Understanding CTC: How Do Companies Calculate It and What Should Employees Expect?

Dear all members,

Nowadays, most companies offer their packages in the form of CTC (cost to company). Is there any guideline to compute CTC? I mean, which payments to an employee should be included while computing CTC? It is also informative to note that all companies calculate this differently; some even include all reimbursements like conveyance expenses, etc. Furthermore, some include FBT paid by the company on behalf of the employee.

From the employee's perspective, in some cases, they receive only 50-60% of the monthly CTC in hand, which they were assured at the time of recruitment. This situation can give a very negative impression to the employee, feeling as if their salary is being unjustly reduced.

All members are requested to share their views and guidance.

With Regards,
Pradeep

Hi Pradeep,

We cannot call it robbery over his salary. It is what we are paying him indirectly. To make it simple, the monthly salary includes all his allowances along with basic and DA. This is used in calculating his gross salary for a year. Along with this, there are other benefits such as LTA, Medical Domiciliary, Bonus, etc., which we include in his CTC, thus making it a complete whole.

If an employee avails an LTA or avails reimbursement from his medical domiciliary, we actually pay it. That is what we are projecting in the CTC. So it would be better to explain this to a newcomer if you think that you have to maintain a good impression. Hope this could have cleared your doubt to some extent.

Comments from others are welcomed.

Regards,
Sangeetha

Hi,

After a candidate qualifies all the interview formalities, the HR can have a one-to-one meeting session to discuss in detail about the CTC. The salary breakups can be properly given, and the take-home salary can also be provided. Indirect and direct emoluments can be discussed in detail.

In brief, "SALARY OF AN UPCOMING EMPLOYEE SHOULD BE SHOWN IN BLACK AND WHITE." This will earn a good name for the organization and help maintain a wonderful employee relationship.

Regards,

LN Battacharya

Comments on this topic have already been posted in this forum earlier, but to quickly recap, any amount that the company spends for the benefit of its employees can be calculated under Cost to Company. This will include medical insurance, accident policy, subsidized lunch/food, any attire/apparel/furnishing/shoes, etc., provided (outside of the office), PF, and Gratuity.

Once committed in writing, the company should, for its long-term benefit, honor it and pay the employee at the time of full and final settlement in the event of the employee's resignation. Hence, it will not be considered robbery even though the employee is not receiving the compensation in their monthly components.

During the time of the salary discussion/negotiation, the company should explain the benefits of any component of the salary that is not part of the monthly component, like tax benefits (LTA, Medical reimbursement, etc.), and retiral benefits (PF, Gratuity, etc.).

All this said, it will be easier to attract new employees only if the monthly component of the compensation is high.

Hi,

I believe this issue will be resolved once the candidate receives his appointment letter. Usually, we provide a clear breakdown of the salary in the appointment letter. During the HR interview round, we finalize the commercial aspect by determining the candidate's expected CTC and adjusting accordingly after negotiation.

I trust that this clarification will address any uncertainties during the induction process.

Dear Shri,

We normally include the following components in the CTC:
- Gross Salary
- PF
- ESI
- Leaves
- Bonus
- Gratuity
- LTA
- Medical Insurance

Apart from the above, we also include:
- Uniform
- Canteen
- Transport
- Training Cost
- Gestation Period Expenses (when an employee joins, it takes a minimum of 2 months to perform to his fullest)
- Place to sit (because it has some market value)
- Stationery Cost
- Company-sponsored tours
- Gifts and Incentives (if any)

Pranav

CTC or Cost to Company is defined as "the amount spent by a company to maintain an employee for a period of one year."

My suggestion is: Any person who is accepting a new job should break up the CTC into two components:

1. Monthly Fixed
2. Monthly Variable

Also, consider what is Yearly Fixed. I believe this will give a person a clear idea of what exactly comes in hand.

Regards,
Mallet. :lol:

Hi,

It is always better to explain in detail about the cost to the company while offering a job to a prospective employee. After receiving the offer letter, a prospective employee's main question is, 'What will be my take-home pay?' It is advisable to have a salary breakup template that is self-explanatory, including the components of gross salary, other annual payments, employer's contribution to PF, deductions (both on a yearly and monthly basis), leaving no room for confusion. This approach ensures that no misunderstandings occur and that the impression is not lost, but rather enhanced.

Cheers,
Naveen

Sorry, but I am still confused about CTC breakup. Can someone let me know the percentage of each breakup and how it is going to be calculated.

Niku

Dear Niku,

There is no specific percentage for the calculation of CTC. It depends on the practices and attachment of the management to the issue of CTC.

