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The U.S. Government pays cost-of-living allowances (COLAs) to white-collar civilian Federal employees in Alaska, Hawaii, Guam and the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands. Section 5941 of title 5, United States Code, and Executive Order 10000 (as amended) authorize the payment of COLAs in nonforeign areas.
To set the COLA rates, the Office of Personnel Management (OPM) surveyed the prices of over 300 items, including goods and services, housing, transportation, and miscellaneous expenses. OPM conducted these surveys in each of the COLA areas and in the Washington, DC, area.
The Nonforeign Area Retirement Equity Assurance Act (the Act) as contained in subtitle B (sections 1911-1919) of title XIX of the National Defense Authorization Act (NDAA) for Fiscal Year 2010 (Public Law 111-84, October 28, 2009) transitions the nonforeign area cost-of-living allowance (COLA) authorized under 5 U.S.C. 5941(a)(1) to locality pay authorized under 5 U.S.C. 5304 in the nonforeign areas as listed in 5 CFR 591.205. The Act also extends locality pay to American Samoa and other nonforeign territories and possessions of the United States where no COLA rate applies. See Compensation Policy Memorandum 2009-27 for more information.
NOTE 1: The Full Locality Rates are used to compute the phased-in Payable Locality Rates using a 1/3rd factor in 2010, a 2/3rds factor in 2011, and a 3/3rds factor in 2012. Also, the Full Locality Rates were used in computing retirement-creditable basic pay and retirement contribution deposits for employees who made an election under NAREAA section 1917, except that, for those whose locality pay was limited by a cap, the capped locality pay was used. (See NOTE 2).
NOTE 2: The EX-IV cap ($155,500 in 2011-2013; $157,100 in 2014; and $158,700 in 2015) on General Schedule locality rates affected/affects certain employees in Alaska in 2011-2015. Because of that cap, for GS-15 employees at steps 9 and 10, the full 24.69% as the Payable Locality Rate was/is not payable in 2012-2015. In 2014, for those at GS-15, step 9, the actual locality pay percentage was 23.26% instead of 24.69%. For those at GS-15, step 10, the actual locality pay percentage was 20.10%. In 2015, for those at GS-15, step 9, the actual locality pay percentage is 23.28% instead of 24.69%. For those at GS-15, step 10, the actual locality pay percentage is 20.12%.
The locality rate cap did not affect the locality pay phase-in percentage. That percentage was still based on 2/3rds or 3/3rds of the full locality percentage (in 2010 and 2011, respectively). It just meant that the employee could not receive the full amount of the locality pay. This also affected the computation of the COLA reduction for certain grandfathered employees, as provided in NAREAA section 1915(b)(2)-(3).
The Federal Government pays post differentials to eligible civilian white collar employees in the nonforeign areas shown in the table below. The post differential is based on:
To be eligible for a differential:
In areas where the Office of Personnel Management has authorized both a cost-of-living allowance (COLA) and a post differential, the Government pays the full COLA and a partial differential so as not to exceed 25 percent of the employee's hourly rate of basic pay. COLAs are exempt from Federal income taxes; post differentials are not.