7th Pay Commission : Understanding Seventh Pay Commission

The Finance Ministry has notified the salary hike based on Seventh Pay Commission recommendations.  The notification is dated July 25, 2016.  About 1 crore employees and pensioners will benefit from the pay hike from Aug 2016, effective from January 1, 2016. The government has decided to pay them seven months’ arrears at one go with their August salary. The arrears are on account of the government deciding to implement the 7th Pay Commission’s recommendations with effect from January 2016.  What is the  7th Pay Commission? What are the features of 7th Pay Commission? About 7th Pay Commission allowances, HRA what are recommendations? Financial Impact of 7th Pay Commission.

Overview of 7th Pay Commission

• According to the pay new structure, the existing basic pay as on December 31, 2015, shall be multiplied by a factor of 2.57.
• The new pay  is effective from 1 Jan 2016.
• The 7 month arrears shall be paid in one go with August salary.
• After taking into account the DA at prevailing rate (125 percent of basic pay), the salary/pension of all government employees/pensioners will be raised by at least 14.29  percent as on 01.01.2016
• The additional financial impact on account of implementation of all its recommendations in 2016-17 will be Rs. 1,02,100 crore. There will be an additional implication of Rs. 12,133 crore on account of payments of arrears of pay and pension for two months of 2015-16. Out of the total financial impact of Rs 1,02,100 crore, Rs 73,650 crore will be borne by the General Budget and Rs 28,450 crore by the Railway Budget.
• The present system of Pay Bands and Grade Pay has been dispensed with and a new Pay Matrix as recommended by the Commission has been approved. The status of the employee, hitherto determined by grade pay, will now be determined by the level in the Pay Matrix. Separate Pay Matrices have been drawn up for Civilians, Defence Personnel and for Military Nursing Service. The principle and rationale behind these matrices are the same.

• Entry-level pay will be raised to Rs 18,000 a month from the current Rs 7,000. The maximum pay has been fixed at Rs 2.5 lakh.
• Starting salary of a freshly recruited Class I officer will be Rs 56,100 per month. Chiefs of regulatory bodies including SEBI and TRAI will now get a consolidated pay package of Rs 4.5 lakh per month, while their full-time members will get Rs 4 lakh each.
• Maximum Pay: Rs 2,25,000 per month for Apex Scale and Rs 2,50,000 per month for Cabinet Secretary and others presently at the same pay level.
• The Seventh Pay Commission’s recommendations  on  allowances  (except  dearness  allowance) has been referred  to  a committee, which will submit  its  report  within  four  months. All allowances will continue to be paid at existing rates in existing pay structure. The Committee will complete its work in a time bound manner and submit its reports within a period of 4 months.
• Gratuity: Enhancement in the ceiling of gratuity from the existing Rs 10 lakh to Rs 20 lakh. The ceiling on gratuity may be raised by 25 percent whenever DA rises by 50 percent.
• There shall be two dates for grant of increment January 1 and July 1 of every year, instead of existing date of July 1.
• The  recommendations  of  the  Commission  for  increase  in  rates  of  monthly  contribution towards Central Government Employees Group Insurance Scheme (CGEGIS) for various categories of employees  has  not  been  accepted.  The existing rates of monthly contribution shall continue.
• The Cabinet also approved the recommendation of the Commission to enhance the ceiling of House Building Advance from Rs 7.50 lakh to Rs 25 lakh. In order to ensure that no hardship is caused to employees, four interest free advances namely Advances for Medical Treatment, TA on tour/transfer, TA for family of deceased employees and LTC have been retained. All other interest free advances have been abolished.
•  The Finance Ministry will work out a customised group insurance scheme for central government employees.
• The  recommendations  of  the  seventh pay commission  relating  to  interest  bearing  advances  as  well  as interest free advances have been accepted with some exceptions.
• Committees  will  be  set  up  by  Department  of  Personnel   to  examine individual,   post-specific and cadre-specific anomalies  arising   out   of   implementation   of   the recommendations of the Commission.
• Non-performing central government employees will not get annual increment if their performance is not up to the mark.The benchmark for performance appraisal for promotion and financial upgradation has been enhanced to “very good” from “good” under the Modified Assured Career Progression Scheme (MACPS), and if an employee fails to meet the benchmark of either MACPS or a regular promotion within the first 20 years of their service, his/her annual increments will be withheld.
• The seventh CPC has mandated that there will be an assured increment of 3% in the monthly salary even in case there is no promotion. For example, if an employee joins the the lowest possible level with entry pay of Rs 18,000 and serves for 40 years, he will be earning Rs 56,900 at the time of  retirement. But remember by then there will have been four more pay commissions.
• Two separate Committees (i) to suggest measures for streamlining the implementation of National Pension System (NPS) and (ii) to look into anomalies likely to arise out of implementation of the Commission’s Report

7th Pay Commission Decision For Defence Personnel & Combined Armed Police Forces Personnel