Amar

Just want to know about Salary Break-ups! Are there any standard break-up rules that need to be followed? Is there anyone who can answer this?

Dear all,

I am seeking clarification regarding CTC. Employees should clarify their take-home pay and other details with HR before joining the organization upon receiving the offer.

Thank you all.

Shankar

Hi all,

For CTC, the basic breakup would be as follows (in most organizations):

- 12% of PF (both employer & employee)
- 20% of HRA in metros and 15% in other cities
- 4.75% to ESI
- Gratuity is calculated as per norms in the organization.

Special allowances do not have any particular percentage; mostly, benefits like medicine, domiciliary, conveyance, LTA, etc., come under this category.

I hope this is clear enough.

Regards,
Pradeep

Kindly think from the perspective of the Employee. We are considering the viewpoint of the Employer. By law, the employer has to provide certain facilities. Additionally, to save their money, the employer shows an amount in CTC as 15000. CTC gives 10000 take-home pay. Is this affordable nowadays?

Thanks & Regards,
Bhavesh

The employee is concerned about take-home salary (and other benefits) before joining, but he has nothing to do with what the organization will spend on his training or other matters. Hence, whenever a company is hiring, the CTC is just used to attract employees towards them.

Kindly let me know whether the CTC includes Employer's contribution and Employee's contribution of ESI amount. Because I have seen that some of the companies include the ESI amount (Both Parties' contribution) in the CTC.

Leena

Hello all,

I am also having a confusion... Is it necessary to fix an amount (percentage) of bonus to be given to employees? In my office, there is no HR department, and whenever a new employee joins, they ask for the breakup of CTC. However, my account manager refuses to provide the breakup. His argument is, "What's the need for the breakup? Just tell the new employee the net take-home salary and inform them that they will be provided with other benefits as per the rules." He mentioned that we cannot announce the bonus in advance. At the time of bonus payout, if it is less than expected, we have to pay the employee. If it is more than expected, we cannot deduct from the employee's salary as the bonus decision entirely depends on our Managing Director. Is this approach correct?

Regards,
Archana

I fully agree with this. No company gives clarity on CTC, and candidates are kept in the dark, which is a highly unfair practice in HR. This is primarily the responsibility of HR professionals. Staff are not interested in the CTC formula or components calculated by each company, which may vary from 5 to 10. What they are interested in knowing is how much they will get in hand after all deductions or the net take-home salary. It's like how an employer feels after they get a TDS-deducted cheque in hand.

I honestly appeal to all HR professionals to provide clear clarity on CTC and Gross salary. Can anyone guide me at gupte.subodh@gmail.com?

Thanks.

Can anyone guide me on this? This is unfair trade practice. What I understand is that CTC is not acceptable to the law.

Dear All,

Please let me know if the CTC employer contribution should be 12% or 13.61% on the basic salary.

Awaiting replies.

Dear All,

CTC stands for "all heads or components paid by the employers to employees directly or indirectly on a monthly or annual basis," referred to as annual CTC.

Regards,
Dileep

Let's take it simply.

Simply, please explain. For example, consider the job for a fresher in Software Development. If he is asked, 'what's your expected CTC/what CTC do you expect,' how is he supposed to answer based on the current IT salary environment? He would not think, in the first place, of the 'x' Rs/month as a monthly salary, including all other points (because he wouldn't know the company incentive schemes).

So, if he replies with 10000 expecting it as a basic (main salary without other additions, e.g., Psa, hra, etc.), then how will the company relate this to CTC? Or, for example, if he answers 1.20 (or 1.20-2.20) per annum by considering 10000 (or onwards) as basic, then how is that "1.20-2.20" considered by a company? What will the company consider 1.20-2.20 per annum as? Will "1.20-2.20" be considered as including everything, or how (because then the basic would go to be less than what that employee had thought as a net take-home salary, i.e., 10000)?

Ensure there is a single line break between paragraphs.

Suppose I am drawing a gross salary of Rs. 23,500/- per month, and due to the proposed rise in the ESI ceiling to Rs. 25,000/-, I will be covered by ESI. I shall have to contribute 1.75% of my salary, with my employer's liability to my ESI contribution being 4.75% of my gross salary.

Understanding ESI Contribution under CTC

Now, suppose I am under the CTC pay method in a company. Do I have to pay the entire 6.5% of the ESI contribution from my pocket only? Is the employer not responsible for paying their part of the contribution at 4.75%? People say that in the case of the CTC system, the take-home salary of the employee will reduce by 6.5% if they are first-time covered under ESI. How does all of this work?

Can any of you friends explain these facts to me?

Thanks and regards,
Janak Soni