Published On: Sat, Sep 12th, 2015

Everything you need to know about the Pay Commission

New Delhi: Ahead of the assembly elections of West Bengal, Assam, Kerala and Tamil Nadu in May’ 2016, the Central government will implement the recommendations of the Seventh Pay Commission after receiving the report of the pay panel within this year, which will benefit 50 lakh central government employees and 56 lakh pensioners including dependents.

Union Finance Ministry, North Block, New Delhi

Union Finance Ministry, North Block, New Delhi

The following are the four main pillars you need to know about a central pay commission reports.

1.What is a Central Pay Commission?
A Central Pay Commission is a panel set up by the Union government to examine various aspects of the compensation package for central government employees. So far, Seven Central Pay Commissions have been set up at intervals of 8 to 13 years. The first pay commission was constituted in 1946, second in 1957, third in 1970, fourth in 1983, fifth in 1994, sixth in 2006 and seventh in 2014.

2.What are the factors pay commissions look at in fixation of pay?
A lot of factors are considered before determining pays of central government employees. The status of the economy is certainly an important consideration. If there is an economic slow down, chances of big pay hikes are slim. On the other hand, when the economy is booming, government employees also get to share the general prosperity. Apart from the overall status of the economy, the rate of inflation, growth rate of per capita income and the changed living standard, because of the change in pay packages of private sector enterprises and PSUs, are also taken into consideration.

3.What is the general method of fixation of pay?
To fix pay, a central pay commission first determines the two cardinal points of the salary structure of central government employees – the minimum pay of the lowest functionary and the highest paid Cabinet Secretary to the government of India.

Once the minimum and maximum is fixed, it becomes easier to deduce other salary brackets. For fixing the minimum level, the commission considers general norms like a minimum food requirement of 2,700 calories per adult, clothing requirement of 72 yards per annum per family and so on.

Apart from these criteria, wages paid for comparable work, children’s education, recreation costs and provisions for old age are also considered. Different economic methods like needbased, capacity to pay, relative parities, job evaluation, productivity and living wage approach are used to determine the minimum wage.

Once the minimum wage is fixed, the commission fixes the maximum wage. A competitive maximum wage is important because it determines the kind of people who join government services. Because of the lower number of people in the maximum wage slab, the maximum wage is insignificant in terms of its budgetary impact.

But apart from giving good salary to its top central government official also has to consider the disparity ratio between its highest and lowest paid employees. For instance, in 1948, the post-tax salary of the highest paid government official was Rs 2,263 which was 41 times higher than the Rs 55 paid to the lowest earning employee. With subsequent pay commissions the ratio was reduced to about 1:12 in 2006.

The first pay commission was recommended Rs 55 salary to the lowest earning employee, second Rs 80, third Rs 185, fourth Rs 750, fifth Rs 2550 and sixth Rs 6660.

4.What’s the financial cost of implication of a central pay commission reports?
The recommendations of the second pay commission were accompanied with a financial impact of about Rs 39 crore. The financial burden of the implementation of the third, fourth, fifth and sixth central pay commission recommendations has been estimated at around Rs 144 crore, Rs 1,282 crore, Rs 17,000 and Rs 72,000 crore respectively.

Initial estimates suggest the seventh central pay commission could add Rs 100,619 crore to the central government’s wage bill. Once the salaries of central government staff is hiked, it leads to pressure on the states to follow suit. Almost 90% of the revenue of most state government goes towards paying salaries. Naturally, a hike would create a crisis situation for state governments.

Inputs with TNN

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