What is Cost to Company (CTC) and What are the components of CTC?

Cost to Company is a buzz word to describes about the payment structure of a company including all benefits. But it is denoted in different way from the perspective of management. A fresher can ask and clarify the human resource personnel at the time of salary negotiation itself. What is CTC? For the Company: Cost to company is a term which essentially implies the amount of expenses the company will spend on an employee in a particular year. What may be an expense for the company need not necessarily be salary for the employee. For employees: Cost to company is an amount projected by the company as salary but is never what is actually received by the employee in cash. For the Finance Manager : It is the total cost incurred to hire, maintain, retain the employees and may also include a part of overhead cost allocation. Recruitment Cost Base salary Bonuses Administrative Office Space Technology Benefits CTC includes various components like: Salary : It includes Basic, DA, HRA, Allowances Reimbursements : It includes bonus, incentives, reimbursement of conveyance/medical/telephone/, benefits extended through various schemes like housing/vehicle/furniture/ Air-conditioners etc. Contributions: I t includes the benefits offered by the company like PF, Super Annuation, Gratuity, Medical Insurance, etc. Some companies also offer Leave Encashment, Stock Option Plans and Non cash concessions. Tax Benefit: It includes only Stock Options. What is the difference between CTC & Take Home Salary ? Most of us ot aware of CTC and take home salary and most people confuse about the both. This confusion takes place even in experinced employees also.

 CTC Gross salary Net salary (Take Home Salary) Cost to company (CTC) is the total cost that an employee is incurring in a company. Gross Salary is the one which you see every month. But this is before any deduction. Net Salary is what an employee get to his/her hand after deductions.(this is the take home salary) The relation between all three Gross = CTC Other benefits Net = Gross Deductions CTC and its components at a Glance: Basic HRA TA Other Allowance Mobile Reimbursement / Month Gross Per Month = Sum of all the above. Gross Per Annum= 12*Gross/Month PF Contribution= 12% of Basic/Annum ESI Contribution = 4.75% of Gross/Annum Medical = The mediclaim facility provided to an employee who are not covered under ESI as the maximum ceiling for ESI is 10000/Month. Getting more than this will be covered under Mediclaim or it depends on company policy EX-Gratia/Bonus = A fixed amount as Bonus Annual Fixed Gross Cost= Gross/Annum+ Ex-gratia Annual Total Cost or CTC = AFGC + PF+ESIC Annual total cost is also called as CTC.

Understanding CTC and Your Salary Breakup

Whether you are joining your first job or changing jobs, it is important to understand the difference between Cost To Company (CTC) and take home salary. It will help you in better negotiation with the HR and structuring of the salary. The Cost to Company refers to the total expenditure a company would have to incur to employ you. It includes monetary and non-monetary benefits, such as monthly pay, training costs, accommodation, telephone, medical reimbursements or other expenses, borne by the company to keep you employed. The total CTC as need not be the actual salary in hand at the end of the month. It is simply a sum of various components put together.

Components of CTC Companies, offer various attractive components in the CTC to retain and boost the morale of the employees. Where some salary components are fully taxable some are fully tax-exempt. The composition of your CTC and a few of its components could be grouped as below.

1) Fixed Salary This is the major part of your CTC and forms part of your monthly take home. It commonly consists of:

Basic Salary: The actual pay you receive for rendering services to the company. This is a taxable amount. Dearness Allowance: A taxable amount, this is paid to compensate for the rising cost of living. House Rent Allowance (or HRA): Paid to meet expenses of renting a house. The least of the following is exempt from tax. Actual HRA received 50% of salary (basic + DA) if residing in a metropolitan city, or else 40% The amount by which rent exceeds 1/10th of salary (basic + DA) Conveyance Allowance: Paid for daily commute expenses. Up to an amount of Rs 800 per month is exempt from tax.

2) Reimbursements - This is the portion of your CTC, paid as reimbursements through billed claims.

Meal coupons: Many companies provide their employees with subsidized meal coupons in their cafeterias. Such costs incurred by companies in the form of subsidies are included in the CTC. Meal coupons are tax exempt provided it is not in the form of cash. Mobile/Telephone Bills: Telephone or mobile expenditure up to a certain limit is reimbursed by many companies through a billed claim, and is a taxable amount. Medical Reimbursements: Paid either monthly or yearly, for medicines and medical treatment. The entire amount is taxable. However, up to Rs 15,000 could be tax exempt, if bills are produced.

3) Retirement Benefits - This is available to you only on retirement or resignation.

Provident Fund: Employers contribute an equal 12% to the provident fund account. This employers contribution though received only on retirement or resignation, is an expense incurred by the company every month and thus is included in the CTC. Gratuity: Companies manage gratuity through a fund maintained by an insurance company. The payment towards the gratuity annually is sometimes shown in CTC.

4) Other Benefits and Perks

Leave Travel Allowance: It is the cost of travel anywhere in India for employees on leave. Tax exemption if allowed twice in a block of four calendar years. Medical allowance: Some companies offer medical care through health facilities for employees and their families. The cost of providing this benefit to the employee could also form part of CTC. Contribution to Insurance and Pension: Premiums paid by companies on behalf of employees for health, life insurance and Employees Pension Scheme, could form a part of the CTC. Miscellaneous Benefits: Other perks which companies include under CTC could be electricity, servant, furnishings, credit cards and housing.

5) Bonus: This is the benefit paid on satisfactory work performance for employee motivation. Though this amount is not assured to the employee, most companies include the maximum amount that can be paid as bonus, to the CTC. The two types of bonuses that are normally paid out are:

Fixed Annual Bonus: Paid on the basis of employee performance, either monthly or in most cases annually, it is a fully taxable amount. Productivity Linked Variable Bonus: Complete bonus amount is paid only on 100% achievement of target, nevertheless it still is included as part of your CTC.

Having understood what CTC is: Each company too has its own way of calculating the cost to company. Let us revisit Ravis case. Ravi realized, that an attractive CTC does not necessarily indicate a heavy monthly take home. Benefits like training and development, whether undertaken by him or not was still considered part of his CTC. This is what he now feels.

One must take time to find out what the actual benefits are by asking for the break-up of the CTC so as to know the entitlement.

If you are just joining the company, try to negotiate with the HR as to opting out of some facilities in exchange for increasing the take home. Understand the expenditure limits and tax angle of perks and benefits, and use them smartly.