Is It Fair to Include Mobile Allowance in an Employee's CTC? Seeking Your Advice

Dear Members,

Please guide me on whether a mobile allowance given to any employee can be a part of their CTC. For example, if they have to use their own mobile (SIM) and the company will pay it as a fixed amount in their salary.

Please revert with your insights.

Regards

Whether it can be included or not solely depends on that particular organization. As far as my knowledge is concerned, if you want to do it, I don't find any problem with doing that because nowadays even gratuity is included in CTC, which is not a good thing as far as employees are concerned. Hope this answer has served your purpose.

With regards,
Sarkar
MBA, PhD (HR), SAP (HR)

In your company, is it a "benefit" or by way of "reimbursement" for making official calls or calls related to official business?

Thank you.

My dear Sarkar, I appreciate your enthusiasm. What is the policy in your organization regarding "Expenses on official tours"? For example, when a salesperson visits a number of cities, he travels (by air or train), stays in a hotel (specified according to his level), and spends on taxi/travel, etc. Do you consider all these expenses as his income/part of salary? Do you add all these to the CTC? Wouldn't that mean all expenses made by an employee in connection with business are not "business expenses"? Is there not a fatal flaw in such thinking?

I suggest you consult your Finance & Accounts people for some clarity on these expenses and how they are treated financially and in the account books. Kindly reconsider your opinion.

Regards.

Dear Sarkar,

Thanks for your reply. So, does your company include any expenses that an employee incurs while working for the company in his CTC? It is not only unfair but also illegal. I wonder how much it inflates the CTC and makes it unrealistic. For example, especially in Marketing and Sales, employees (Regional Manager/Area Manager, etc.) are always on the move and entitled to airfare and at least three-star hotels.

In a month, a typical Sales/Marketing executive may rack up a bill amounting to more than five times his total salary in a month. Remember, this money does not go into the pocket of the employees; it is the official expenses incurred during business.

In any management books, such expenses are called SELLING/MARKETING expenses and are accordingly shown in the PROFIT & LOSS ACCOUNT of the Company, which is prepared and audited by Chartered Accountants. In the Balance sheet, Net Profit is the amount derived after deducting these expenses. Such expenses, therefore, are tax-deductible.

Showing these expenses anywhere else would violate the INDIAN COMPANIES ACT 1956 and the following Accounting Standards, which have legal recognition under the Act:

- AS 1: Disclosure of Accounting Policies
- AS 3: Cash Flow Statements
- AS 5: Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
- AS 15: Employee Benefits
- AS 21: Consolidated Financial Statements

and perhaps several others.

Please note, such expenses CANNOT be added to the CTC of an employee. CTC or Cost To Company does not mean adding all costs necessary to run the business to the employee's account. For example, one cannot add the Cost of a Crane as CTC of the Crane Operator, or the Cost of a Machine as CTC of the machine operator.

As suggested earlier, kindly verify the facts with your Chartered accountant/Company Auditors. For convenience, you can take a printout of this and discuss with them. Hope they will convince you. Moreover, these are not added to the CTC. Have you ever seen a CTC statement that includes all these official tour expenses?

HR professionals need to be more knowledgeable and keep upgrading themselves. The reason HR professionals receive comparatively lower salaries than CA or CS is simply due to a lack of knowledge and skill, as well as the fact that CA/CS have a common professional rigorous curriculum administered by an Apex body and recognized by the Government. Consequently, a Finance professional knows more about HR processes and systems than a person claiming to be an HR professional knows about the financial matters related to employees - a situation that I fervently hope will be addressed in the future.

Warm regards.

Dear robindt1,

My idea behind my earlier query was to make you understand the difference between an "employee benefit" and a "reimbursable expense."

Since the employee is already using their own SIM and mobile, any flat sum given to them every month with no restriction on calling family, friends, etc. (without the requirement of producing bills) will definitely be a "benefit" and therefore, a part of CTC.

However, any amount given towards expenses for business calls only should not be a part of CTC.

For example, some companies pay a fixed sum towards employees' personal mobile/telephone expenses, which are part of CTC. In addition, the company gives them a separate mobile (the cost of which is as per eligibility) with a company-procured SIM (having similar numbers and Group Dialling Facility) for office use. This mobile should always be kept switched on, and the bills (within limit/approval) are paid by the company itself (or reimbursed).

Such mobile expenses should not be a part of individual CTC, as they come under business expenses under the Accounting head like "Administrative & Selling expenses."

Hope the concept is clear to you, which was my intention.

How it is done in your company is another matter altogether, as companies have their ways of doing things, irrespective of whether it is legal or not, proper or not.

