Cost to Company (CTC) on the Basis of Salary in India
Topics Covered in this Section
a. Definition of Cost to Company
b. Calculation of CTC
c. Gross Salary vs CTC
d. Nett Salary vs CTC
e. Components of CTC
f. Break Up of CTC
g. Optimal CTC
h. Salary Structure Optimisation Tool
Definition of Cost to Company
Cost to company refers to the total amount of expenses an employer spends on an employee, in terms of employment. In the broader term, from the employer’s perspective, it is a total of all expenses starting from the cost of recruitment, to retainment bonus, to retirement payments (if any) that the employer bears on his account. However, as the above-mentioned specific payments occur only once concerning an employee, CTC in the normal parlance is considered to measure the yearly expenditure that a company spends on its employee. Therefore, it is a sum of all monetary benefits and non-monetary benefits extended to the employee.
That is to say, CTC includes Gross salary (both fixed and variable- inclusive of basic pay, allowances, incentives, bonus, commission etc.), contributions to statutory funds, and other non-monetary benefits in the form of perquisites.
Example: Employee’s salary is Rs.30,000 per month. The employee is provided pick and drop cab facility and also food at the office for which the employee is not charged. However, the employer spends an amount of Rs.2000 and Rs.1000, respectively, on account of each employee. In this case, the employee’s salary remains Rs.30,000, but the CTC is Rs.33,000 per month or Rs.3,96,000 per annum.
Calculation of CTC
CTC is the total of emoluments in terms of benefits that are direct in nature paid monthly, and the sum paid every year & indirect (a sum that the employer pays on behalf of the employee). It also includes contributions towards social security benefits and saving schemes of employees.
Gross Salary vs CTC
Gross salary refers to all money an employee earns in employment with an entity/company. However, this is the amount before any tax and other deductions. And the aggregate compensation, in whole, would be the Cost to Company.
Nett Salary vs CTC
Gross salary is the amount an employee earns before any tax or other deductions. Nett Salary or Take-home salary or salary in-hand is the amount that the employee receives after such deductions are made. Common deductions being a contribution to provident fund, tax deducted at source and professional tax. Therefore, CTC is the aggregate compensation of which the Net salary is a part.
Components of CTC
CTC includes monetary as well as non-monetary benefits extended to the employee. These include:
- Basic Pay
- Dearness Allowance (DA)
- Incentives, bonus, commission
- House Rent Allowance
- Daily allowance
- Contributions to Employee Provident Fund
- Children Education Allowance
- Transport allowance
- Medical allowance
- City compensatory allowance
- Leave Travel Allowance or Concession
- Contributions to Employee State Insurance
- Medical reimbursements
- Telephone / Mobile Phone Allowance
- Special Allowance
- Contributions to Gratuity fund
- Rent Free Accommodation
- Fringe benefits such as interest-free or concessional loan, free or concessional food, use of movable assets etc.
- Sweat equity shares allotted or transferred
- Insurance premium met by the employer
- Amount of any contribution to an approved superannuation fund
- Concession in rent
- Any other payment, emolument or benefit not covered above.
Current CTC vs Expected CTC
These terms generally come into the picture when an employee working in an organization is looking for a change in employment for better prospects. Current CTC is what an employee is currently earning in the organization he/she is associated with. Expected CTC is the amount, including the level of pay that employee is expecting, based on the level of experience gained over the work tenure. The rate of this increase or Expected CTC, depends on various factors including the industry standards, domain knowledge and expertise of the individual.
Breakup of CTC
CTC includes several components. They can be classified into three broad categories.
- Direct monetary benefits paid to the employee every month and forming part of their take-home pay such as basic pay, dearness allowance, incentives, bonus, commission, house rent allowance, transport allowance etc.
- Indirect benefits are generally non-monetary in nature. These are the benefits that the employee enjoys without paying for them. This cost is borne by the employer. Indirect Benefits include rent-free accommodation, fringe benefits such as an interest-free loan or concessional loan, free or concessional food, use of movable assets of the company, etc.
- Contributions towards social security benefits and saving schemes of employees that employers contribute, such as Employer Contribution towards PF, ESI, etc.
Considering the vast avenues of industry and markets that businesses operate in, there is no one blanket structure which can accommodate all industry needs. However, considering the widespread majority of small and medium enterprises in our country, we have developed a tool to smoothly calculate a CTC structure which employers can easily use and modify to suit specific business requirements. Refer our calculator Salary Structure Optimizer at no cost to find a CTC structure that best suits your requirement.
To get a better understanding and pictorial presentation of calculation of Gross Salary, Nett Salary and CTC, use Salary Structure Optimizer Tool.