BT Explainer: How does the Pay Commission work?

The Eighth Pay Commission is holding meetings in New Delhi for three days from April 28 with various employee unions and associations to understand their concerns and get suggestions for increasing the pay and benefits of over 11 million central government employees and pensioners. While the recommendations are likely to be effective from January 1, 2026, the Commission is expected to submit its report only in early to mid-2027 and government employees would have to wait a bit longer for their higher salaries to come into force.

What is the Central Pay Commission?

The central government periodically sets up Central Pay Commissions—every 10 years or so—to review the emolument structure, retirement benefits and other service conditions of central government employees and to make recommendations on the changes required. Government employees have a component of dearness allowance (DA) in their salaries, which is revised bi-annually to offset the impact of rising prices. However, the Pay Commission, which is a temporary body, looks into all aspects of pay and pensions of central government employees and suggests revisions in keeping with economic trends and the requirements of employees.

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When was the Eighth Pay Commission set up?

The Union Cabinet chaired by Prime Minister Narendra Modi had set the ball rolling for the Eighth Pay Commission when it approved the terms of reference for it in October 2025. The Commission is expected to review the economic conditions in the country and the need for fiscal prudence; the need to ensure that adequate resources are available for developmental expenditure and welfare measures; the unfunded cost of non-contributory pension schemes; the likely impact of the recommendations on the finances of the state governments as well as the prevailing emolument structure, benefits and working conditions of employees of Central Public Sector Undertakings (CPSUs) and private sector. Apart from increased pay and pension, the Commission can also suggest rationalising allowances as well as criteria to judge the productivity of employees such as performance-linked pay.

The Commission is chaired by former Supreme Court judge Ranjana Prakash Desai and Pulak Ghosh is its member and Pankaj Jain is the member-secretary.

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When is its report expected?

It is expected to submit its report within 18 months of its constitution—by May or June 2027—and its recommendations are likely to be effective from January 1, 2026. In this interim period, the Commission will hold meetings with employees and pensioner unions and associations and will visit states as well as hold discussions with experts to understand the demands of employees and assess the financial situation of the government for higher payouts. Once the Commission submits its report, the Centre takes a few months to study and decide on the recommendations it would accept and implement.

For instance, the Seventh Pay Commission was appointed in February 2014 and submitted its report in November 2015. Its implementation was approved by the government in June 2016 and it came into effect from January 1, 2016. There was a six-month wait between the submission of the report and its implementation. The wait was much longer before that. Employees had to wait for 19 months for the implementation of the Commission’s recommendations at the time of the Fifth Pay Commission, and for 32 months at the time of implementation of the Sixth Pay Commission.

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Why does the Centre take so long to implement the recommendations?

At the end of the day, it’s a matter of money. The Centre needs to review the recommendations of the Pay Commission and assess the impact on its resources. Given the large number of employees and pensioners it impacts—over 5 million central government employees and nearly 6 million pensioners for the current Pay Commission—the financial impact will be massive and is estimated at anywhere between Rs 2 lakh crore to Rs 2.5 lakh crore. The Seventh Pay Commission impacted 4.7 million central government employees and 5.3 million pensioners and had an additional financial impact of Rs 1,02,100 crore in FY17 on the exchequer. There was also an additional implication of Rs 12,133 crore due to payments of arrears of pay and pension for two months of 2015-16. The Centre usually sees a higher fiscal deficit in the year when the Pay Commission recommendations are implemented, and its revenue expenditure also rises.

This is not all. Following the Central Pay Commission award, several state governments also set up Pay Commissions, which then impact state finances. While it also leads to inflationary pressure, analysts point out that it improves consumption expenditure and gives a boost to growth in the year of implementation.