U. S. OFfice of Personnel Management
Compensation Administration

Facts About the Federal
Wage System

The Federal Wage System is a uniform pay-setting system covering Federal employees paid by the hour. The aim is to make sure that Federal trade, craft, and laboring employees in a local wage area who do the same kind of work get the same rate of pay. Successful labor-management partnership is a hallmark of the Federal Wage System, with labor organizations involved in all phases of providing an equitable pay system.

The common wage schedules consist of 15 grades, covering most nonsupervisory employees. Schedules for supervisors and leaders are based on the nonsupervisory schedules, but are separate from them.

In each pay grade, there are five step rates­each 4 percent apart­with the second step based on the going rate in private industry.

Night shift differentials are provided as a uniform percentage of the hourly rates of pay for employees paid under the system.

This uniform pay-setting system guarantees that:

The Federal Wage System­WHY

The Government developed the Federal Wage System to bring pay equity in each geographic area where Federal wage employees work.

Before the Federal Wage System, inequity was not uncommon. A janitor in one agency in a geographic area could have been paid a certain hourly rate while a janitor just across town but in a different agency, performing the same work and with the same seniority, could have been paid substantially less.

This was clearly unfair, yet for many years there was no central authority to establish wage equity for Federal trade, craft, and laboring employees. Then in 1965, President Lyndon Johnson ordered the Civil Service Commission (predecessor of the Office of Personnel Management) to work with Federal agencies and labor organizations to study the jumble of different agency systems and combine them into a single wage system that would be sensible and just.

The President called for common job-grading standards as well as wage policies and practices which "would ensure interagency equity in wage rates based on statistically valid surveys." He established two basic principles for these policies and practices:

That wages be set according to local prevailing rates.         
That there be equal pay for equal work and pay distinctions in keeping with work distinctions.

When the Federal Wage System was established by law in 1972, a joint labor-management Federal Prevailing Rate Advisory Committee with an independent Chairman was created. Agencies and labor unions are members of the Committee, which advises the Director of the Office of Personnel Management on Federal Wage System pay policies.

The Federal Wage System­WHO

The aim of the Federal Wage System is to pay employees according to local prevailing rates.
The Federal Wage System regular pay plan covers most trade, craft, and laboring employees in the executive branch. Postal Service employees are not covered by the Federal Wage System.

Some Federal Wage System employees are covered by special pay plans in special circumstances. The Office of Personnel Management authorizes such plans when agencies are seriously handicapped in recruiting and retaining qualified employees by using regular pay rates.

The Federal Wage System­HOW

The Federal Wage System (FWS) is a partnership worked out between the Office of Personnel Management, other Federal agencies, and labor organizations.

The Office of Personnel Management prescribes the basic policies and procedures to ensure uniform pay-setting under the Federal Wage System, including such things as the way wage surveys are designed and conducted, the way wage schedules are constructed, the way the job-grading system works and how common job-grading standards are applied, and the establishment of common pay administration rules.

In order to issue common job-grading standards for major occupations, occupational specialists from the Office of Personnel Management follow specific steps to develop new standards and to update existing standards. They make full occupational studies. These studies include onsite visits to interview employees, supervisors, and union representatives. Specialists write standards and ask agencies and unions for comments which are carefully considered and, where appropriate, incorporated into final job-grading standards. Federal agencies are required to apply these standards.

The Office of Personnel Management also defines the geographic boundaries of individual local wage areas and reviews survey job descriptions to ensure that they are accurate and current.

In addition, the Office of Personnel Management works with agencies and unions to schedule full-scale wage surveys in which data collectors visit private industry establishments every 2 years. Wage change surveys, not requiring personal visits, are conducted in the intervening years. The two types of surveys are conducted at the local level under the guidance of Local Wage Survey Committees.

Wage adjustments become effective in accordance with what is commonly referred to as the 45-day law. This law states that the Government has 45 working days to put Federal Wage System pay adjustments into effect after each FWS wage survey starts. Wage schedules are effective with the first pay period after the 45-day period expires.

Setting the Wages in Your Area

For each wage area, the Office of Personnel Management identifies the "lead" agency­-that is, the Federal agency with the most trade, craft, and laboring employees in that wage area. The lead agency for each wage area is responsible for conducting wage surveys, analyzing data, and issuing wage schedules under the policies and procedures prescribed by the Office of Personnel Management. Each lead agency is advised by an Agency Wage Committee. All agencies in a wage area pay their hourly wage employees according to the wage schedules developed by the lead agency.

Labor organizations also play an important role in the wage determination process by providing representatives to the two Federal Wage System committees which are deeply involved in this process. The employee unions having the greatest number of wage employees under exclusive recognition in each lead agency are named the "lead" unions and designate two of the five members of a lead agency's national level Wage Committee. Locally, the union with the most employees under exclusive recognition in a wage area designates one of the three members of each Local Wage Survey Committee.

In addition, labor organizations nominate half of the Federal employees who collect wage data from private enterprise employers. A partnership team of one labor data collector and one management data collector visits each surveyed employer.

Comparability: Wage System and General Schedule

The Federal Wage System is based on "comparability with local prevailing rates," which means that your pay is based on what private industry is paying for similar work levels in your local wage area. Federal Wage System employees are paid the full prevailing rate (100 percent) at step 2 of their grade. At step 5, the highest step, Federal Wage System employees may be paid 12 percent above the prevailing rate. In comparison, the General Schedule, a different statutory pay system covering most "white-collar" employees, pays employees based on surveys of non-Federal (i.e., private industry, State and local government) pay for similar work levels in a pay locality. There are a number of additional differences between the two pay systems in terms of geographic coverage, pay ranges, and how pay is adjusted annually.

Pay Caps and Delays

The preceding sections described the basic structure of the Federal Wage System and its method of setting wages based on local prevailing rates. However, during some years, separate legislation may limit or delay annual wage adjustments for Federal Wage System employees.

If you have any questions about the system, and how it affects you, ask at your personnel office. The people there will be glad to help.

Page created 18 June 1997