Employer PF Contribution and CTC: Can Companies Deduct Their Share from Your Package?

Dear All,

Does the employer contribution to PF form part of CTC? What I am trying to understand is, can the employer deduct the organization's contribution to the PF from the CTC? Please share insights on what is practiced in your respective organizations, specifically in the IT, service, and BPO industries.

Awaiting your responses.

Regards,
Nidhi

Hi,

Yes, the Employer Contribution to PF is part of CTC (Cost to the company). The CTC concept is introduced to calculate the cost of each employee to the company.

Murali.

Dear Ms. Nidhi,

CTC includes all costs or expenses incurred for the employee. PF contribution, liability towards gratuity, ESI (if applicable) - employer's share. If the tax part is borne by the employer, it will be a part of CTC. However, it does not include any incentives or appreciation amounts linked to annual performance.

Thank you.

Dear Nidhi,

Employer's PF is inclusive part of CTC. I also disagree with nn_tiwari's comment.

There is no specified rule for which components are inclusive or exclusive; it always depends on the company's culture.

So far, performance bonus and fixed incentives are also part of CTC.

When you resume an interview as a candidate, always show them the CTC structure and facilities available from the employer.

For example, suppose I am with the "X" company, and they have provided me with accommodation. In an interview with the "Y" company, as a policy, if they do not provide accommodation, they will include such an amount in the salary structure to make the offer.

Exploring in detail, suppose X person's salary is 10000, and the company provides accommodation leased at 5000. X person's new offer from another company will be more than 15000. They have to calculate the salary increment based on 15000, not on 10000.

Also, if you provide them with certain fixed incentives, like a petrol allowance of 1000 per month, it will be a part of the CTC from the employer.

Therefore, it depends on company to company and policy to policy.

Regards,

Virendra

Hello everyone.

I agree with Virendra; this is how practical offers are being made. An employee may or may not count while working with the company, but when he searches out for a job, he will definitely include those fixed amounts in CTC and expect a rise on that amount. And it's appropriate too.

However, I agree with Nidhi also; the only thing is that there are various practices being adopted by organizations depending upon their management decisions.

Cheers!! Gaurang

CTC - Cost to the Company

It includes everything that the employer tends to pay to a particular employee during the course of one year. This includes the employer's contribution to PF and ESI. Sometimes, employers agree to pay the TDS, which is also included in CTC. The cost of a furnished house, car, magazines, etc., all fall under CTC.

Regards,

Sanjeev Sharma

Dear Nidhi,

There are 2 ways to convey compensation to an employee: Gross Salary and CTC. In Gross salary, 1 part of PF from the employee's side is deducted, and the employer adds his own part and deposits it.

In CTC, both parts - Employer and Employee - are included, and both parts are deducted and deposited. CTC is more prevalent in IT and related industries as a matter of administrative convenience. It does not, in any case, affect the employee's financial income.

Sandeep

Dear All,

Thank you all for your inputs; they definitely provide me with a better understanding of the subject. I kindly request you to share with me a salary breakdown on how we should present it to the employee. Typically, the salary breakdown only shows one deduction for PF from the CTC. I hope to receive your assistance on this matter as well.

Warm Regards,
Nidhi

Hi Nidhi,

CTC stands for Cost to Company, which refers to whatever the company spends on the employee. I am attaching herewith the salary breakup that we provide to employees.

Hope this will help you.

Regards,
Madhuri

Hi all,

I have another question raised after seeing this discussion. Virendra mentioned about the increments. How are increments calculated? Is it based on Gross Salary or CTC? If someone is receiving a fixed allowance (legally the term is ALLOWANCE), does the employee have to submit bills for the same?

And to Virendra, I believe incentives and allowances should be categorized under different heads. (Correct me if I am wrong).

Vijay

Hi Vijay,

Though your question is directed towards Virendra, I would like to share my views on it. The company can calculate increments based on either the Gross or CTC amount. It is entirely at the company's discretion and also depends on how you are compensating your employees, whether gross or CTC-wise. Typically, a percentage of the CTC is increased annually.

Bills are generally submitted for reimbursement benefits and not for allowances. Allowances and incentives are distinct categories. An incentive can be fixed or variable (performance-based), while an allowance is usually a fixed part of the salary.

I hope I was able to provide some clarity.

Regards,
Parul

Hi All,

I have another question raised after seeing this discussion.

Virendra mentioned increments. How are increments calculated? Is it based on Gross Salary or CTC?

