The pay increase, which will take effect on Jan. 9, will be divided between a 2.5 percent base pay increase for all employees and an average 1 percent locality pay adjustment that varies according to where employees work.

Employees in the San Francisco area will receive the largest total pay hike, 4.3 percent. Employees in New York City will receive a 3.96 percent increase and Hartford, Conn. employees will get a 3.93 percent increase.

Employees in the Washington, D.C., area will receive a 3.71 percent increase. Employees in cities not designated as locality pay areas, will get a raise of at least 3.26 percent.

Locality-based raises became a fixture of federal pay in 1994, following implementation of the 1990 Federal Employees Pay Comparability Act. The act's proponents identified a gap between public and private sector salaries of about 30 percent. The act was designed to close the gap to about 5 percent, but raises under the law have never been fully funded.

The 3.5 percent pay increase veers from a proposal included in the president's fiscal 2005 budget proposal, which recommended holding civilian pay raises at an average 1.5 percent and giving military service members a 3.5 percent pay increase. The president has said that ongoing military conflicts make uniformed personnel more deserving of a higher pay raise.

A bipartisan bloc of lawmakers fought for military-civilian pay parity and the fiscal 2005 omnibus spending bill passed by Congress earlier this month directed President Bush to give employees the larger pay increase.