8th Pay Commission: This is how the government panel determines the fitment factor and the complete formula for salary hike..

Every time a new Pay Commission is formed, the question that arises in employees' minds is: "How much will the salary increase be?" But this decision isn't made in the air; it's based on data, reports, and government calculations. Let's understand, in simple terms, what steps the government panel takes and how the Fitment Factor is determined.

1. How is the Pay Commission Formed?
The Pay Commission is formed by the Central Government. The Ministry of Finance issues Terms of Reference (ToR), which outline the issues the Commission must report on—such as salaries, allowances, pensions, and the economic status of government employees. This means the Commission is responsible for collecting, analyzing data, and making recommendations.

2. What factors does the Commission consider when determining salaries?

What does the benchmark mean, and why is it important?
Inflation (AICPI): How much inflation has increased over the past year to maintain the real value of salaries.

Minimum Pay Adequacy: Whether the basic salary is sufficient for subsistence, important for poor or lower-grade employees.

Market Parity: How much pay is paid for the same position in the private sector, so that there is not much difference between government and private sector salaries.

Pension Impact: What will be the impact on retirement and pensions? Long-term financial responsibility.

Fiscal Capacity: How much capacity does the government have to pay without impacting the budget?

3. What is the Fitment Factor?
The Fitment Factor is the number by which the old basic pay is multiplied to arrive at the new basic pay.

For example, in the 7th Pay Commission, the fitment factor was 2.57, meaning if someone's basic pay was ₹10,000, the new basic pay would be ₹25,700.

Formula: New Basic = Old Basic × Fitment Factor.
4. How is the Fitment Factor determined?

The government panel takes three major steps.

1. Data Collection: Data on inflation (CPI/AICPI Index), DA percentage, and salary increases since the last pay revision are collected.
2. Target Minimum Pay: It is assessed whether the minimum wage is sufficient to cover the expenses of an average family.
3. Fitment Calculation: Fitment Factor = (Target Minimum Pay) ÷ (Current Minimum Pay)
If the target is to increase the minimum wage from ₹18,000 to ₹30,000, then Fitment Factor = 30,000 ÷ 18,000 = 1.67. This means an average increase of 67% will be required.

5. But not just inflation, the fiscal impact is also considered.
The panel doesn't base its decision solely on inflation or comparisons. It considers the government's total salary bill and its impact on GDP. If the burden is too large, the Fitment Factor is set slightly lower to maintain fiscal balance.

6. Complete Process for Determining the Fitment Factor (Step by Step)
Step Description
1. Collect data (AICPI, inflation rate, and record salary increases)
2. Set a minimum target (Basis Set based on the cost of living)
3. Calculation (Fitment Calculation) (Target ÷ Current Minimum)
4. Check Fiscal Impact (Impact on the budget)
5. Prepare a report and recommendations, including all data and recommendations, and submit them to the government.
6. Government approval: The Cabinet approves and implements the report.
7. How much should the 8th Pay Commission increase be?
Since the 7th Pay Commission, approximately 60% cumulative inflation has been recorded (since 2016). Therefore, if salaries are increased solely to compensate for inflation, the Fitment Factor should be 1.6. But if the minimum wage is increased from ₹18,000 to ₹30,000, the Fitment Factor becomes 1.67.

Base Estimated Fitment Factor Estimated Salary Increase
Based on inflation alone: ​​1.6 = 60% increase
Inflation + Minimum Pay Target: 1.67 = 66–68% increase
High Scenario (Parity & Fiscal Cushion): 1.8 = approximately 80% increase
Note: This is an estimate—the actual Fitment Factor will be determined only when the Commission is formally constituted and the ToRs are issued.

8. How accurate will it be?
Based on government reports and the pattern of previous commissions, it can be assumed that the Fitment Factor of the 8th Pay Commission could be between 1.6 and 1.8. This means that a 60% to 80% increase in the basic salary of employees is possible, although this will depend entirely on the data and the government's financial capacity.

Conclusion
The Pay Commission's recommendations are based not on "mood" or "politics," but on solid data and reports. The amount of your salary increase depends on four pillars: inflation, minimum wage requirements, private sector comparisons, and government financial capacity.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.