Context: 

The Union Cabinet recently approved the constitution of the 8th Pay Commission for central government employees.

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• This commission is to revise salaries of nearly 50 lakh central government employees and allowances of 65 lakh pensioners.
• The exact date for its setup has not been announced yet. 
• The chairman and two members of the 8th Pay Commission will be appointed soon.

8th Pay Commission 

• The main objective of the 8th Pay Commission is to increase the purchasing power of government employees by raising their salaries, it also aims to promote the overall economic growth of the country.
• Although the 7th Pay Commission’s term concludes in 2026, the 8th Pay Commission has been approved ahead of time to ensure there is enough time to review and implement recommendations.

The 8th Pay Commission will focus on:

• Revised allowances like Dearness Allowance (DA), which helps employees cope with inflation.
• Pension adjustments for retired employees.

Current concerns and demands:

• The minimum wage is currently based on a formula designed by nutritionist Wallace Ruddell Aykroyd which was approved by the 15th Indian Labour Conference in 1957.

This formula is no longer sufficient as it does not account for modern-day needs, like: - 

• Internet connectivity costs, 
• Healthcare and education costs which have doubled due to widespread privatization.

• Central trade unions have raised concerns about the need for clarity on what constitutes a “living wage” and a “living pension”, reflecting the changing living standards.

7th Pay Commission:

• The Seventh Pay Commission was headed by Justice A.K. Mathur.
• The 7th Pay Commission led to an expenditure increase of ₹1 lakh crore in 2016-17.

• The 7th Pay Commission (which started in 2014 and was implemented in 2016) brought several important changes:

• It increased the minimum salary for government employees from ₹7,000 to ₹18,000.
• The maximum salary was raised to ₹2,50,000.
• The pension for retired employees also increased from ₹3,500 to ₹9,000.

• However, the government decided to use a fitment factor (The fitment factor is a multiplier used for calculating salaries and pensions) of 2.57 instead of the requested 3.68, which means employees didn't get as large a raise as they wanted.

About Pay Commission

• A Pay Commission is a body established by the government to review and recommend salary structures for central government employees. 
• The recommendations are suggestive, there is no obligation on the government to accept the recommendations of the pay commission.
• Pay Commissions are set up approximately every 10 years. 
• Usually, a retired Supreme Court judge heads the Pay Commission. 

Purpose and Objectives:

• Review Salary Structures: Evaluate and ensure fair compensation and suggest changes to the current salary and pension structures.
• Attract and Retain Talent: Ensure that government jobs remain attractive to skilled individuals.
• Maintain Parity: Ensure fairness and balance in salaries across different government departments.

Key Components:

• Basic Pay: The main salary component.
• Allowances: Extra benefits such as Dearness Allowance (DA), House Rent Allowance (HRA), and Travel Allowance (TA).
• Pension: Provisions made for government retirees.

Since 1947 there have been the following 7 Pay commissions: 

• 1st Pay Commission (May 1946 - May 1947): It Introduced the concept of the “living wage"
• 2nd Pay Commission (August 1957 - August 1959): Introduced the 'socialistic pattern of society'
• 3rd Pay Commission (April 1970 - March 1973): Addressed inequalities in the pay structure
• 4th Pay Commission (September 1983 - December 1986): Introduced a performance-linked pay structure.
• 5th Pay Commission (April 1994 - January 1997): Focused on modernizing government office
• 6th Pay Commission (October 2006 - March 2008): Introduced Pay Bands and Grade Pay
• 7th Pay Commission (February 2014 - November 2016): Recommended a new pay matrix instead of a grade pay system and focused on allowances and work-life balance.