023
Looking ahead to 2025, a wide gap exists between the proposed 7.4% raise by the FAIR Act and the 2% recommendation from the Biden Administration, indicating that the final decision will emerge from ongoing budget negotiations. Ultimately, federal pay raises must balance economic realities with the goal of maintaining competitive compensation for government employees.
For Further Readings:
Get Updated
Subscribe to our weekly updates for the latest on retirement planning, federal benefits, exclusive webinars, and more!
Download Federal Retirement: Step-by-step Checklist
This comprehensive guide will help you understand your federal benefits, optimize your savings, and plan for a comfortable future.
Recent Post's
