Is it too soon to start talking about the 2026 federal pay raise? Apparently not since the first whispers of it recently surfaced.
The White House Office of Management and Budget (OMB) told federal agencies to plan for a 3% pay raise for federal employees in 2026. The figure was published in a document with guidance for agencies on how to prepare and submit their fiscal year 2026 budget requests. It states:
For the purpose of planning agency budget requests for the FY 2026 Budget, agencies should include a provisional estimate of a three percent civilian pay raise for January 2026. Agencies should consult with their OMB representative on the provisional estimate for the military pay raise for January 2026. In making their final estimates for the FY 2026 Budget, agencies should anticipate revising pay raise amounts after the President makes a pay raise decision. Your OMB representative will provide additional guidance during Budget season. The pay guidance above will apply to the statutory pay systems (General Schedule, Foreign Service, and Veterans Health Administration), the Executive Schedule, the Senior Executive Service (SES), and wage grade employees. You should be prepared to provide supporting detail on calculating pay costs, including separate identification of the wage base reflected in the submission. For compensation costs, you must explicitly justify any increases in average compensation for the budget year.
Does this mean federal employees should start budgeting for a 3% pay raise in 2026? Not yet.
How the Annual Federal Pay Raise is Determined
The annual pay raise for federal employees is based on politics, and this year’s election adds another layer of complexity to the process.
The Biden administration is floating the 3% figure for budget planning purposes, but we also know that President Biden will not be in office for a second term since he has announced he will not be seeking reelection. A different president may suggest a different 2026 pay raise. Even the OMB document says that federal agencies should plan on revising their estimates “after the president makes a pay raise decision.”
But is the president’s proposal the last word on a raise? Not necessarily. Congress can override whatever figure the White House suggests.
Congress will sometimes pass annual federal pay rate adjustments in an appropriations bill. When this occurs, it is usually done in the Financial Services and General Government appropriations bill.
However, Congress is not legally required to address a pay raise for federal employees in bills that it passes. Thus, Congress often remains silent on the issue and defers to the president’s proposal.
The political process is complex and is sometimes confused with annual retirement cost of living adjustments (COLA).
What About Inflation?
Although the rate of inflation has slowed recently, prices for everything from food to insurance premiums are higher, and we experienced the highest inflation rates in over 40 years during the first years of this decade. Would this factor into the 2026 pay raise?
Inflation technically does not factor into a pay raise for federal employees. Again, the process is purely political.
That being said, the fact that it is a political process could mean that it is influenced by inflation to some extent. If inflation and prices climb and/or remain high, politicians may be more motivated to give federal employees a higher raise, even if just to curry political favor.
FedSmith author Ralph Smith compiled data showing how historical federal pay raises compared to inflation. Pay raises were sometimes higher during years with higher inflation rates, but not always. Pay raises sometimes outpaced inflation.
Conclusion
It’s too early for federal employees to start planning their personal budgets around a 3% pay raise, but it should not be entirely dismissed. The OMB figure may serve as a starting point in the annual political process when it gets underway.