Decisions impacting the employees including Defence & Combined Armed Police Forces (CAPF) personnel include :

• The Cabinet approved further improvements in the Defence Pay Matrix by enhancing Index of Rationalisation for Level 13A (Brigadier) and providing for additional stages in Level 12A (Lieutenant Colonel), 13 (Colonel) and 13A (Brigadier) in order to bring parity with Combined Armed Police Forces (CAPF) counterparts at the maximum of the respective Levels.
• Gratuity ceiling enhanced from Rs 10 to 20 lakh. The ceiling on gratuity will increase by 25 percent whenever DA rises by 50 percent.
• A common regime for payment of Ex-gratia lump sum compensation for civil and defence forces personnel payable to Next of Kin with the existing rates enhanced from Rs 10-20 lakh to 25-45 lakh for different categories.
• Rates of Military Service Pay revised from Rs 1000, 2000, 4200 & 6000 to 3600, 5200, 10800 & 15500 respectively for various categories of Defence Forces personnel.
• Terminal gratuity equivalent of 10.5 months of reckonable emoluments for Short Service Commissioned Officers who will be allowed to exit Armed Forces any time between 7 and 10 years of service.
• Hospital Leave, Special Disability Leave and Sick Leave subsumed into a composite new Leave named ‘Work Related Illness and Injury Leave’ (WRIIL). Full pay and allowances will be granted to all employees during the entire period of hospitalization on account of WRIIL.

What is 7th Pay Commission?

What is a pay commission?

A pay commission is constituted by the central government once every decade to revise the salary structure of its employees. In addition to revising the salary structure, each pay commission has a term of reference (ToR), which broadly defines its focus. Pay commissions also decide pension payments. The ToR of the 7th Pay Commission said salaries will be revised keeping in mind “rationalisation” and “simplification” of pay structures and “specialised needs of various departments”.

Who is covered under pay commissions?

Central Government employees are covered under the pay commission. Employees of public sector undertakings (PSU) ex Coal India and autonomous bodies, and gramin dak sevaks are not under the remit of the 7th Pay Commission. According to the 7th Pay Commission, central government employees are all persons in the civil services of the central government and those who are paid salaries out of the consolidated fund of India, which is the account in which government collects its revenues.

PSU employees have separate pay scales depending on the undertaking they are working for. These PSUs specify salaries, perks and allowances for executive and non-executive employees. This means that two people working in different PSUs but on similar posts may have different salaries.

As of 2014, there were 4.7 million central government employees. Indian Railways has the highest number of employees at 1.3 million, followed by the home ministry and the defence ministry at 980,000 and 398,000 respectively. Defence ministry personnel refer to civil employees and not those engaged in the Indian Armed Forces, which employs 1.4 million persons.

As of January 1, 2014, there were 5.2 million pensioners. Out of these, 36% of the pensioners are from the Indian Armed Forces, followed by railways at 25%.

How are salary hikes calculated?

Pay commissions use the Consumer Price Index for Industrial Workers or CPI(IW), which is in place since 1958, to determine the required increase in salaries. The commission estimates the minimum pay based on the consumption figures of Indian households. This takes into account how much pulses, milk, cloth and other commodities are consumed in an average Indian household.

The rise in prices is reflected in the CPI (IW) inflation, which is used to calculate the dearness allowance (DA). Besides DA, the pay increase includes the rise in basic pay, house rent allowance and leave transport allowance among others. The final figure is the minimum pay that a central government employee gets.

The Seventh Pay Commission was set up by the government to revise remuneration of about 48 lakh central government employees and 55 lakh pensioners.  It’s mandate is to recommend pay, allowances and the like for Central government employees for a decade beginning January 2016,keeping in view the nation’s economic conditions and the need for fiscal prudence . Employees in union territories, regulatory bodies (except the RBI), Supreme Court and pensioners to be covered. It was constituted in February 2014. Expected to submit its recommendations by Dec 2015. Revised pay to be effective from January 1, 2016. Meena Agarwal is the secretary of the Commission. Other members are Vivek Rae, a retired IAS officer of 1978 batch and Rathin Roy, an economist. Our article Salary,Allowances,Dearness Allowance,Government Salary, Pay Commission explains What is the salary of a Government employee, what is 7th pay commission?

Pay Matrix of 7th Pay Commission

The pay scale in place till the 7th Pay Commission had 19 pay grades split into four bands with 15 pay grades and four distinct scales for higher administrative grade (HAG) employees such as directors and cabinet secretaries. The problem with this pay scale was that there was a significant difference between consecutive grade pays in different bands. For instance, if an employee is in Pay Band 2 with a grade pay of Rs 3,400, she will get a higher increment upon promotion than an employee of Pay Band 1.

The 7th Pay Commission assigns 18 levels for designating the functional role in an organisation’s hierarchy. For instance, a promotion may shift you from level 10 to 12, with a salary depending upon your experience. In the recommended pay matrix, the top three rows give the pay scale as per the sixth pay commission

• The first row gives the payband, which represents the range of salary that a person receives in that particular pay band.
• Basic pay varies in the range of the payband, which is Rs 5,400-20,200 per month for a grade 1 employee.
• Within these paybands are grade pays, which vary according to the position of an employee in the hierarchy of an organisation.

