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October 1, 2024
Earlier this year, the U.S. Office of Personnel Management (OPM) released a final rule that prohibits federal agencies from using a candidate’s previous non-federal salary history in setting pay in employment offers. The OPM hopes to close inequitable pay gaps; implement merit system principles; and advance diversity, equity, and inclusion. Agencies are required to be in full compliance with the rule today, October 1, 2024.
Federal Pay Systems: The rule will impact several federal pay-setting regulations, including those for: (1) the General Schedule (GS)[1]; (2) prevailing rate[2]; (3) Administrative Appeals Judges (AAJ); (4) Administrative Law Judges (ALJ); (5) Senior Executive Service (SES); and (6) senior-level and scientific or professional (SL/ST) pay systems.
Prior to the Final Rule: Pursuant to each of the above pay-setting system regulations, the standard agency practice was to set pay at the minimum rate. However, agencies had the authority to set pay above the minimum rate for new employees if specific factors existed. Under the GS, prevailing rate, AAJ, and ALJ pay systems, agencies had the authority to set pay above the minimum rate if the agency determined that the candidate had superior qualifications or if special need existed for the candidate’s services under certain criteria. One factor that agencies were able to consider was the candidate’s existing pay, recent salary history, or a salary documented in a competing job offer. The SES and SL/ST pay systems did not require an agency to set pay at the minimum rate and, instead, already require an agency to consider specific factors when setting pay.
The Final Rule: The final rule prohibits agencies from considering a candidate’s salary history as a factor in setting pay for new employees. If an agency seeks to set pay above the minimum rate of the applicable range under the GS, prevailing rate, AAJ, or ALJ pay systems, that adjustment must be based on factors other than a candidate’s non-federal pay history, such as how pay has been set for employees who had similar qualifications (such as level, type, or quality of skills or other qualities). Similarly, when setting pay under the SES or SL/ST pay systems, the agency must base the pay on enumerated factors and cannot consider a candidate’s non-federal pay history. When setting pay based on prior federal salary for reappointed or current employees, agencies must have a policy that supports consistency in setting pay for employees.
This final rule is consistent with the trend across many states toward pay transparency and equity.
This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice. Always consult an attorney with specific legal issues.
[1] The General Schedule is a pay scale used for the majority of civilian white-collar federal employees in professional, technical, administrative, and clerical positions. The GS system is designed with standardized classification criteria for determining the grade levels of positions, and each General Schedule grade has a range of pay consisting of ten step rates.
[2] The prevailing rate system is a uniform pay-setting system that requires payment and benefits of local area prevailing wages to construction workers performing work on federally funded construction projects.
