The U.S. Government pays cost-of-living allowances (COLAs) to white-collar civilian Federal employees in Alaska, Hawaii, Guam and the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands. Approximately 49,000 employees, including U.S. Postal Service employees, receive these COLAs. Section 5941 of title 5, United States Code, and Executive Order 10000 (as amended) authorize the payment of COLAs in nonforeign areas.

To set the COLA rates, the Office of Personnel Management (OPM) surveyed the prices of over 300 items, including goods and services, housing, transportation, and miscellaneous expenses. OPM conducted these surveys in each of the COLA areas and in the Washington, DC, area.

Note:  The Nonforeign Area Retirement Equity Assurance Act (the Act) as contained in subtitle B (sections 1911-1919) of title XIX of the National Defense Authorization Act (NDAA) for Fiscal Year 2010 (Public Law 111-84, October 28, 2009) transitions the nonforeign area cost-of-living allowance (COLA) authorized under 5 U.S.C. 5941(a)(1) to locality pay authorized under 5 U.S.C. 5304 in the nonforeign areas as listed in 5 CFR 591.205. The Act also extends locality pay to American Samoa and other nonforeign territories and possessions of the United States where no COLA rate applies.  See Compensation Policy Memorandum 2009-27 for more information.

COLA and Locality Pay Rates in Nonforeign Areas 2009-2012

NOTE 1: The Full Locality Rates are used to compute the phased-in Payable Locality Rates using a 1/3rd factor in 2010, a 2/3rds factor in 2011, and a 3/3rds factor in 2012. Also, the Full Locality Rates are used in computing retirement-creditable basic pay and retirement contribution deposits for employees who make an election under NAREAA section 1917.

NOTE 2: The EX-IV cap ($155,500) on General Schedule locality rates will affect certain employees in Alaska in 2011 and 2012. Because of that cap, GS-15 employees at steps 9 and 10 won't receive the full 24.69% as the Payable Locality Rate in 2012, and won't be credited in 2011 with the Full Locality Rate of 24.69% in computing retirement basic pay and deposits under NAREAA section 1917. For those at GS-15, step 9, the actual locality pay percentage is 23.22% instead of 24.69%. For those at GS-15, step 10, the actual locality pay percentage is 20.06%.

The locality rate cap does not affect the locality pay phase-in percentage. It is still based on 2/3rds or 3/3rds of the full locality percentage (in 2010 and 2011, respectively). It just means that the employee may not receive the full amount of the locality pay. This will affect the computation of the COLA reduction for certain grandfathered employees, as provided in NAREAA section 1915(b)(2)-(3).

The Federal Government pays post differentials to eligible civilian white collar employees in the nonforeign areas shown in the table below. The post differential is based on:

• Extraordinarily difficult living conditions;
• Excessive physical hardship; or
• Notably unhealthful conditions.

To be eligible for a differential:

• The employee must be a citizen or national of the United States.
• The employee's official duty station or detail to temporary duty must be in a post differential area.
• Immediately prior to being assigned to duty in the post differential area, the employee must have maintained his or her actual place(s) of residence outside the post differential area for an appropriate period of time (generally at least 1 year or more).
• Current residents of a post differential area must have been originally recruited from outside the differential area and have been in substantially continuous employment by the United States or by U.S. firms, interests, or organizations.

In areas where the Office of Personnel Management has authorized both a cost-of-living allowance (COLA) and a post differential, the Government pays the full COLA and a partial differential so as not to exceed 25 percent of the employee's hourly rate of basic pay. COLAs are exempt from Federal income taxes; post differentials are not.