Academic journal article The Public Manager

# Primer for Budgeting Federal Labor Costs: It Is Critical That Agencies Accurately Identify Labor Cost Needs in Their Budgets

Academic journal article The Public Manager

# Primer for Budgeting Federal Labor Costs: It Is Critical That Agencies Accurately Identify Labor Cost Needs in Their Budgets

## Article excerpt

Labor costs (salary and benefit costs) for federal civilian employees often constitute a substantial portion of an agency's 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 fiscal year.

This difference can become an important variable in an agency's 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 agency's 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 employee's 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 GS15, 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 everyone. …

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