• The General Schedule (GS) is a worldwide pay system that covers more than 1.5 million employees.

• The GS pay schedule has 15 grades and 10 steps in each grade covering more than 400 occupations. Pay varies by geographic location.

• The law requires a two-part GS pay adjustment in January each year with pay adjustments based on surveys conducted by the U.S. Bureau of Labor Statistics (BLS).

• Based on legal requirements, BLS conducts locality pay surveys in 34 separate geographic areas, with survey data representing non-Federal salaries (including State and local) at distinct levels of work.

• Since a distinct work-level to work-level pay comparison is required, beginning pay rates for GS jobs must be compared to beginning pay rates for non-Federal jobs at the same level of work, etc.

• When OPM compared Federal pay with BLS data for non-Federal pay at the same levels of work, OPM found, for all locality pay areas, non-Federal pay was 26 percent ahead of Federal pay as of March 2011. (Pay gaps for other years can be found in the "Pay Disparities and Comparability Payments" sections of annual Pay Agent reports.)

Bureau of Labor Statistics

Salary survey data from the Bureau of Labor Statistics (BLS), U.S. Department of Labor, are used to set and adjust General Schedule (GS) rates of pay. BLS is an independent statistical agency responsible for measuring labor market activity, working conditions, and price changes in the economy.

In GS Pay Setting, Prices / Living Costs Are Not Used

It is a misconception among some Federal employees and others that increases in GS rates of pay are based on prices and/or living costs. Measures of price levels, such as the BLS Consumer Price Index (CPI), are not used to set GS pay.

National Compensation Survey

BLS indicators of non-Federal salary levels include the National Compensation Survey (NCS) produced by the BLS Office of Compensation and Working Conditions. NCS is a survey of non-Federal employee salaries, wages, and benefits. The survey is designed to produce data at local levels, within broad regions, and nationwide. See the National Compensation Survey website.

NCS is used to set and adjust General Schedule pay -

• For annual across-the-board pay adjustments for the base GS under the provisions of 5 U.S.C. 5303, and
• For locality pay in separate geographic areas under 5 U.S.C. 5304.

For those two purposes, two different components of NCS are used as briefly explained below.

Across-the-Board Pay Adjustments

NCS data are used to derive the Employment Cost Index (ECI). The ECI measures changes in labor costs. Annual adjustments to the base General Schedule (i.e., GS pay rates not including locality pay) each January are based on the annual change in the ECI for wages and salaries for private industry workers less 0.5 percentage points, as of September, 15 months preceding the January adjustment. See the Employment Cost Trends website. (The President has authority under 5 U.S.C. 5303(b)(1) to provide an alternative pay adjustment because of national emergency or serious economic conditions affecting the general welfare.)

Locality Pay

Under the law, salary surveys conducted by BLS must be used to set locality pay. These data come from NCS, which in addition to national measures such as the ECI, also provides compensation data at local levels. These data include local wage estimates used by the Federal Salary Council and President's Pay Agent in the GS pay-setting process and are the basis for GS locality rates of pay. (The President has authority under 5 U.S.C. 5304a to provide an alternative level of payment because of national emergency or serious economic conditions affecting the general welfare.)

BLS conducts salary surveys to estimate non-Federal salaries in each of the GS locality pay areas. Each year, BLS provides data from these surveys to the Office of Personnel Management (OPM). As part of the staff support it provides to the Federal Salary Council and the President's Pay Agent, OPM uses the data to calculate local disparities between Federal and non-Federal pay ("pay gaps"). These pay gaps are taken into account every year as part of the Federal pay adjustment process.

Data for NCS locality pay surveys are collected by BLS field economists. The field economists -

• Contact non-Federal establishments to collect the wage data,
• At each participating establishment, use probability sampling methods to choose jobs from which to collect the wage and benefit data, and
• Apply a position classification system to match the selected jobs to both occupation and work level based on a crosswalk between Federal GS occupational series and Standard Occupational Classification (SOC) codes using the OMB SOC Manual. See the Standard Occupational Classification (SOC) System Manual 2010.

Job matching by work level is a critical piece of the BLS data collection process. In addition to requiring that locality pay be set based on BLS surveys, the law also requires that calculation of pay gaps take work level into account. NCS is the only BLS product that provides the work-level detail the locality pay program requires.

Another BLS Survey: Occupational Employment Statistics (OES)

While not designed for the locality pay program, other BLS occupational data such as those from the OES survey are useful in other contexts. See OES data.

• Are the most comprehensive BLS source for information on employment for detailed occupations,
• Are the basis for BLS information regarding current and projected occupational employment 10 years in the future,
• Provide general information on employment, wages and salaries by occupation for all metropolitan areas of the U.S.,
• Are used to establish the fixed employment weights for the ECI, which as discussed above are the basis for annual adjustments to the base General Schedule, and
• Cover virtually all wage and salary jobs, including those in Federal establishments.

