Why Bonus Is Not Part Of CTC - Provident Fund
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Why Bonus Is Not Part Of CTC - Provident Fund

sim27 Started The Discussion:

good afternoon to all members

why employer considers the previous salary of the candidate while fixing salary package. is there any thumb rule of offering new salary on basis of previous salary.

please guide how to negotiate with employer to get maximum package.

regards to all

samvedan - Member Since: Sep 2005
Hello,

Conceptually, Bonus is a share in profits of the organization.
By provisions of the act itself, some employees will get covered under the act and others may not be covered.
This situation also changes as the emoluments rise over a period of time and as the government raises coverages limits under the act.

It is a fact that even if the organization makes a loss, it is obliged under the act to pay a minimum bonus of 8.33% as per stipulations of the act, to the covered employees.

These two statements will make it clear that bonus can change from time to time and from people to people depending upon the coverage status scenario.

Now, when we talk about CTC, we mean that it is the cost incurred by the employer in respect of the employee for have employed him/her. CTC is NOT the money the employee gets in in his hands every month or periodically. Organizations must confine the use of concept of CTC only for purpose of budgetting employee costs for the organization and certainly NOT as a tool to bargain salaries during recruitment. But many employers seem to do this (perhaps since there is no law against it!).

Salary is a sum of Direct payments that the employee gets in his hands whether monthly or periodically. There are certain Indirect Payments like benefits of Provident Fund, ESI etc. he will be eligible to (though not necessarily entitled to, if he does not fulfill laid down criterion) and there would be Incidentals Payments that are conditional and may accrue upon some specific results being achieved, like, Commission on sales, production incentives, attendance bonus etc.) The non monetary benefits cost to the organization but do not represent "money in hands" as far as the employee may be considered.

Therefore during salary negotiations, our approach should be to compare on "like to like" basis, as far as possible. Alternatively we must build complete CLARITY about what is being discussed, negotiated and contracted, such that there will be no room for ambiguity, confusion or misunderstanding.

Transparancy is a great strength in matters of all interpersonal relationships-especially when money is involved!

I hope your querry is answered.

Regards
samvedan
November 16, 2010
-----------------------

gobinda samanta - Member Since: Aug 2010
Hi Sim,
Employer has no control over the statutory benefits like, Bonus, PF, Gratuity etc that is why they are not included in CTC ( cost to company) however, other Costs like Basic Salary, HRA, other allowances can be negotiated if Salary is not based on a fixed Package.
This is also very clearly stated by Mr. Samvedan.

All the best

sim27 - Member Since: Jun 2010
Thank you Mr. Samdevan and Mr. Gobinda,

you have very nicely explained the logic why bonus is not considered as part of CTC.

I would like to seek your expert guidance in following incident.

In one of the company, the offer letter given to the employee wherein it mentioned ctc as 1.2 lac p.a. (Rs. 9230/- per month + yearly Bonus rs. 9230/-)

subsequently it is noticed that the company includes bonus also as part of ctc. therefore, per month salary of the employee is obviously lesser than what is expected.

after completion of an year, when the employee aplied to another company for job, the new employer did not considered the CTC which includes the bonus which affected the salary negotiation.

Dear Experts, please express your opinion in such situation.

1. whether it is fair practice of company to include bonus in CTC?
2. Is it justified that even though the in appoitment letter, CTC is mentioned rs. 1.2 lacs p.a. (including bonus) but the new employer refused to consider the written CTC letter and only considering the salary slip on which the payment to employee is lesser.

Regards to all members.

samvedan - Member Since: Sep 2005
Hello,

In your example you have stated a bonus of Rs. 9230/- per annum.
If the person concerned is covered under Payment of Bonus Act 1965 this bonus would represent the Minimum Bonus. It would work out Rs. 8400/- under the Act. So, the Bonus included in the salary (or CTC) of the person is NOT the Bonus under the Act. We have to know if there are any conditionalities attached for payment of this (Rs. 9230) Bonus. For this reason this amount is a part of the salary itself.

If this logic was explained to the new employer, perhaps he would have accepted it especially if the old employer had in fact paid this amount!

I think the mischief is on the part of both the employers but more of the old employer and less of the new employer who atleast is saying that he will NOT consider this element in his offer.

That is why the concept of CTC is WRONG approach to negotiate salaries.
Each employer is free to define his own CTC and there i sno law against or to standardize it.

