Locality Pay for Federal Employees: How It Is Determined

Locality pay is a geographic supplement added to base General Schedule (GS) salaries to offset the higher cost of labor in specific metropolitan and non-metropolitan areas across the United States. Governed by statute and administered by the U.S. Office of Personnel Management (OPM), the system ensures that federal compensation remains competitive with prevailing private-sector wages in each defined area. Understanding how locality pay is determined, which employees qualify, and where the boundaries fall is essential for federal workers assessing total compensation under the federal pay scales and compensation framework.

Definition and scope

Locality pay is authorized under 5 U.S.C. § 5304, which directs that locality-based comparability payments be provided to General Schedule employees to reduce pay disparities between federal and non-federal employment in specific geographic areas. The Federal Employees Pay Comparability Act of 1990 (FEPCA) created the statutory foundation for the program, directing that the pay gap between federal and comparable private-sector positions be targeted for reduction.

As of the 2024 pay year, OPM designates 54 locality pay areas, including major metropolitan regions such as San Jose-San Francisco-Oakland, Washington D.C.-Baltimore, and New York-Newark, as well as a catch-all "Rest of U.S." category that covers locations not assigned to a named area. The "Rest of U.S." rate applies to the largest share of federal employees by geographic footprint, though named metro areas carry higher percentages.

Locality pay applies specifically to:

1. General Schedule (GS) employees in covered positions
2. Employees of certain other pay systems linked to GS rates by law or regulation
3. Senior-level (SL) and scientific and professional (ST) employees whose pay is set in relation to Executive Schedule rates subject to locality adjustments

Federal wage system (FWS) employees — such as trade, craft, and labor workers — are paid under a separate survey-based mechanism and do not receive locality pay in the same form. The General Schedule GS pay system page details how GS grade and step interact with locality rates to produce total annual salary.

How it works

OPM calculates locality pay percentages based on data from the Bureau of Labor Statistics (BLS) National Compensation Survey (NCS), which measures private-sector wages across occupational categories and geographic areas. The Federal Salary Council and the President's Pay Agent — composed of the Secretaries of Labor, Defense, and Treasury along with the OPM Director — review BLS data annually and recommend locality pay percentages for each defined area.

The process follows a structured sequence:

1. BLS NCS data collection: Private-sector wage data is gathered by occupational classification in each locality area.
2. Pay gap calculation: OPM compares federal GS salaries to equivalent private-sector positions in the same area; the gap is expressed as a percentage.
3. Federal Salary Council review: An advisory body composed of employee union representatives and management officials reviews the gap analysis and submits recommendations to the Pay Agent (5 U.S.C. § 5304(d)).
4. Pay Agent recommendation: The Pay Agent forwards a recommended schedule to the President.
5. Presidential action: The President issues an executive order establishing the final locality pay percentages for the upcoming calendar year.

The 2024 locality pay rates range from approximately 16.82% for the "Rest of U.S." area to over 44% for the San Jose-San Francisco-Oakland area (OPM 2024 Locality Pay Tables). The rate is applied to base GS salary — not to other supplements such as night differential or overtime — producing an adjusted annual rate.

Common scenarios

Scenario 1: Employee moves between locality areas A GS-12 employee transferring from the "Rest of U.S." area (16.82%) to Washington D.C.-Baltimore (33.26%) receives the higher locality rate effective on the date the position in the new area begins. The locality rate is tied to the duty station, not the employee's residence.

Scenario 2: Remote worker with a duty station outside a named metro area Under OPM's telework and remote work guidance, a remote employee's locality pay is determined by the official duty station recorded in the agency's personnel system, not where the employee physically works day-to-day. An employee living in a high-cost city but whose official duty station is in a lower-rate area receives the lower rate. Agencies retain discretion to designate duty stations, and this has been a source of administrative dispute when remote work arrangements are formalized. Refer to federal telework and remote work policies for the broader regulatory context.

Scenario 3: New locality area petition Groups of employees or unions may petition OPM to have a geographic area reclassified from "Rest of U.S." into a named locality area. The Federal Salary Council evaluates petitions based on labor market data, commuting patterns, and pay gap evidence. Approval results in a designated area with its own BLS survey sample and, typically, a higher locality percentage.

Decision boundaries

Several important distinctions govern whether and how locality pay applies:

GS vs. Senior Executive Service (SES) SES members are not paid under the GS locality system. SES pay is set within a range capped at Executive Schedule Level II, and while the Pay Agent does consider locality factors in aggregate, individual SES members do not receive a discrete locality pay percentage added to a base rate. The Senior Executive Service overview explains SES compensation structure in full.

Duty station vs. residence Locality pay follows the official duty station address on record in the Federal Personnel and Payroll System (FPPS), not the employee's home address. This distinction becomes consequential when agencies authorize remote work across area boundaries.

Temporary duty (TDY) assignments An employee on temporary duty travel does not have the duty station changed to the TDY location. Locality pay continues at the home-station rate during TDY, while per diem and travel allowances cover the cost differential of the temporary location. Special pay rates and allowances covers supplemental pay mechanisms that operate alongside locality pay.

Pay caps Locality pay cannot cause total annual pay to exceed the rate for Executive Schedule Level IV (5 U.S.C. § 5304(g)). In high-cost areas with high GS grades, this cap can suppress the full statutory locality percentage for employees at the top of the GS-15 scale.

Non-GS pay systems Federal Wage System employees, Foreign Service officers, and certain law enforcement positions operating under special rate tables are governed by separate compensation mechanisms. The locality pay percentages published by OPM do not apply directly to those pay systems, though some draw on the same BLS data in modified form.

The office of personnel management role page provides broader context on OPM's administrative authority over federal compensation systems, including its role in publishing and updating the annual locality pay tables that agencies are required to apply.

References

• 5 U.S.C. § 5304
• OPM designates 54 locality pay areas
• OPM 2024 Locality Pay Tables
• OPM's telework and remote work guidance