Recently introduced legislation would potentially cut pay for the majority of the federal workforce. The bills were introduced by Senator Bill Cassidy (R-LA) and target telework and locality pay.
The Federal Employee Return to Work Act (S. 4834) would exclude certain federal employees who telework at least one day a week from receiving raises and higher locality pay for their office location being in a high cost-of-living area despite working from home. Federal employees covered under the bill would be paid at the Rest of U.S. locality pay area rate under the General Schedule.
The Federal Employee Locality Accountability in Retirement Act (S. 4833) would exclude locality pay when calculating retirement payments for federal employees enrolled in the Federal Employees Retirement System (FERS). This would have the net effect of cutting federal retirement annuities because locality pay is included in the high-3 calculation.
A federal employee’s basic annuity is computed based on his or her length of service and highest three years of average salary, including locality pay, during three consecutive years of federal service, so if locality pay were excluded from the computation, it could have a significant impact on the monthly annuity payments received in retirement.
Cassidy said in a statement, “Federal employees get paid extra to work in higher-cost cities. But what if they don’t show up to work? Why should they get paid? If you don’t show up for work, you don’t get paid at the same rate just for teleworking.”
He cited a Government Accountability Office (GAO) report, which found that 17 of the 24 federal agencies reviewed by GAO were using 25% or less of their headquarters building’s capacity at the beginning of 2023.
The report was released by Senator Joni Ernst (R-IA). Each of the agencies listed was utilizing under 50% of its available office space. The State Department had the highest occupancy rate at 49%, and the lowest were the Social Security Administration (SSA) and the Department of Housing and Urban Development, both of which were only 7%.
Telework and Locality Pay Abuse
Ernst has also highlighted other problems resulting from federal employees’ teleworking.
In May 2024, she sent a letter to the Defense Health Agency citing a lax labor agreement with a union representing 38,000 Washington, DC area federal employees that did not contain any requirements to verify the employees were working in their proper locations despite being on permanent telework. She wrote:
I am concerned you are undermining the mission of the Defense Health Agency (DHA) to placate the parochial interest that is DHA’s employee unions….Among the provisions of the (new Master Labor Agreement) MLA was authorization for the covered DHA employees to ‘telework for up to ten (10) days per pay period.’ As you know, there are 10 days in a pay period.
There is no requirement to verify from where the employee will be teleworking. DHA is expected to take it on faith that the employee is being forthright and honest with the DHA about their location when they are on permanent telework, creating a situation ripe for locality pay fraud.
In effect, she was concerned that there was nothing to prevent these federal employees from living in an area with a lower locality pay rate and collecting a higher salary based on the assumption they were working in a different locality pay area with a higher rate.
Her investigations have uncovered problems that have validated these concerns. She cited one investigation of the Architect of the Capitol which found that 80% of the 25 remote employees identified in a study had an incorrect duty station and were being paid a higher amount of locality pay.
Another investigation of the Department of Commerce Office found that one in four of the department’s employees sampled had moved to areas with lower rates of pay yet still received the higher pay rates associated with higher cost of living areas.
The IG report found:
- 23% of employees sampled were getting overpaid;
- Employees took nearly a year in some instances to update their duty station, which dictates their locality pay, costing $42,985 in overpayments;
- The Department of Commerce can’t verify employees are showing up to the office as required; and
- Commerce is declining to try and recover overpayments because they lack processes to make sure employees change their duty stations when they begin teleworking, citing that “bureaus do not have adequate controls in place to ensure changes in duty stations are initiated and processed in a timely manner.”
How widespread these problems are remains to be seen, but they have captured the attention of lawmakers, so it’s no surprise that bills are now being introduced to reign in the pay abuses resulting from expanded telework. Even if only a few federal employees are abusing the system, the end result could be that the majority of the federal workforce suffers the consequences.
How Many Federal Employees Are in a Locality Pay Area?
How many federal employees could be impacted by Cassidy’s legislation? As noted previously, it would be significant, particularly in the case of the Federal Employee Locality Accountability in Retirement Act.
As of August 2023, the number of federal employees covered by locality pay was as follows:
| Federal Employees in LPA | 1,546,343 | 68.7% |
| Federal Employees in Rest of U.S. | 702,237 | 31.2% |
| Total | 2,248,580 |
The total number of federal employees in a locality pay area is approximately 1,579,243 including the 2024 locality pay area changes.
Since 2015, the federal government’s locality pay areas (LPA) have increased from 34 to 58, a 71% increase. The actual increase in the number of federal employees covered by locality pay areas is even greater because the government continues to add more federal employees to existing locality pay areas.
What Impact Does Locality Pay Have on Federal Employee Salaries?
Earlier this year, FedSmith author Ralph Smith analyzed locality pay areas and their net effect on annual salaries over time. The results were significant, even more so for higher locality pay areas such as San Jose, CA, and Washington, DC and sometimes resulted in thousands of dollars more over the Rest of U.S.
He has also analyzed the effect that locality pay has on federal pay raises over time. Over an 8 year period, the difference in the pay raise percentages between the Rest of U.S. locality pay area and the Washington, DC and San Francisco pay areas was over 4%.
