7th Pay Commission: Understanding salary calculation for central govt employees—Check out this key factor

The salary of central government employees is all set to increase from July 1, 2021, as announced by Union Minister of State for Parliament Anurag Thakur. It is expected that the government will also increase the dearness allowance from 17 per cent to 28 per cent from July 1.

The central government employees and pensioners will get the benefit of increased salary and pension. But the formula or method used to increase the salary of the employees is rarely discussed.

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In the 7th Pay Commission, the fitment factor is used to decide the salary of central employees. In fact, due to the increase in the fitment factor, the minimum salary of the central employees had increased. Because of the use of the fitment factor, the salary of central employees has increased by more than 2.5 times.

What is fitment factor?

At present, the fitment factor of central employees is 2.57. While finalizing the salary of central employees, in addition to allowances like Dearness Allowance (DA), Traveling Allowance (TA), House Rent Allowance (HRA), the employee's basic salary is calculated by multiplying it by the fitment factor that is 2.57.

For example: If the basic salary of an employee is Rs 18,000, then his salary excluding allowances will be 18,000 X 2.57 = Rs 46,260.

How is Dearness Allowance Calculated?

After the salary is fixed, allowances like DA, TA, HRA, Medical reimbursement are decided. Dearness Allowance is provided to the employees to protect them from inflation. It is fixed twice a year that is from January to June and then from July to December.

The government calculates average inflation in 6 months to decide the DA.

TA increases with DA

According to AICPI, at present, the average inflation rate for July-December 2020 is 3.5 percent. Therefore, it is being estimated that for the period January to June 2021, the dearness allowance will be at least 4 percent.

Once DA is announced, TA increases on the same basis. Hence the increase in DA is also linked to TA. Similarly, HRA and medical reimbursement are also decided. When all the allowances are calculated, then the monthly CTC of the central employee is fixed.

PF, contribution of gratuity

52 lakh central employees and more than 60 lakh pensioners will get the benefit of hike in dearness allowance from July 1. Along with this, EPF and gratuity will also increase. EPF is 12 percent of basic salary and dearness allowance.