8th Pay Commission: Possible Salary Changes Through Fitment Factor and DA Merger

In January 2024, the Government of India announced the formation of the 8th Central Pay Commission, set to replace the existing 7th Commission whose term concludes in December 2025. The next step in this process involves appointing a three-member panel, including a chairperson, to determine the structure of future central government salaries.

Amid this development, discussions have intensified around two key components—the fitment factor and the merger of Dearness Allowance (DA) with basic pay. These elements play a critical role in the periodic restructuring of pay scales for central government employees.

What Is the Fitment Factor?

The fitment factor is a multiplier applied to the existing basic pay to determine the revised salary under a new pay commission. It is designed to ensure a uniform and equitable pay hike across various pay levels.

This factor typically reflects:

• The existing basic pay,

• The total DA accrued at the time,

• And an additional percentage hike to account for real wage growth.

For instance, if the fitment factor is 2.57, an employee with a basic pay of ₹10,000 would see their revised pay become approximately ₹25,700. This figure results from adding the accumulated DA and a modest increase to the original basic.

Know More Sensex Weekly Expiry Today: Hindustan Copper, Manappuram Finance and More under F&O ban on Apr 8. 

Role of DA in Pay Revision

Dearness Allowance (DA) is an essential part of a government employee’s earnings, aimed at offsetting inflation. Over time, as inflation rises, so does the DA percentage. By the time a new pay commission is implemented, the accumulated DA becomes significant.

In most previous pay commissions, although not always explicitly stated, DA was merged with the basic pay before applying the fitment factor. This practice created a consolidated base for calculating revised salaries.

Lessons from Previous Pay Commissions

5th Pay Commission (1996)

• DA at the time: ~74%

• Fitment Factor Used: 1.86

• Impact: The DA was merged into the basic, and a hike of approximately 28–30% was applied, resulting in the 1.86 multiplier.

6th Pay Commission (2006)

• DA at the time: ~115%

• Fitment Factor Used: 1.86 (plus the introduction of grade pay)

• Impact: Although the merger of DA wasn’t explicitly mentioned, the new pay structure—including grade pay—implied DA was absorbed into the revised pay.

7th Pay Commission (2016)

• DA at the time: ~125%

• Fitment Factor Used: 2.57

• Impact: The fitment factor included 100% of basic pay, 125% DA, and an additional 14.22% hike.

Example Calculation:

• Old basic pay = ₹10,000

• DA (125%) = ₹12,500

• Subtotal = ₹22,500

• Additional 14.22% hike = ₹3,199.5

• Final revised pay ≈ ₹25,700

• Effective fitment factor = 2.57

Comparative Table: DA and Fitment Factors Over Time

What to Expect from the 8th Pay Commission?

Based on historical precedents, it is likely that the 8th Pay Commission will follow a similar approach—merging DA with basic pay before applying a fitment factor. While the exact numbers remain to be decided, this methodology has consistently been used to balance inflationary pressure with real wage increments.

The calculation of a new fitment factor will likely be informed by:

• The accumulated DA up to the time of implementation,

• Economic conditions,

• Budgetary allocations,

• And expectations of employee unions.

Conclusion

Historically, central government salary revisions under pay commissions have adhered to a consistent pattern—merging DA with the basic pay and then applying a fitment factor that includes a modest real wage increase.

Understanding this pattern offers useful insight into how the 8th Pay Commission may structure salary revisions. While official details are yet to be released, past practices provide a reasonable framework for anticipating what lies ahead.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.