8th Pay Commission Salary Calculator: How is fitment factor determined? Know the complete formula for increase in basic salary and pension

A new Pay Commission is constituted by the Central Government, usually every 10 years, to revise the salaries, allowances and pensions of central employees and pensioners. The recommendations of the 7th Pay Commission came into effect from January 1, 2016, after which discussions have intensified regarding the formation and fitment factor of the 8th Pay Commission (8th CPC).

The most basic and decisive parameter of salary and pension revision under Pay Commission. Fitment Factor It happens. This is a multiplier, which decides by what percentage or how many times the current basic pay of any employee will directly increase as soon as the new pay commission is implemented.

In simple words, fitment factor is the formula which converts the basic pay of the old pay commission into the basic pay of the new pay commission. The main basis behind determining this is the Dearness Allowance (DA), inflation (CPI-IW) added till then and the real wage increase given to improve the living standards of the employees.

Basic principles for determining fitment factor:

$$\text{Potential Fitment Factor} \approx 1 + \left(\frac{\text{DA at that time \%}}{100}\right) + \text{Real Wage Hike (Additional Real Increase \%)}$$

For example:

• What happened in the 7th Pay Commission: By the end of the 6th Pay Commission, the DA of the employees had increased to approximately 125%. 7th Pay Commission to reset it to zero (0%) by adding an actual increment of about 14.2% to the base of 100% basic + 125% DA i.e. 2.25 Fitment factor of 2.57 Had decided.

• Basis in 8th Pay Commission: When the new pay commission comes into effect, the existing DA (which has crossed 50%) is merged into the basic pay and an additional increment is added on top of it to give a fitment factor between 2.86 to 3.68 as demanded by the employee unions.

The mathematical formula to calculate the new basic salary under the New Pay Commission is very straightforward:

$$\text{New Basic Pay} = \text{Existing Basic Salary (7th CPC Basic Pay)} \times \text{Fitment Factor}$$

As soon as the new basic salary is fixed, all other major allowances are recalculated based on it:

1. Dearness Allowance (DA): DA again starts at 0% from the first day of the new pay commission and then increases every 6 months based on the Consumer Price Index (AICPI).

2. House Rent Allowance – HRA: The new basic pay is calculated on a fixed slab of 30%, 20% or 10% depending on the category of the city (X, Y, Z class).

3. Transport Allowance (TA): It is determined as per the new basic pay and the respective pay level.

At present minimum basic pay (Pay Matrix Level-1) under 7th Pay Commission ₹18,000 is per month. If different fitment factors are implemented in the 8th Pay Commission, the change in minimum basic salary will be as follows:

It is being argued on behalf of employee unions that in view of rising inflation, education and health costs, the fitment factor should be kept at least between 2.86 to 3.68, so that the minimum salary can come in the range of ₹51,000 to ₹66,000.

More than 65 lakh central pensioners and family pensioners of the country also get the direct benefit of fitment factor:

• Jump in minimum pension: In the 7th Pay Commission, the minimum pension was fixed at ₹9,000 per month. If fitment factor of 2.86 is applied, the minimum pension will increase to approximately ₹25,740 per month (if it is 3.68, it can go up to ₹ 33,120).

• Calculation of full pension: 50% of the last drawn basic pay is fixed as pension. As soon as the basic pay is revised, the basic pension of the pensioner also gets a direct increase by the same multiplier.

Historically, the journey of fitment factor and minimum wage in every Pay Commission has been as follows:

• 5th Pay Commission (1996): The minimum basic pay was increased from ₹750 to ₹2,550.

• 6th Pay Commission (2006): Pay band and grade pay system was introduced. fitment factor approx 1.86 It was decided and the minimum basic pay was increased from ₹2,550 to ₹7,000.

• 7th Pay Commission (2016): The grade pay system was abolished and a new ‘Pay Matrix’ was introduced. In this Fitment factor of 2.57 was implemented, increasing the minimum basic salary directly from ₹7,000 to ₹18,000.

Traditionally, it takes about 18 to 24 months to implement Pay Commission recommendations from the formation of the commission to the submission of the final report. However, after the memorandum was submitted by the employee organizations, internal review on this subject is going on at the government level.

The final fitment factor will be decided by the Cabinet on the basis of the then economic situation, tax revenue, fiscal deficit and GDP growth.