In major good news, the Union Cabinet has recently approved the Terms of Reference (ToR) of the 8th Central Pay Commission, bringing the implementation of 8th CPC a step closer for over 50 lakh central government employees and more than 70 lakh pensioners. Although the implementation date for 8th CPC is likely to go beyond 2026, the recommendations are likely to hike salaries and pensions of Level 1, Level 2, and Level 3 central government employees significantly. Not just that higher pay grade employees will benefit significantly too. Fitment factor is the main formula for deciding new salaries and pensions under 8th CPC.
8th Pay Commission Terms of Reference (ToR):
According to the Cabinet on October 28, the 8th Central Pay Commission will be a temporary body. The Commission will comprise of one Chairperson; One Member (Part Time) and one Member-Secretary. It will make its recommendations within 18 months of the date of its constitution. It may consider, if necessary, sending interim reports on any of the matters as and when the recommendations are finalized.
Justice (retired) Ranjana Desai will head the 8th Pay Commission panel.
The panel will consider recommendations while keeping in view the following factors:
i. The economic conditions in the country and the need for fiscal prudence;
ii. The need to ensure that adequate resources are available for developmental expenditure and welfare measures;
iii. The unfunded cost of non-contributory pension schemes;
iv. The likely impact of the recommendations on the finances of the State Governments which usually adopt the recommendations with some modifications; and
v. The prevailing emolument structure, benefits and working conditions available to employees of Central Public Sector Undertakings and private sector.
The recommendations to be submitted in 18 months, which is on expected lines.
8th Pay Commission Fitment Factor:
Among many recommendations under 8th CPC is also the fitment factor which will be crucial in deciding the new salaries and pensions for the employees.
As per Kotak Institutional Equities and Ambit Capital estimates, the fitment factor could range between 1.8 to 2.46. While some predict that the fitment factor could be at 2.57, which is the same as 7th Pay Commission.
Let's understand how 8th Pay Commission fitment factor will impact salaries and pensions of Level 1, Level 2 and Level 3 central government employees including peons, attendants and support personnel.
8th Pay Commission Salary Hikes:
Currently, under 7th Pay Commission, the minimum basic salary goes from Rs 18,000 to Rs 2.50 lakh. The salary varies by level, grade and positions among other parameters.
Fitment Factor Estimate Of 1.8:
If 8th CPC committee fixes fitment factor at 1.8, then salaries could rise by a whopping 80%.
Level 1: Basic pay of Rs 18,000 will rise to Rs 32,400 (Rs 18,000 X 1.8).
Level 2: Basic pay of Rs 19,900 will rise to 35,820 under 7th CPC.
Level 3: Basic pay of Rs 21,700 under 7th CPC will increase to Rs 39,060.
Fitment Factor Estimate of 2.46:
If the fitment factor is fixed at 2.46, then the salaries could rise by a massive 146% across Level 1, Level 2 and Level 3 employees.
Level 1: Basic pay of Rs 18,000 under 7th CPC, will increase to Rs 44,280 under 8th CPC.
Level 2: Basic pay of Rs 19,900 will rise to Rs 48,954.
Level 3: Basic pay of Rs 21,700 will rise to Rs 53,382.
Fitment Factor Estimate Of 2.57:
If the committee decided upon 2.57 fitment factor for 8th CPC, then the salaries of these employees could soar by a huge 157%.
Level 1: Basic pay of Rs 18,000 will be increased to Rs 46,260 under 8th CPC.
Level 2: Basic pay of Rs 19,900 will surge to Rs 51,143.
Level 3: Basic salary of Rs 21,700 will increase to Rs 55,769 under 8th CPC.
Check full list of pay matrix under 7th CPC to understand the basic salaries as per grades on GoodReturns. Click Here -
1. Fitment Factor and Basic Pay:
Under the 8th Pay Commission, the fitment factor, a multiplier on basic pay, is expected to range between 1.83 and 2.46, potentially increasing the minimum basic pay for all government employees and pensioners.
2. Allowances:
Dearness Allowance (DA) defined as the cost-of-living adjustment, which has recently undergone a 2% hike, will merge with the basic pay upon implementation of the 8th pay commission.
House Rent Allowance (HRA) and Travel Allowance (TA) are expected to be recalculated based on the new basic pay.
3. Pension Reforms:
Pension amounts are anticipated to be enhanced for better post-retirement benefits. Also, the commission is expected to focus on pension parity and timely pension disbursement.
4. Pay Matrix:
A revised pay matrix will likely be introduced to clarify salary slabs and simplify subsequent salary progression and increments.
Disclaimer: The views and recommendations expressed are solely those of the individual analysts or entities and do not reflect the views of Goodreturns.in or Greynium Information Technologies Private Limited (together referred as "we"). We do not guarantee, endorse or take responsibility for the accuracy, completeness or reliability of any content, nor do we provide any investment advice or solicit the purchase or sale of securities. All information is provided for informational and educational purposes only and should be independently verified from licensed financial advisors before making any investment decisions.
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