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: Locality Pay Fact Sheet (January 2020)
COLA/Locality Pay for Federal Workers in Hawaii and other Non-Foreign Areas
Background: 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 non-foreign areas.
The Non-foreign 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 non-foreign 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 non-foreign areas as listed in 5 CFR 591.205. The Act also extends locality pay to American Samoa and other non-foreign territories and possessions of the United States where no COLA rate applies.
When the NAREA Act in 2010 extended locality pay to non-foreign areas, locality pay for these areas was phased in over three years beginning in January 2010. Unlike COLA, locality pay is credited for salary for retirement purposes, TSP contributions, etc, and is taxable.
COLA is reduced $0.65 for each $1.00 increase in locality pay, meaning that locality pay would have to increase to about 38% before COLA is zeroed out for federal workers in Hawaii. COLA is not generally taxable by the federal government, but may be subject to income tax for Hawaii state residents.
On December 26, 2019 President Trump issued an Executive Order to implement the January 2020 pay adjustments, and OPM issued the 2020 pay schedules for Federal civilian employees. The Executive order authorizes a 2.6 percent across-the-board increase for statutory pay systems and locality pay increases costing approximately0.5 percent of basic payroll, reflecting an overall average pay increase of 3.1 percent for 2020 (3.10 % for Hawaii, before the COLA offset is applied). The 2020 pay schedules are effective the first day of the first applicable pay period beginning on or after January 1, 2020 (January 5, 2020, based on the standard biweekly payroll cycle). Employees in nonforeign areas entitled to cost-of-living allowances (COLAs) which includes Hawaii, Guam/CNMI, have corresponding reductions in their COLAs when locality rates increase.
(For Federal Civilian Employees in the City and County of Honolulu)
Year COLA Rate % Payable Locality Rate % Full Locality Rate %
2009 25 0 0
2010 20.94 4.72 14.16
2011 16.07 11.01 16.51
2012 12.25 16.51 16.51
2013 12.25 16.51 16.51
2014 12.25 16.51 16.51
2015 12.25 16.51 16.51
2016 12.05 16.81 16.81
2017 11.32 17.92 17.92
2018 10.99 18.43 18.43
2019 10.64 18.98 18.98
2020 10.28 19.56 19.56
Locality Pay buy-back provisions allowed employees who retired between January 1, 2010 and December 31, 2012 to elect to treat part of COLA as if it were locality pay for retired annuity purposes. That opportunity is now closed.
Various models used to estimate salary gaps for Hawaii put locality pay at above the 38% to zero out COLA. However, locality pay is included in the current political deliberations about federal pay and benefits.
The Honolulu-Pacific Federal Executive Board continues to receive inquiries regarding the COLA/Locality Pay transition that suggest that there is still some confusion amongst employees and their HR support regarding the status of COLA and Locality Pay in Non-Foreign Areas (which include Hawaii, Guam and the CNMI). One particular issue seems to be people confusing the three year phase in of Locality Pay under NAREAA (2010-2012) with the actual increases in Locality Pay required to zero out the COLA rates (which could take many years). The following guidance was recently provided by OPM on this issue:
What is known as the residual COLA will continue in the non-foreign areas until it is completely phased out by locality pay increases. COLA has not been phased out in any of the non-foreign areas.
The locality and COLA rates in each COLA area are provided here on the OPM web-site:
HYPERLINK "https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/nonforeign-areas/" \l "url=COLA-Rates" https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/nonforeign-areas/ - url=COLA-Rates
As can be seen, the COLA rates for the State of Hawaii are 10.28 percent for all of the islands except for Hawaii County which has a residual COLA amount of 4.42 percent.
The three year phase-in period under NAREAA was actually to phase in the relevant locality rate, not to phase out COLA completely. COLA should continue to be paid at the reduced rates indicated on OPMs website to all otherwise eligible employees, including employees hired after passage of the NAREAA.
If your agencys HRO has questions regarding COLA and Locality Pay in Non-Foreign Areas, they should contact OPM (Pay and Leave Services).
Links: 2020 Pay Tables
State of Hawaii: HYPERLINK "http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2020/HI.pdf" http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2020/HI.pdf. Currently, COLA is set at 10.28 % for Honolulu, Kauai and Maui counties, and at 4.42 % for Hawaii County.
Guam/CNMI/American Samoa receive Locality Pay at the Rest of US (RUS) rate, the rate for 2019 is 15.95%. Pay tables are located at HYPERLINK "https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2020/RUS.pdf" https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2020/RUS.pdf. The COLA rate for Guam and CNMI is 12.62% in 2020. There is no COLA currently authorized for American Samoa.
To calculate your annual pay, including locality pay for a given location, you can also use the calculator on the OPM website: HYPERLINK "http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/2020/general-schedule-gs-salary-calculator/" http://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/2020/general-schedule-gs-salary-calculator/. * The COLA rate, set at 10.28% for Honolulu, Hawaii (or for your specific location if not in Honolulu), would then be applied to this salary for an estimate of total pay for 2020. However, it is important to remember that only your salary (base with locality pay) is used to complete deductions such as for retirement contributions, social security payroll tax, Medicare, employee TSP contributions, federal retirement annuity calculations, etc.
*Special situations such as post differentials, special pay, etc would require a different calculation. Eligible white collar employees residing in areas where post differentials may be authorized can find rates under the Post Differentials tab here: HYPERLINK "https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/nonforeign-areas/" https://www.opm.gov/policy-data-oversight/pay-leave/pay-systems/nonforeign-areas/.
Those authorized special pay rates can find them at: HYPERLINK "http://apps.opm.gov/SpecialRates/2020/Index.aspx" http://apps.opm.gov/SpecialRates/2020/Index.aspx.
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