The MSGEF's decision came after the Cabinet approved the new pay scale of state government employees with effect from January 1, 2007.
However, the government employees under the banner of the federation earlier were demanding a hike of 3.3 per cent on their basic pay and pay revision retrospectively from January 1, 2006.
With the overall pay hike being around 32 per cent, the government will have to spend Rs 330 crore on salaries of about 70,000 employees annually. The arrears to be paid to the state government employees would be Rs 660 crore.
Forty per cent of the arrears will be paid in the current financial year and the remaining 60 per cent in the next year.
Moreover, all government employees working in rural areas will enjoy rural allowance.
As per the new pay scales, educational allowance for one school-going child will be Rs 5,500, while the amount for two children will be Rs 11,000.
Chief Minister D D Lapang said the revision was made possible after the Centre approved Rs 260 crore.
''We asked for Rs 545 crore from the Centre to implement the pay revision but it assured us Rs 260 crore and the remaining balance would be given later,'' Lapang said.
The government also decided to give pension benefits to all the employees who had served for 10 years and above.
Earlier, only regular employees received pension benefits.