Warm regards.

I agree with Sh. Raj Kumar in totality. HR should and must understand the difference between business expenses and employee benefits. All expenses towards official work are part of business expenses.

Regards,
HC Nagar

A telephone or mobile phone is provided to certain individuals who need to frequently communicate with their superiors, colleagues, or business associates. Without this facility, one cannot effectively perform their duties as a sales executive, field engineer, etc.

Secondly, the money spent on this communication tool does not go into one's pocket. Therefore, it should not be considered as part of the Cost to Company (CTC).

Regards,
V. Balaji

I fully agree with the observations made by Mr. Raj Kumar. Perhaps your exuberance has gotten the better of you, and you seem to have been swayed by the vigor of your enthusiasm when posting your response.

Mobile Allowance and CTC

In the instant matter, if the Mobile Allowance is treated as a Fixed Allowance and is reflected on the Payslip and paid as part of Salary, then yes, it will be construed as being part of the CTC.

On the other hand, if expenses against the use of mobile phones for official work are reimbursed against a bill raised for the same, it will NOT be part of the CTC.

Gratuity and CTC

Gratuity should not be treated as part of CTC since the employee will be entitled to the same ONLY after completing five years in the organization.

Vasant Nair

Hi Robind, whether it can be included or not solely depends upon that particular organization. As far as my knowledge is concerned, if you want to do it, I don't find any problem with doing that because nowadays even gratuity is included in CTC, which is not a good thing as far as employees are concerned. Hope this answer has served your purpose.

With Regards,
Sarkar MBA, Ph.D. (HR), SAP (HR)

Even if you have fixed allowances to meet expenses for a train journey or to cover the cost of staying in a hotel during an official tour, such expenses should not be treated as part of the CTC. These are expenses that an employee incurs when they go on tour for official work and should be treated as reimbursements. The limits for travel, etc., are designed and defined for budgetary purposes to control expenses on official tours. You may wish to advise your management accordingly to possibly revise the Policy of Official Travel and Outstation Visits for official work.

Vasant Nair

Understanding CTC Components

CTC means Cost to the Company, i.e., the compensation in different components payable to its employees for hiring their services. It varies from one company to another. The reimbursement of a phone bill to a fixed amount can be treated as part of CTC. Normally, the following will be part of CTC: Basic Salary, HRA, Conveyance, LTC, Bonus, Special Allowances like books and periodicals, driver allowance, petrol expenses, and medical reimbursements. Apart from the above, statutory contributions like Provident Fund and Gratuity are included.

Hope this clarifies.

Regards

It is to be decided at the sole discretion of the organization. When it comes to CTC, the organization can cover other allowances in addition to statutory ones. Therefore, it can be considered as a part of CTC.

Regards,
Ashish

Well, thanks for the advice, but I feel my top management knows what is better for their employees. Secondly, I think that you are much more experienced than me, but still, I feel you should keep your advice to yourself. Our HR Head and VP HR know better than you, and trust me, I know it completely. To say what is legal or illegal is not right, as far as I believe. I assume that your point of view is coming from one industry. As I work in an IT company, we don't have Sales Manager/Regional Manager (I think you have in your company). We have a Client Acquisition team that handles the business development of our company. As I mentioned earlier, we have maintained certain parameters/limits to curb the misuse of this inclusion. I don't think our employees are foolish enough to work in a company where the CTC is not up to the mark.

We didn't join this forum to criticize each other's companies (Mine is one of the best-known IT product MNC - that specifically goes to Mr. Raj Kumar) but to share knowledge. I have stated my opinion; people can always argue with a better solution, but I am sure they don't have the right to say "what is legal or illegal." I simply advised Robin based on what I believe is correct according to my knowledge.

Clarification on Gratuity and CTC

I also know that a person gets Gratuity only after 5 years. But if you have the patience to read my post, then I just mentioned that some companies use it to inflate their CTC.

Final Thoughts

Although I don't think I should provide any explanations, I feel I should make my stance clear and precise. As "hiashuhrm" rightly said, formulating CTC totally depends on that company. However, when it comes to our company, we include it because our CTC is much higher compared to our industry peers.

To quote an example - If Company ABC has a CTC of 500,000 PA in place for their Business Analyst, we at XYZ have a CTC of 650,000 PA for the same profile. This basically means that the employee is well aware of the inclusion of expenses in CTC as they know that even after deductions, they are getting more than their peers.

Hope all my friends now have a clear picture. And Mr. Raj Kumar - kindly check your words before commenting on something. Being an HR (I assume you are), one should be more careful with their words.

