Understanding CTC Breakdown: How to Calculate Salary Components and Benefits?

Dear All,

CTC includes direct costs - Basic Salary, PF employee 12% on Basic + DA, and indirect costs - Mediclaim, Bonus, Gratuity, PF Employer 12% on Basic + DA.

My questions:

1) Please specify which "heads" come under CTC except for the above (Direct and indirect).
2) Please explain the example:
a) If Rs. 30,000/- p.m is the CTC of any new joining employee in Electronics (Mfg Co.), how could we bifurcate the amount under different heads?
b) What will be his (Yearly) package?
3) How can we calculate the Gratuity? (How can we predict if the employee will continue for 5 years or more with the organization?)
4) How can we calculate Bonus?

Shila

Shila,

Under CTC, we have two "Heads." One is Gross Salary and the other is "Benefits." Gross Salary includes Basic, Dearness Allowance, House Rent Allowance, Conveyance Allowance, Children Education Allowance, Special Allowance, etc. Benefits include Employer PF contribution, Gratuity, Superannuation, Mediclaim Insurance premium, Lunch provided by the company, Incentive plans, Bonus, etc.

Gratuity is calculated using the following formula, i.e., 15/26 * last drawn basic + DA * number of years of service. The company has to accrue funds every year and will pay the employee if he/she decides to leave and meets the criteria for payment of Gratuity.

Bonus is calculated as 8.33% of Gross salary. Some companies have upper limits for the payment of Bonus.

Regards,
Draksh

Dear Shila,

Bonus is always calculated with Basic + DA, not with Gross. Normally, the percentage is 8.33%. The rate will differ from other companies.

Regards,
Jayang Shah

Dear Shila,

CTC includes all expenses borne by the employer (both direct and indirect) towards an employee engaged under him. Direct components include Basic, DA, HRA, TA, Meal Allowance, Spl All, Children Education allowance, Shift Allowance, CCA, etc. This may add up to say 20,000, which is your gross salary and will be reflected in your payslip, less employee deductions like PF, ESI, P. Tax, I. Tax, as well as other deductions like salary advance, etc., which will give you your net salary.

Indirect components include Employer PF (12% of Basic + DA), Employer ESI (1.75% of Gross), Gratuity (6% of basic + DA), Medical benefits for self and family, Bonus (8.33% of Basic + DA), LTA, Leave (CL, PL, SL), which may add up to say another 10,000 per month.

So, the CTC comes to 30,000 per month and 360,000 per year.

Hope this helps you.

Regards

Dear Shila,

Suppose the salary is fixed as 20000 CTC, then the calculation is to be made as follows:

Basic (40 to 50% of CTC): 10000
HRA (20% of basic): 2000
Transport Allowance: 800
Child Education: 200 [Deduction]
Medical: 1250
Conveyance Allowance: 3504
Gross: 17554
Total Deduction: 980 PF, 200 PT
Take Home: 16574

Bonus (8.33% of Basic): 833
PF (12% of Basic/6500): 780
LTA (8.33% of Basic): 833
CTC: 20000

If you want to add the Gratuity, then you can take 6% of Basic + DA.

Regards,
Jayang Shah