If someone receives a fixed allowance (legally termed ALLOWANCE), does the Employee need to submit bills for the same?

To Virendra, I believe Incentives and Allowances should be categorized under different heads. (Correct me if I am wrong).

Vijay

Dear Vijay,

1. First of all, if we are discussing increments, it is a vital subject to understand. After the appraisal, decisions can be made on how to proceed. As per the current trend, you need to calculate the minimum and maximum % rise in salary, with exceptional cases of non-performers and excellent performers. Generally, all these calculations depend on the profits gained by the company. Then, employees need to be ranked based on their performance to determine their increments. Generally, increments are calculated based on gross salary as well as CTC. To get a quantitative figure, it is calculated on CTC, and then, as per the latest trend, it is calculated on the gross amount per month to determine the exact rise an employee receives.

2. Some allowances are tax-free (food coupons, travel, etc.), for which the employer always asks for receipts and bills. Others may be considered as salary components, such as education allowance, wash allowance, etc. It depends on the objective being served. Tax is an important factor that either the employee or the employer has to consider, and based on that, salary structures are determined.

3. Incentives and allowances are always categorized based on the level; there is no second opinion on this. For example, if a manager travels from one destination to another, their mode of travel will differ from that of a peon. However, some incentives, especially in service industries like retail and hotels, are given equally, such as target achievement incentives. These incentives may be provided in cash or based on group suggestions.

Regards,

Virendra

Hi Madhuri,

It was nice to see the salary breakup of your company; however, can you explain on what basis HRA is being calculated? Normally, it is 50% of basic salary in metros.

Regards,
Arya

Cost to the company, or CTC as it is popularly known, is the way the company determines the cost which it has to bear before it employs a person. Now, this cost to the company is broken up in such a way that even after discharging the statutory liabilities like contribution to CPF, Contribution to EST, Payment of Bonus, the cost to the company remains the cost determined beforehand. It must be understood that once the CTC is broken, the company will have to discharge the statutory liabilities based upon the pay structure created.

For instance, the limit for contribution to ESI is Rs. 6,500 as of the current date. Suppose tomorrow the limit is increased to Rs. 10,000, the company will be at liberty to change the pay structure and will have to make the contribution on the enhanced amount. Though the company may, at a later date when the annual increment, etc., is due, grant a lower increment to an employee to make up for the loss of such contribution.

Deepak Thukral

Yes. Employer contribution does form part of the CTC. CTC is the Cost To Company in totality that the employee would cost the company. In fact, you will have many employees argue on this very same point, stating that:

1. As this contribution is part of the employer, why is it mentioned in the CTC?
2. The CTC looks very rosy, but ultimately the in-hand package is not a big deal.

Here is where the negotiation skills of an HR person come into play. It's very important as part of HR to let the employee know what exactly his in-hand would be. You don't want to restart the entire recruitment process a week after the employee joins because you may just realize HE HAS BEEN PICKED UP BY ANOTHER COMPANY....

The above is a fact, right? :)

www.ralstonraz.blogspot.com

Employer contribution is always a part of CTC but not a part of Gross salary.

Regards,
Manish

Dear Ms. Nidhi,

The term CTC itself mentions Cost To Company. Most of the companies include every cost that is borne by the company for a particular position/employee. Now it is up to your company what to include and what to exclude. Generally, PF is not excluded. Exclusions are insurance or subsidized canteen or transport. But I feel even these should not be excluded if you are under CTC structure.

Coming to your question. If you are following a GPA system, then you should exclude PF in the CTC system. No, you can't.

Regards,
Swati
hr.loni@helvoet.com

Hi,

A question that has been answered a couple of times on this forum. CTC stands for Cost to Company. It should include the gross salary, the employer's contribution to PF, any performance-based incentives, and any other perks the employee receives upon joining the company. So, in response to your question, the employer's contribution to PF (12% of (Basic + DA)) is included in the CTC.

Regards,
Avi

Can anybody help me? Our company deducted PF for March and April, but we got registration from May, so we refunded employee contributions. My question is, should the PF deducted as employer contribution from CTC be refunded? Please advise.

A notification was issued on 18th March 2014, after the approval of CPFC, to clarify that provident fund contribution under section 6 is not payable on Cost to Company (CTC). Below is an excerpt of the notification.

Regards,
Hidaytulla Baig

If bonus is part of CTC, will PF and ESI be applicable on the same or not?

Thank you.

Can anyone discuss the legality of CTC with respect to Indian labor legislation? A fair discussion will be highly appreciated.