Labor costs (salary and benefit costs) for federal civilian
employees often constitute a substantial portion of an agencys
budget, typically exceeding 50 percent of its total budget. Even
for those agencies that have considerable amounts of contract or
grant funding, labor costs are an important part of the budget.
Once an agency hires someone, there is a continuing requirement
to pay that person until they leave.
It might seem as though budgeting labor costs would be relatively
easy, compared with forecasting contract or grant needs. However,
many different aspects of federal salaries and benefits can make
budgeting accurate labor costs complicated, especially when an
agency has thousands of civilian employees. Here are some factors
that agencies should consider when budgeting labor costs.
Salary Costs (Object Class 11)
Federal fiscal years can have three different lengths in hours,
depending when they begin and end: 2080 hours, 2088 hours, or 2096
hours (typically in leap years). The U.S. Office of Management and
Budget (OMB) Circular A-11 lists the number of hours for each
This difference can become an important variable in an agencys
budget. For instance, 2096 hours is a 0.77 percent increase over
2080 hours. For a person with a salary of around $100,000, the
difference equates to approximately $770 in salary, with probably
another $200 in benefits. For an agency with 1,000 people and an
average salary cost of $100,000, this equals nearly $1,000,000
needed to pay for those additional 16 hours.
Federal salaries are paid by the hour. So if you know the grade and
step of an employee, how do you calculate the hourly rate from the
salary tables? Do you divide by 2080, 2088, or 2096 hours? None of
the above! You use 2087, which is the average of the three
possibilities, weighted by the number of years in each category.
The salary tables at the U.S. Office of Personnel Management (OPM)
website give the typical annual and hourly amounts.
Federal employees are generally paid every two weeks, so there are
26 pay periods (or 26.1 or 26.2) in a year. Fiscal years rarely
start on the first day of a pay period, so the first and last pay
period of a year are usually less than 10 paid days. Pay period
numbers are based on the calendar year, so pay period 1 starts with
the first pay period in January. This means that the first and last
pay period of the fiscal year (starting October 1) is usually
around pay period 19.
Not every federal agency uses the same start date for pay period 1,
however. While not critical to the budget needs, you do need to
know how to track labor costs by pay period, as well as when paid
payrolls will post to your agencys financial system.
One last point on pay periods: Because most fiscal years are more
than exactly 26 pay periods (2080 hours), occasionally there is a
need for a pay period 27 to put things back in balance. This does
not affect the budget, but it can affect an employees taxable
income. It is possible for an employee to receive 27 paychecks in
one taxable year, giving them an annual taxable income about 4
percent higher than what the pay table shows.
If you know a person is a GS-12, step 5, can you determine her
salary? Well, you might need to know where she is physically
working. The federal government has 31 unique locality pay areas,
plus the rest of the United States, Alaska, and Hawaii, not to
mention overseas posts of duty. A GS-12, step 5, is paid a
different rate in just about every location. Additionally, there
are agencies that use pay bands or other schedules different from
the standard GS-1 through GS-15, with 10 steps per grade.
Once you figure out what the current pay rate is, you must
determine how long before it changes. Most rates will change at the
beginning of pay period 1, when the federal pay raise takes effect.
But with locality pay, it will not be the same percentage for
What about a step increase? The average wait-time for a step
increase is approximately 1.5 years. Those in the first three steps
get an increase every 52 weeks, and those in the next three steps
get an increase every 104 weeks. (Those in the last three steps get
an increase every 156 weeks.) However, most employees are in the
first six steps. A person could also get a promotion (permanent or
temporary), a quality step-increase award, or the termination of a
Full-Time Equivalents (FTEs)
According to OMB (Circular A-11, Section 85), FTE employment means
the total number of regular straight-time hours (not including
overtime or holiday hours) worked by employees divided by the
number of compensable hours applicable to each fiscal year. Annual
leave, sick leave, compensatory time off, and other approved leave
categories are considered hours worked for purposes of defining FTE
employment. Therefore, when the fiscal year is 2080 hours, a person
working (or paid for) 2080 hours is one FTE. When the fiscal year
is 2096 hours, a person working 2096 hours is still one FTE, but
the cost of that FTE is different. Note that overtime and holiday
hours do not affect FTE calculations.
