CPM 2005-27
Attachment

December 22, 2005

MEMORANDUM FOR CHIEF HUMAN CAPITAL OFFICERS

The Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Act, 2006 (Public Law 109-115, November 30, 2005), contains two provisions that affect the determination of pay adjustments for certain prevailing rate (wage) employees in FY 2006.

Section 813 of the Act provides that pay increases for certain prevailing rate employees in FY 2006 may not exceed 3.33 percent—the sum of the January 2006 General Schedule (GS) across-the-board percentage adjustment and the difference between the overall average percentage locality payments for GS employees in FY 2005 and FY 2006. Section 843(b) of the Act provides that, notwithstanding section 813, pay adjustments for certain prevailing rate employees in FY 2006 may not be less than the January 2006 pay adjustments received by GS employees where they work. Section 813 of the Act applies to wage employees covered by 5 U.S.C. 5342(a)(2) or 5348. Section 843 of the Act applies to wage employees covered by 5 U.S.C. 5344 or 5348. Sections 813 and 843 of the Act do not apply to wage employees who negotiate their pay under section 9(b) of Public Law 92-392.

Lead agencies must establish wage rates for affected prevailing rate employees for FY 2006 by determining the maximum rates applicable under the pay limitation provisions of section 813, determining the minimum pay increase applicable under section 843(b), and then applying the higher of the rates to affected prevailing rate wage schedules. In some wage areas, wage schedule adjustments under the minimum increase provisions of section 843(b) will be higher than under the maximum increase provisions of section 813. In addition, as a result of section 843(b), certain prevailing rate wage areas will have more than one wage schedule in effect during FY 2006.

In addition to regular appropriated and nonappropriated fund wage schedules, prevailing rate pay systems have numerous special pay practices that are affected by sections 813 and 843. Pay adjustments for employees who are paid special rates or are paid from special wage schedules are explained in detail in an attachment to this memorandum.

Determining Rates Under Section 813

Section 813 of the Act provides that pay increases for wage employees in FY 2006 may not exceed 3.33 percent—the sum of the GS across-the-board percentage adjustment and the difference between the overall average percentage locality payments for GS employees in FY 2005 and FY 2006.

If any rate exceeds the rate payable on September 30, 2005, by more than 3.33 percent, or if any rate exceeds the rate payable on September 30, 2005, by more than 3.33 percent due to rounding, that rate must be reduced to the highest rate that does not exceed 3.33 percent. If the annual wage survey of private sector rates in a given wage area indicates an adjustment of less than 3.33 percent is warranted under section 813, the lower prevailing rate will be payable under that section.

Wage schedules issued pursuant to a wage survey under the authority of 5 U.S.C. 5343 are subject to the limitation in section 813. The limitation also applies to wage schedules produced by reference to schedules adjusted pursuant to wage surveys and to wage schedules that have been temporarily set aside from certain provisions of the Federal Wage System (FWS) pending study by the Federal Prevailing Rate Advisory Committee. The adjustment of a wage rate required pursuant to a change in an applicable Federal, State, or local minimum wage rate is not subject to the limitation in section 813. Rates established as the result of an adjustment in an applicable minimum wage rate will be the basis for determining the limitation on subsequent adjustments indicated by an annual prevailing rate wage survey.

Determining Rates Under Section 843(b)

Section 843(b) of the Act provides that adjustments in basic pay that take place in FY 2006 under 5 U.S.C. 5344 and 5348 may not be less than the percentage adjustments under 5 U.S.C. 5303 and 5304 received by GS employees in the same location in January 2006.

The geographic boundaries of appropriated and nonappropriated fund prevailing rate wage areas and of GS locality pay areas are not the same. Consequently, section 843(b) requires that certain prevailing rate wage areas have more than one wage schedule in effect during FY 2006. Although a majority of prevailing rate wage areas coincide only with part of the Rest of U.S. (RUS) GS locality pay area, many prevailing rate wage areas coincide with parts of more than one GS locality pay area.

In each situation where a prevailing rate wage area's boundary coincides with a single GS locality pay area boundary, the lead agency for that wage area must establish one wage schedule applicable in the wage area. For example, the Cascade, MT, nonappropriated fund FWS wage area coincides with part of the RUS GS locality pay area. In this example, the minimum prevailing rate adjustment for the Cascade wage area is the same as the RUS GS locality pay area adjustment, 2.83 percent.

