Understanding the Military Pay System

Military pay is an important component of a service member’s compensation. But, the different types of military pay can be confusing at first. Understanding the military pay system can help you better manage your finances and set yourself up for long-term financial security. Find more details on pay types and rates at Military OneSource.

Understanding the military compensation system can seem confusing if you’re a service member or have service members in your family. With a better grip on the different types of pay, you can create a spending plan that sets your family up for financial health and success.

While most of your paycheck will be based on your years of service and rank, you may also earn additional money through special and incentive payments or allowances. Some examples include basic allowance for housing (BAH), which helps offset costs for service members who don’t live on base, and cost-of-living adjustments (COLA), which are non-taxable money paid based on your duty station’s location and zip code.

In addition to these, you’ll likely see a number of other types of pay listed on your monthly LES. If you’re unsure what any of these mean, check out the Defense Finance and Accounting Service for more details on each pay component, or contact a personal financial manager at your local Military and Family Support Center for help.

How Does Payment Work in the Military

How Does Payment Work in the Military?

There are many elements that make up regular military compensation. The largest component is called basic pay. Most service members receive this, and is determined by their rank and years of service. The military also pays allowances which are intended to compensate for specific needs, like food or housing. Most allowances are tax-exempt.

In the past, military raises were determined by using a complicated formula based on the Employment Cost Index (ECI), a measure used to track the cost of labor for businesses. However, in January 2010, President Obama announced that future military raises will be based on an increase in the Consumer Price Index (CPI), which is the best way to determine how much civilian wages are increasing.

While it is difficult to predict the exact amount of a future military pay raise, you can learn more about the general process by visiting the Defense Finance and Accounting Service website or Military Compensation. Additionally, a financial counselor at your nearest Military OneSource can provide more details about pay and allowance types and help you create a spending plan to safeguard your finances.

Military paydays are usually on the 1st and 15th of each month unless those dates fall on weekends or holidays. In this case, you will be paid the weekday preceding those dates.

How Do I Read My Military Pay Stub

How Do I Read My Military Pay Stub?

Your military paycheck is a lot more complicated than your civilian counterparts. Aside from your basic pay, you receive a number of different allowances and entitlements that aren’t part of your normal paycheck. Service members get a Leave and Earnings Statement (LES) – the military’s version of a paystub or payslip each month to keep track of all this. Whether you’re new to the military or a veteran, understanding how to read your LES can help you avoid any financial mistakes and keep you from overpaying.

The first section on your LES contains important identification information. The first row includes your name listed in YNAME format (last name, first initial, middle initial). The second line contains your service branch, rank, and pay grade. The third and fourth lines show your pay date in YYMMDD format, along with the DFSN or ADSN of your disbursing office. The fifth and sixth lines are your year-to-date (YTD) totals for allowances, deductions, allotments, and more.

The next section of your LES covers Federal Tax information. Fields 31 through 38 detail your federal income taxes withheld in this period and the Federal Insurance Contributions Act (FICA) amount withheld YTD. Fields 39 through 43 contain details for Social Security.

How is Military Pay Split

How is Military Pay Split?

Military paychecks are not split in the same way civilian salaries are, and there are different pay types. A service member’s base pay is their primary source of income, and it is calculated based on their rank and years of active duty. The rest of their military compensation comes from allowances that help cover expenses like food and housing.

For example, a service member who lives in government-provided housing receives Basic Allowance for Subsistence (BAS), which offsets costs of meals and snacks. Service members who live outside of the continental United States, or OCONUS, are compensated for housing costs by receiving Overseas Housing Allowance (OHA). In both cases, these allowances make up a significant portion of most military paychecks.

All of these allowances are paid on a monthly basis, just like base pay. But the amounts vary each month based on what happens to a servicemember during that period of time. For instance, a servicemember might get promoted, PCS, take out a loan, get married, start dental coverage for the family, or move into or out of a combat zone, hazardous duty location, or other special allowance area.

When a service member retires, they will receive a pension based on their years of active service and their disability rating (if applicable). This is considered deferred compensation and, under the Uniformed Services Former Spouses Protection Act, is divisible in divorce. The formula used to calculate the pension is a high-36-month average multiplied by the servicemember’s years of active service.