Please follow the logic presented by me in the first reply.

Tough Luck.

Regards
samvedan
November 17,2010
----------------------

Quote:
Originally Posted by sim27 View Post
Thank you Mr. Samdevan and Mr. Gobinda,

you have very nicely explained the logic why bonus is not considered as part of CTC.

I would like to seek your expert guidance in following incident.

In one of the company, the offer letter given to the employee wherein it mentioned ctc as 1.2 lac p.a. (Rs. 9230/- per month + yearly Bonus rs. 9230/-)

subsequently it is noticed that the company includes bonus also as part of ctc. therefore, per month salary of the employee is obviously lesser than what is expected.

after completion of an year, when the employee aplied to another company for job, the new employer did not considered the CTC which includes the bonus which affected the salary negotiation.

Dear Experts, please express your opinion in such situation.

1. whether it is fair practice of company to include bonus in CTC?
2. Is it justified that even though the in appoitment letter, CTC is mentioned rs. 1.2 lacs p.a. (including bonus) but the new employer refused to consider the written CTC letter and only considering the salary slip on which the payment to employee is lesser.

Regards to all members.

siba - Member Since: Aug 2006
Hai All,

There is no certain defination of CTC. It varies from company to company.some companies add bonus as a part of ctc while some are not.Even some companies add gratuity ,intrest on housing loan etc as a part of CTC.Also there is no legal binding what to include or exclude in CTC .


thanks

Siba

kannanmv - Member Since: Apr 2009
Dear All,

As the definition itself is COST TO COMPANY, all costs the company incurrs/ likely to incurr in respect of the employee is considered as COST TO COMPANY.

Though you have mentioned that the salary is Rs.9230/-, there is no mention about the break up Basic + DA which is the basis for computing bonus as per act.

In my opinion if the employee is able to furnish a FORM 16 provided to him by the former employer then the suceeding employer would have taken this as an evidence.

Generally, companies verify statements made by employees. In some instances we come across employees producing the actual earnings + probable earnings (incentives). But in many cases the full incentive earning is not earned by the employee though the offer letter will indicate the maximum CTC the employee can earn. In such a case employers tend to verify the claims made by candidates and this is usual.

So it if for the candidate to prove that he has infact earned the CTC in his previous employment.

Trust the matter is clarified

M.V.KANNAN

lochanan - Member Since: Jul 2009
Quote:
Originally Posted by kannanmv View Post
Dear All,

As the definition itself is COST TO COMPANY, all costs the company incurrs/ likely to incurr in respect of the employee is considered as COST TO COMPANY.

Though you have mentioned that the salary is Rs.9230/-, there is no mention about the break up Basic + DA which is the basis for computing bonus as per act.

In my opinion if the employee is able to furnish a FORM 16 provided to him by the former employer then the suceeding employer would have taken this as an evidence.

Generally, companies verify statements made by employees. In some instances we come across employees producing the actual earnings + probable earnings (incentives). But in many cases the full incentive earning is not earned by the employee though the offer letter will indicate the maximum CTC the employee can earn. In such a case employers tend to verify the claims made by candidates and this is usual.

So it if for the candidate to prove that he has infact earned the CTC in his previous employment.

Trust the matter is clarified

M.V.KANNAN
Dear Mr Kannan,

I've this question for you. Where a Company includes a bonus(performance bonus/variable bonus) component in CTC and does not declare and distribute consistently quoting poor performance, what is the position of the employee. In the first place, this component is only the "probable earnings" so to say , for the employee and does not reflect a regular income. Is the company correct in making such offer?

gobinda samanta - Member Since: Aug 2010
Hi Sim,

1. There is no thumb rule to show or not to show Yearly Bonus in the Offer letter along with the CTC.
2. The Employer can't deny Yearly Bonus to the eligible employee even if Bonus is not mentioned in the Offer letter ( if Bonus Act is applicable to the Company where the said employee is working)
3. Convince the new Employer that in the Pay Slips of many Companies Bonus / Exgratia amount is not shown as regular incomes like, Basic, DA, VDA, HRA etc.
Hope the doubts r clarified.

All the Best

ramachandrak62 - Member Since: Apr 2010
Dear All
The subject has been well explained by Mr Samvedan and Mr Kannan
The CTC concept varies from company to company it is very tricky. The person who is offered employed has to use his descretion and negotiate looking at the different components.

Regards
K.Ramachandra



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