While most people are compensated for 2080, 2088, or 2096 hours,
some people are scheduled to work less than full-time, and they do
not constitute one FTE. They may work only 24 or 32 hours per week,
or they may work 40 hours per week, but only up to a total of 1040
hours. To further complicate matters, these people often have
special benefit rules.
Official FTE use is reported on the 113G report. This report always
uses exactly 2080 hours (26 pay periods). It can do this because it
does not generally start counting on the first day of the fiscal
year, nor does it end on the last day of the fiscal year.
Many people use hours from their payroll system to calculate FTEs,
which typically gives a more accurate count, especially near the
beginning of the fiscal year. Either method should give you roughly
the same count for the entire year.
Other Salary Costs (Object Class 11)
There are a number of other issues that affect the budget for
salary costs. For some agencies, overtime is a big issue. The
overtime rate of pay is 150 percent of regular time up to GS-9,
step 4. After that, it varies until about GS-12, step 6, where it
becomes the same as the regular rate. OPM publishes the overtime
rates in the salary tables.
The best way to deal with overtime is to look at two years worth of
data by pay period to see if you can discern any pattern that would
help you budget. In theory, overtime is discretionary, so agencies
could manage to the amount that they budget. Holiday pay is what
people get when they work on a federal holiday. Once again, look at
the data and see if there is a pattern. Working and taking
compensatory time has no impact on budgeting for labor costs.
Cash awards can be thought of as discretionary, even though some
agencies have negotiated levels with their unions. Some agencies
budget for cash awards as a percent of salariesfor example, 1
percent. Some agencies also use time-off awards, but those do not
have a financial cost.
Federal employees earn annual leave at a defined rate based on
their seniority. Typically, they can carry over a balance of up to
240 hours at the end of the leave year (end of pay period 26).
Senior executives and people with overseas tours could have higher
balance limits. If federal employees resign or retire, they are
paid their annual leave balance in a lump sum.
Even people with a limit of 240 hours could accumulate more than
400 hours with a well-timed retirement. This could easily cost the
agency $25,000 and significantly more for senior executives and
others with high balance limits. Review the historical data on lump
sum annual leave payments for your agency, and recognize that most
people retire at the end of December, leaving you much of the year
to adjust if you have unexpectedly large lump sum payouts.
Some agencies have people who use leave without pay (LWOP)
regularly, often because they lack available annual or sick leave.
In times of financial difficulty, some agencies encourage staff to
take LWOP to reduce labor costs. If a person takes two hours of
LWOP in a pay period, it means that they will only be paid for 38
hours of work. This does not change their salary, but it does
change the labor cost for that person for that pay period. Check
the LWOP statistics for your agency to determine if this could be a
consideration for you.
Benefit Costs (Object Class 12)
Benefit costs cover a wide range of items: primarily healthcare,
retirement, thrift savings plan (TSP), social security, Medicare,
and life insurance. Some are relatively easy to calculate (social
security, Medicare, and retirement), but others vary by individual.
Healthcare can range from none (maybe they depend on a spouse) or
varied based on hundreds of plan choices and costs. TSP deductions
and matches are determined by the participants, as is life
Some benefits change when salary changes (retirement, TSP, and
social security), but others do not (healthcare). OPM annually
announces the average healthcare increase that takes effect in
January, but the specific increase depends on the choices of each
individual, and many also take advantage of open season to change
health plans. Check the amount your agency pays each pay period by
comparing the pay periods before and after the annual increase
Employees that do not have a full-time, permanent appointment may
not qualify for the same benefits. The only good way to calculate
benefits is to determine what is actually being paid and use that
as a fixed amount or a percent of salary.
There are many other costs that are budgeted as personnel benefits
(Object Class 12):
- recruitment bonuses
- relocation bonuses
- retention allowances
- permanent change of station relocation costs
- cost of living allowances (not to be confused with pay raises)
- student loan repayment
- allowances for uniforms
- public transit subsidies.
Review agency historical cost data to determine if there are
significant costs in these activities and the appropriate amounts
Benefits for Former Employees (Object Class 13)
Object Class 13 is considered to be part of the overall category
personnel compensation and benefits. Some agencies budget for
unemployment compensation, workers compensation, and severance
payments (voluntary or involuntary). There are typically historical
or special circumstances that require agencies to budget for these
costs, and those circumstances will dictate how much you should
budget for these costs.
Armed with this information, you should now be able to better
budget and manage federal labor costs.