The final months of the calendar year are a tumultuous time for any president, but particularly for a new one. Along with the budget proposal and debt ceiling coverage, the president also issues a proposal for annual federal employee raises.
This proposition was due at the end of August, and President Trump submitted a 1.9% proposed raise. Understanding what this means for employees can help you understand how your income will be impacted in the next few months.
When Will Federal Employee Raises Go Into Effect?
President Trump announced the proposed raise as part of the 2018 budget. While the rest of the budget is typically debated (especially in the case of this year’s federal retirement plans), the federal employee raise is often accepted by Congress.
Employees can expect an average raise of 1.9% starting in the first pay period of 2018. According to the president’s plan, military personnel will receive an average pay increase of 2.1%.
When you read the president’s statement, you will note that he issued a 1.4% raise with a 0.5% average increase in locality pay. This means that most employees will receive at least a 1.4% raise, but the remaining average 0.5% may vary by geographical region, as well as position, agency, and time spent within a company. Some people may receive more and others less.
Pay Raises Are Typically a Nonpartisan Issue
Pay raises typically depend on the current state of the economy. During tough economic times, the president or Congress might pass on a pay raise increase over the year, essentially freezing employee salaries. During other years, there may be increases to make up for these previous shortcomings.
To get an idea of the average pay raises over the past decade, check out this chart by Federal Pay.
In 2008 and 2009, the average pay raises stretched close to 3% and then were frozen from 2011-13. Even in the years following, most employees only received an average federal employee raise of around 1%.
While some presidents might have an idea for how employee pay is covered in their agenda, the annual raise typically isn’t a partisan issue. Even though Congress can push back against a lower raise suggestion, it rarely does.
Why Should the Government Continue to Issue Federal Employee Raises?
From an employee perspective, the answer to this question is easy: everyone wants more money and most people think they should be earning more for the work they do. However, there are additional benefits to continuously offering federal employee raises.
For example, as long as the private sector offers employee raises, the public sector will need to keep up. What is the incentive for employees to work at a government position when they can earn significantly more at a private company?
Lower salaries can drive the best talent away and leave government positions vacant or filled with under-qualified candidates. This year, a few Congress members tried to push the president for a 3% raise to make the government as competitive as the private sector, but the bills quickly died in committee.
Additionally, government wages need to keep up with the average cost of living. Due to inflation, basic items like homes, food, and gas increase each year. The typical inflation rate hovers around 1-3% — close to the amount of the annual employee raise. If inflation increases and salaries don’t, then employees can’t stretch their dollars are far as they could before.
What Do Annual Raises Mean for You?
Whenever your pay rate is about to change, it’s always wise to review your current situation and determine the best way to handle your finances.
For example, many people place half of their additional income into their retirement plan or other savings options. So if you’re expecting a 2% pay increase, you would move 1% of that to your savings or retirement accounts.
When you’re reviewing your finances, make sure you consider the following criteria. It’s by no means a complete list, but it does cover the basics to make you think about your entire financial picture:
- Are you saving enough for retirement and will you be able to retire on time?
- Do you have health and life insurance to cover your family if something were to happen?
- Do you have a balanced investment portfolio?
- What major purchases or expenses do you foresee in the next 10 years (e.g., buying a house, sending a child to college)? Are you saving enough to afford it?
By scheduling these regular check-ups on your finances, you can make sure you never fall behind your financial plan and weather almost any financial storm that comes your way.
If you have any questions about federal employee raises or want to talk to someone about your financial options, set up an appointment with a benefits specialist in your area. We can help you work through your choices and find financial plans that work for you.