Pay Commission Explained: How the New Family Unit Formula Could Increase Salaries
The controversy surrounding the Family Unit Formula of the 8th Pay Commission is one of the biggest controversies involving close to 50 lakh government servants and more than 60 lakh retirees.
As everyone else concentrates on the fitment factor or dearness allowance (DA), trade unions representing the employees say that this formula may just be the key to change the face of India’s wage structure. This is because they want the number of family members for determining the minimum wage to be increased from three to five.
What Is the Family Unit Formula?
One of the core techniques adopted by Pay Commissions in determining the minimum wage for a government worker is the family unit formula.
Rather than computing the pay of the individual alone, the formula calculates the amount of income needed to run an average-sized family. The traditional method of calculating the wage has been assuming a family of three units – generally comprising the employee, spouse, and children.
Nowadays, employee unions have criticised the method as being archaic in view of the new reality of families having aged parents, more educational expenses, medical expenses, and increased housing costs. There is a need for reformulation of the formula to a five-unit family formula.
Why Are Employee Unions Demanding a Change?
As per the central government employee unions, the current formula for the family unit was conceived several decades back when the financial needs and structure of the families were much different than those of today.
As per the memo submitted to the 8th Pay Commission, the families of today are faced with much higher costs in regard to education, health care, travel, housing, and even basic necessities. The computation of the three-person family will result in an underestimate of the cost of living.
The increase of the family unit size to five will lead to the computation of a larger minimum wage.
How Could This Increase Salaries?
The family unit formula influences the computation of the minimum basic pay, which serves as the bedrock of the overall salary structure.
In case of an increase in the minimum pay, each higher level of salary gets impacted. The impact is seen on the fitment factor, which is basically the number used to translate the current salary into the revised salary, in light of the Pay Commission.
The representatives of the employees believe that the revision of the family unit may take the fitment factor up to such a level that a bigger revision will come in for the employees, regardless of their grades. Some suggestions even mention a minimum basic pay of approximately ₹69,000.
What Does This Mean for Pensioners?
Such an effect will not be restricted to the service employees alone.
Since pensions are based on the new revised basic pay and the fitment factor, any revision of the family formula in the positive direction will mean that pensions will also go up.
This is why all the pensioner bodies are keeping a watchful eye on the deliberations of the 8th Pay Commission.
Has the Government Approved the Proposal?
No, at the moment, the suggestion for increasing the size of the family unit from three to five is only a demand made by employees’ trade unions. The recommendations of the 8th Pay Commission have not been released yet, and the central government has not sanctioned any revision in the formula.
The experts feel that the commission will consider many different aspects of the economy before releasing its recommendations.
Why This Debate Matters
Though the family unit formula sounds to be a technical term, it decides the base for the salary calculations.
When the minimum pay gets increased, then it not only raises the salary levels but also those of the allowances like HRA, TA, etc.
That is the reason why many people consider the family unit dispute as the biggest problem for the 8th Pay Commission. It has been observed that any modification at the very basic level of the salary system will create ripples throughout the country.
What Happens Next?
The 8th Pay Commission is at present considering the proposals submitted by organisations representing the employees and other stakeholders.
The proposals will decide whether there will be any change in the Family Unit Formula, the Fitment Factor, and the calculation of salaries and pensions. Until that time, all the figures mentioned, including salary increments, are only estimates and no official decisions have been made yet.
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Conclusion
One of the most highly debated proposals is that of the family unit proposal of the 8th Pay Commission, which would make a drastic change in the way salaries are calculated for central government employees.
Should the number of people in a family unit be raised from three to five, there is going to be an increase in the minimum salary, fitment factor, and pension amount. However, it is important to note that this proposal is yet to be finalized.
The greatest hike in pay by the 8th Pay Commission may not necessarily be determined by the fitment factor, but simply by altering the definition of the term “family” itself.
