Understanding CTC: Should Employer's PF/ESI Contributions Come from Your Salary?

Just want one clarification...

Clarification on CTC and Employer Contributions

Is CTC meant to include the employer's contribution for PF/ESI, or should the employer pay separately from company accounts? Please give some suggestions on the same. I have come across one company where the PF/ESI contribution of the employer is being deducted from the employee's salary, i.e., from the employee's CTC.

Regards,
Yohan

The term CTC means Cost-to-Company. It varies from company to company based on their predefined salary structure. As per your query about whether CTC means that the employer's contribution for PF/ESI is also deducted in the said CTC or should the employer pay separately from company accounts, the answer is an employee should contribute 12% of their basic salary from their earnings, and the employer will also contribute 12% of that from their accounts.

Explanation of CTC Components

Basic - 10000
HRA - 4000
Medical Allowance - 550
Spl. Allowance - 1450
Conv. Allowance - 4000
Monthly Gross - 20000
PF - 1200
Bonus (Min) - 833
Gratuity - 481
Monthly CTC - 22514
Yearly CTC - 270168

Your deduction should be Monthly Gross - Your PF Contribution - P.Tax - (TDS based on annual income)
20000 - 1200 - 130 (Varies statewise) - (let TDS = 0)
Then your net pay = Rs.18670/-

Regards

Thanks, Rahaman. I have seen an offer letter where the employer has indicated the deduction of PF contribution from the employee's salary. Is it legally right to do that?

It is legally wrong. They should not recover the employer's contribution from the salary of the employee. The employer has to bear the employer's contribution.

Regards,
Alphonse

If the company is offering a Gross salary, then the employer's contribution is borne by the company. However, if the company offers CTC, then the employer's contribution is part of the CTC offered to the employee.

I do agree with Alphonse. It is not legal or ethical for an employer to recover the employer contribution from the employee's salary. Please note, though you can contribute twice the PF (24%) from your salary with the approval of management, the employer contribution should remain at 12% or more at the discretion of the management.

Regards,
A. Rahaman
HRD

I do agree with Neha. In my company, we are offering CTC (Cost to Company). It means both contributions will be borne by the employee. There is no legal issue in this as the salary structure is designed as per company policy.

Regards,
Suvarna

As per my knowledge and experience, CTC itself indicates that the Cost to the Company includes every rupee spent by the company on an employee. It encompasses all contributions from both the employee and the employer. CTC clearly means:

Net + Employee contributions = Gross
Gross + Employer Contributions = CTC.

Regards,
Mallik

Understanding CTC and Employer Contributions

As CTC stands for Cost to the Company, the company won't pay a rupee extra than the agreed CTC. All the contributions, including those for PF/ESI, are included in it.

PF Contribution Explained

PF contribution is 12% of the employee's basic salary.

For example: If the basic salary is ₹10,000, then the PF amount would be ₹1,200.

Understanding CTC Components

CTC includes the entire cost to the company. It includes both components, and these are mutually decided and agreed upon.

Regards

Understanding CTC and Employer Contributions

CTC includes the total cost that a company bears for a particular employee, so the employer's PF and ESIC contributions are included in CTC.

Understanding CTC and Employer Contributions

You need to first understand what CTC is. It is the total cost to the company, including salary, PF, ESI, bonus, gratuity, conveyance, and various other allowances. Whatever comes out of the company's coffers to employ an employee is that employee's cost to the company (CTC).

Calculations of the amounts deducted towards PF and ESI, etc., are not based on the CTC but are calculated as a percentage of the wages, which are a part of the employee's salary. Both employers' and employees' contributions towards PF, etc., are deducted as a percentage of 'Minimum Wages' of the employee, which form a part of his salary, and the total adds up to the employee's CTC. It is usually expressed in terms of the annual cost, and hence the monthly cost is multiplied by 12 to arrive at the annual CTC.

I hope this clears the doubt.

Regards,
Aye.

Colonel Gahlot
'TRURECRUIT' Placement Consultancy
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