From 7th Pay Commission pay bands and grade pay are abolished.

• In their place there are 18 levels of promotions that an entry-level employee can go through.(Horizontal row)
• Within these levels there is an index for the amount of years one has served in the government.(Vertical Row)
• These indexes decrease as one moves up the hierarchy. A cabinet secretary is at level 18 — the highest possible — with a salary of Rs 2,50,000 a month. They will not get the 3% annual increment
• This pay band ensures that there no disproportionate jumps in salaries when one gets promoted, as was the case with the six CPC pay scales. For instace, if you are a level 10 employee at index 13 earning Rs 80,000 per month, upon being promoted to level 11 you will earn Rs 96,600 and not the entry pay of level 11.

Following image shows the Pay matrix as per 7th CPC 

7th Pay Commission Pay Matrix

7th Pay Commission Allowances: Transport and HRA

The Union Cabinet on June 29 2016 cleared the recommendations of the 7th Pay Commission headed by AK Mathur in respect of the hike in basic pay and pension. The 7th Pay Commission examined a total of 196 existing allowances and, by way of rationalization, recommended abolition of 51 allowances and subsuming of 37 allowances. So, the decision on 7th Pay Commission suggestions relating to allowances has been referred to a Committee headed by the Finance Secretary.

The Committee will complete its work in a time bound manner and submit its reports within a period of 4 months. Till a final decision, all existing allowances will continue to be paid at the existing rates. So the HRA and TA will be paid to the central government employees at Sixth CPC rates in pre revised scale till the Committee decides on allowances.

Transport Allowance

Transport Allowance (TPTA) is granted to cover the expenditure involved in commuting between place of residence and place of duty. The existing rates are as under:

Moreover, officers drawing GP 10000 and higher, who are entitled to the use of official car, have the option to avail themselves of the existing facility or to draw the TPTA at the rate of ₹7,000+DA pm. Differently abled employees are granted this allowance at double the rate, subject to a minimum amount of ₹1,000 plus DA.

Classification of A1/A has been abolished for other purposes (like HRA, CCA) but retained for Transport Allowance. There are total 19 cities classified as A1/A

• 6 in A1, which are Hyderabad, Delhi, Bengaluru, Greater Mumbai, Chennai, Kolkata and
• 7 in A, which are, Ahmedabad, Surat, Nagpur, Pune, Jaipur, Lucknow and Kanpur.
• Recently, 6more cities, viz., Patna, Kochi, Kozhikode, Indore, Coimbatore and Ghaziabad have been added to A1/A categories,

HRA or House Rent Allowance

The existing rates of HRA for Class X, Y and Z cities and towns are 30 percent, 20 percent and 10 percent of Basic pay (pay in the pay band plus grade pay) as shown in table below.

The 7th Pay Commission had earlier proposed the

• Rate of House Rent Allowance (HRA) at 24 percent, 16 percent and 8 percent of the Basic Pay for Class X, Y and Z cities respectively.
• the rate of HRA will be revised to 27 percent, 18 percent and 9 percent when DA crosses 50 percent, and further revised to 30 percent, 20 percent and 10 percent when DA crosses 100 percent.

If the Committee accepts the bare recommendations of A K Mathur-led 7th Pay Commission then the HRA component of central government employees will increase ranging between 106 percent and 122 percent.

For example, a central government employee at the very bottom of the pay scale, where the basic pay (pay of pay band + grade pay) is now Rs 7,000, would currently be entitled to an HRA of Rs 2,100 in a Class X city. As per 7th Pay Commission, the new entry level pay at this level is Rs 18,000 per month against which the new HRA for a Class X city would be Rs 4,320 per month, that is 106 percent more than the existing level.

Similarly, at the highest level of the pay scale, the Cabinet Secretary and officers of the same rank have a basic pay of Rs 90,000, which means they are entitled to current HRA of Rs 27,000 in Class X towns. After the revised pay scale, the new basic pay is Rs 2.5 lakh, for which the HRA would be Rs 60,000, meaning a hike of 122 percent.

Classification of cities as X,Y and Z for HRA as per Government Employees

Classification of Cities for HRA

Financial Impact of 7th Pay commission

The financial impact of accepting Seventh Pay commission’s recommendations in 2016-17 will amount to Rs.1.02 trillion. There will be an additional implication of Rs. 12,133 crore on account of payments of arrears of pay and pension for 2015-16. Out of the total financial impact of Rs 1,02,100 crore, Rs 73,650 crore will be borne by the General Budget and Rs 28,450 crore by the Railway Budget. Of this, the

• increase in pay would account for Rs.39,100 crore,
• increase in allowances for Rs.29,300 crore and
• increase in pensions for Rs.33,700 crore.

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