With Regards,
Sarkar

We offer mobile reimbursement for employees based on the entitlement defined by their grade. Personal call expenses must be deducted by the employee when claiming reimbursement.

My dear Sarkar,

Thanks for your reply, which very nicely reflects your opinion and attitude. Kindly go through my earlier post again. The examples quoted therein are just examples to make the concept easy to understand and are not taken from my or any other specific company.

The Sales/Marketing example was used because they are mostly on tour/travel. However, all these travel expenses (which are undertaken for company business) do not form a part of CTC; as these do not go into the pocket of the employee - like in the case of LTA/LTC; but are merely reimbursements of expenses incurred for company work.

The facts quoted therein are facts that can be verified with any knowledgeable person or an expert like a good CA/CS or even the knowledgeable HEAD and VP-HR of your esteemed company. I am sure you have not referred the matter to them, else they would have told you what is right.

The fact remains that:

"The expenses incurred by any employee in connection with company business/work such as Official tours (including travel, boarding & lodging, incidental expenses in connection with the work) are never a part of CTC."

Please try to understand what CTC (Cost to Company) means and what it includes. If you still have any doubts on this, you should clarify it from your own seniors. I do not think a senior person who understands these aspects would have a different opinion.

We are here, definitely, to share knowledge, and that is why my emphasis on facts and legalities. Do think again on this without getting unduly charged up in anger!

Declaring the questionable policies of your company, the supposed concurrence of your HEAD/VP-HR, and your salary information in a public forum is not proper; you could land in trouble if word gets back to your organization.

Warm regards.

Mr. Sarkar,

Mr. Raj Kumar has presented his views in a very scientific manner for treating the expenses and employee benefits in light of the existing law and standard accounting practices, as laid down by the Companies Act, as well as by the Institute of Chartered Accountants of India (established by a law of parliament). No company is allowed to do things that are not permitted by law.

If your Company Secretary or the Chartered Accountants are not looking into this and are categorizing the expenses and benefits into inappropriate heads of accounts, they are not presenting a true and fair view of the accounts.

Mr. Raj Kumar has referenced various Accounting Standards that guide the industry as well as auditors on how financial entries/transactions need to be treated in the books of accounts.

Mr. Raj Kumar has offered valuable advice to refer to your Finance Department for further clarification. You appear to be a non-finance person, and you have unnecessarily become upset about the advice given by Mr. Raj Kumar.

Ramalingam Raju had a formidable Satyam. But see what he was doing. I am not suggesting that your company bosses are doing the same, but perhaps they are ignorant or misled. If your company does not mend its ways, it could face trouble someday.

I assume that your company, in an attempt to show as the best paymaster in the industry, is including inappropriate amounts in the CTC (as is evident from the example of CTC you provided in your post).

But beware, the actual salary is what an employee takes home and receives as perks or long-term deposits, like PF, etc. Everything else constitutes the business expenses of the company attributed to employees inappropriately.

I agree with you totally. Very nicely put. Raj has explained the issue at hand so beautifully and in good detail. It's unfortunate that our friend could not appreciate it from the desired perspective.

Regards,

Vasant Nair

Dear Mr. Raj,

Thanks a lot for the information. In our company, we give a fixed amount (say - 1500/month) which he can utilize for both his family and official purposes by using his own number. In case he uses a company SIM, any bill amount exceeding 1500 gets deducted from his salary. If the bill amount is below 1500, the remaining amount gets credited to his salary.

I hope it's proper and legal. Kindly advise.

My dear Robindt1, my efforts are primarily directed towards creating awareness and understanding of the various issues in HRM. I understand the problems and constraints faced by an HR. It is good that you have raised this issue as it helps in clarifying matters. Having the "knowledge and expertise" is one thing, and being empowered to "apply" it is another. But it is always better to be 'informed' even when making a 'forced decision'.

We already know how companies try to bundle everything they can to make for a more attractive CTC.

Now, we have also discussed what constitutes a 'benefit' or a 'reimbursable official/business expense'.

It would definitely be a benefit extended and a part of CTC if companies provide mobile expenses for personal use. However, we are aware that companies do so primarily for official use. It is incidental that some employees also use it "by design/wilfully" or "out of necessity" for personal use.

Hence, ideally, such telephone/mobile expenses should be out of the purview of CTC. But by bundling personal use, a 'grey area' is created.

Since the amount is not too atrocious, and considering far more outrageous things are included in CTC, you can make your own decision to the extent you are empowered to. Now that you fully understand the nature of the issue and its implications, you can make an informed choice.

(As far as legalities are concerned, on this issue, there are no specific guidelines or directions).

Warm regards.