What grade pay means in a government job and how it feeds into salary

The term "grade pay" is often heard among young people preparing for government jobs and among government employees. Whenever a new government recruitment is announced, the notification mentions the grade pay along with the salary. Many people assume they will receive each month a salary equal to the grade pay printed there, but that is not the case.

According to government rules and the 7th Pay Commission guidelines, grade pay is a benchmark, a base, for determining an employee's entire salary. For anyone aspiring to be a government employee, it is important to know what grade pay is and how the in-hand salary, the amount that reaches the employee, is worked out from it.

Put simply, grade pay is a sum that reflects a government employee's post, responsibility and level. It varies with the employee's rank. For instance, Group D employees have a low grade pay, while IAS officers or Class 1 officers have a much higher one.

Up to the 6th Pay Commission, grade pay was used directly in fixing salary. After the 7th Pay Commission came into force, grade pay was removed and replaced by the "pay matrix level". Even so, grade pay is still taken as the basis for understanding the older system.

The first and main function of grade pay is to determine an employee's basic salary. Every government post has a fixed pay band and grade pay. Adding the two gives the employee's starting basic salary.

Suppose the starting pay band for a post is Rs 9,300 and its grade pay is fixed at Rs 4,200. The employee's starting basic salary would then be the sum of the two, about Rs 13,500. In the 7th Pay Commission's pay matrix, all further calculation is done on the basis of this basic salary.

Once the basic salary is fixed, the various government allowances due to the employee are calculated. These allowances raise the salary considerably. The most important is dearness allowance (DA), which is a fixed percentage of the basic salary.

In addition, the employee gets house rent allowance (HRA) depending on the city in which they live. Other benefits such as travel allowance (TA) and medical allowance are also worked out on the basis of the basic salary and added.

There is a simple formula for working out any government employee's total monthly salary: basic salary, dearness allowance, house rent allowance and travel allowance are added together. For example, if an employee's total basic salary is Rs 40,000 and DA is then 50%, the employee gets Rs 20,000 as DA.

With HRA and TA added, gross salary will come to a little over Rs 70,000. But the net in-hand salary is credited to the bank account only after PF and National Pension System (NPS) contributions are deducted from this gross salary.