In each situation where a prevailing rate wage area coincides with part of more than one GS locality pay area, the lead agency for that wage area must establish more than one prevailing rate wage schedule for that wage area. For example, the boundaries of the Philadelphia, PA, appropriated fund FWS wage area coincide with parts of three different GS locality pay areas—New York-Newark-Bridgeport, NY-NJ-CT-PA; Philadelphia-Camden-Vineland, PA-NJ-DE-MD; and Rest of U.S. In this example, the lead agency for the Philadelphia wage area must establish three separate wage schedules for use during FY 2006 in the Philadelphia FWS wage area. In the part of the Philadelphia wage area that coincides with the New York-Newark-Bridgeport, NY-NJ-CT-PA locality pay area, the minimum prevailing rate adjustment is 3.77 percent; in the part coinciding with the Philadelphia-Camden-Vineland, PA-NJ-DE-MD GS locality pay area, the minimum prevailing rate adjustment is 3.30 percent; and in the part coinciding with the RUS GS locality pay area, the minimum prevailing rate adjustment is 2.83 percent.

Prevailing rate employees at locations where GS employees do not receive locality payments under 5 U.S.C. 5304, such as Alaska, Hawaii, and Puerto Rico, must receive minimum increases equal to the increases received by GS employees in the RUS locality pay area. Prevailing rate employees in overseas locations described in 5 U.S.C. 5343(a)(5) also must receive increases at least equal to the increases received by GS employees in the RUS GS locality pay area.

Prevailing rate adjustments under section 843(b) must be rounded upwards when necessary so that such adjustments are not less than the relevant GS percentage adjustments that occur in January 2006.

Effect of Changes in GS Locality Pay Area Definitions

The Office of Personnel Management (OPM) has issued a final rule establishing several new locality pay area definitions effective January 2006. The final rule merges three GS locality pay areas—Kansas City-Overland Park-Kansas City, MO-KS; St. Louis-St. Charles-Farmington, MO-IL; and Orlando-The Villages, FL—with the Rest of U.S. locality pay area. There are currently two wage schedules each for the Kansas City, MO; Jacksonville, FL; and St. Louis, MO, FWS wage areas. Prevailing rate employees will be moved on a step-for-step basis to the RUS-based wage schedules for each of these wage areas on the normal effective date for the applicable wage area.

In addition, the final rule creates three new GS locality pay areas—Buffalo-Niagara-Cattaraugus, NY; Phoenix-Mesa-Scottsdale, AZ; and Raleigh-Durham-Cary, NC. There is currently one wage schedule for the Buffalo, NY; Phoenix, AZ; and Central North Carolina wage areas, with their last floor increases based on the RUS pay adjustment. The lead agency will have to construct two wage schedules for these wage areas, and prevailing rate employees working in locations that coincide with the three new locality pay areas will be moved on a step-for-step basis from the RUS-based wage schedules for the Buffalo, Phoenix, and Central North Carolina wage areas to the Buffalo-, Phoenix-, and Raleigh-based wage schedules for these wage areas on the normal effective date for the wage area.

The final rule also adds Fannin County, TX, to the Dallas-Fort Worth, TX GS locality pay schedule. FWS employees in Fannin County will be moved on a step-for-step basis from the RUS-based wage schedule for the Dallas-Fort Worth wage area to the Dallas-Fort Worth-based wage schedule for this wage area on the normal effective date for the wage area.

Effective Date of Retroactive Pay Adjustments

The wage rates on certain FY 2006 wage schedules are effective retroactively to the normal effective date prescribed on the wage schedule by the lead agency. This uniform date is fixed for all agencies using a wage schedule. For example, the wage schedule for the Washington, DC, FWS wage area has a normal effective date in FY 2006 of October 16, 2005. Employees paid from this wage schedule are entitled to pay adjustments retroactive to October 16, 2005. Likewise, the two wage schedules for the Boston, MA, FWS wage area have normal effective dates in FY 2006 of October 30, 2005. Employees paid from these wage schedules are entitled to pay adjustments retroactive to October 30, 2005.

Effect on Appropriations

Section 843(c) of the Act provides that funds used to carry out the provisions of section 843(b) must be paid from appropriations made to each applicable department or agency for salaries and expenses for FY 2006. Section 843(b) affects certain prevailing rate employees of nonappropriated fund instrumentalities. In cases where the pay entitlement for prevailing rate employees paid from nonappropriated funds is higher under section 843(b) than under section 813, agencies must fund the difference from appropriations for agency salaries and expenses for FY 2006. Section 843(c) does not provide for the funding of pay adjustments under section 843(b) beyond the end of FY 2006.

Obtaining Wage Schedules

Prevailing rate wage schedules will continue to be distributed by lead agencies through normal agency distribution channels. In addition, FWS wage schedules are accessible via the Internet through the Wage and Salary Division of the Department of Defense Civilian Personnel Management Service.

For further information, please contact OPM's Salary and Wage Systems Group, Center for Pay and Performance Policy, at (202) 606-2838 or by email at pay-performance-policy@opm.gov.

cc: Technical Assistants to the Chief Human Capital Officers
Human Resources Directors

Attachment

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