The OES data are currently not used to calculate pay gaps for the GS locality pay program because OES data do not associate wages and salaries with specific levels of work (e.g., grades). However, to address the need for locality pay data by level of work for more localities than are currently available through the NCS, the President's FY2011 budget proposal calls for the use of a model that would combine wage data by locality from the OES and level of work data from the NCS.

Simplified Example of NCS Pay Comparisons (Engineers)

The table below shows a simplified comparison between salaries for Federal employees under the General Schedule (GS) and non-Federal salaries as published by the Bureau of Labor Statistics (BLS) in National Compensation Survey (NCS) data. To simplify the comparisons, OPM chose full-time, non-supervisory employees in a single occupation nationwide and in two local areas. Specifically, the table shows the number of full-time non-supervisory GS engineers, the average 2008 GS salary nationwide and in the San Jose/San Francisco (San Jose) and Indianapolis GS locality pay areas, the average non-Federal salary from the BLS NCS nationwide survey and surveys in the San Jose and Indianapolis locality pay areas.

The example illustrates the impact of level of work on the relationship between GS and non-Federal salaries. For engineers in the selected locations, certain cells of the table are blank. A blank means that either the Federal Government does not have any employees in that GS grade or location or that BLS did not find enough data to publish at that grade/location. In the actual annual locality pay process, OPM uses data modeled by BLS to fill in the gaps in published BLS data.

NCS national data derived from hourly rates in table 8 of the National Compensation Survey Bulletin multiplied by 2,087 average annual work hours. San Jose and Indianapolis data were derived from published data. Federal data are from the Central Personnel Data File maintained by OPM.

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Basis For Locality Pay Area Definitions

The law does not specify detailed requirements for defining General Schedule (GS) locality pay areas. In implementing the locality pay program in 1994, the Federal Salary Council considered how to define locality pay areas. After developing many alternatives, the Council recommended that the existing Metropolitan Statistical Areas (MSAs) established by the Office of Management and Budget (OMB) were suitable as the basis for defining locality pay areas. The President's Pay Agent accepted the Council's recommendation and directed the U.S. Office of Personnel Management (OPM) to define locality pay areas on the basis of OMB's definitions of metropolitan areas. Since then, the Council and Pay Agent have continued to use OMB-defined metropolitan areas as the basis for locality pay area definitions. The OMB-defined metropolitan areas now include Combined Statistical Areas (CSAs) as well as MSAs.

33 Areas and "Rest of U.S"

Locality pay is set by comparing GS and non-Federal pay in each locality pay area, based on salary surveys conducted by the Bureau of Labor Statistics (BLS). BLS is unable to survey all the many areas where Federal employees work, and we currently have 33 separate metropolitan locality pay areas. All other employees in the contiguous 48 States are included in the "Rest of U.S." (RUS) locality pay area. BLS conducts a number of small-scale surveys in the RUS area and combines the results for setting the RUS locality pay rate.

Areas of Application

In its efforts to recommend appropriate locality pay area boundaries, the Federal Salary Council was mindful that some locations in the large RUS locality pay area would be adjacent to metropolitan areas that are the basis for higher-paying locality pay areas, and that in some cases it might make sense to include such RUS locations in the higher-paying locality pay area. Over time, the Council recommended and the Pay Agent approved criteria for evaluating such locations in a consistent and equitable fashion. These locations are called "areas of application." The current criteria for establishing areas of application are:

• For adjacent MSAs and CSAs: To be included in an adjacent locality pay area, an adjacent MSA or CSA currently in the RUS locality pay area must have at least 1,500 GS employees and an employment interchange measure of at least 7.5 percent.
• For adjacent counties that are not part of a multi-county MSA or CSA: To be included in an adjacent locality pay area, an adjacent county that is currently in the RUS locality pay area must have at least 400 GS employees and an employment interchange measure of at least 7.5 percent.
• For Federal facilities that cross locality pay area boundaries: To be included in an adjacent locality pay area, the whole facility must have at least 500 GS employees, with the majority of those employees in the higher-paying locality pay area, or that portion of a Federal facility outside of a higher-paying locality pay area must have at least 750 GS employees, the duty stations of the majority of those employees must be within 10 miles of the separate locality pay area, and a significant number of those employees must commute to work from the higher-paying locality pay area.

Proposing Changes

Individuals and groups interested in proposing changes to current GS locality pay area boundaries may contact the Federal Salary Council-

• By email at Pay-Leave-Policy@opm.gov or
• By writing to the Council at
  ATTN: Federal Salary Council
  U.S. Office of Personnel Management
  1900 E Street, NW., Room 7H31
  Washington, DC 20415-8200