Understanding PF in CTC: Should We Include Admin and EDLI Charges in the 12%?

Dear All, We show 12% of the employer's contribution on account of PF as a part of CTC. An agency from which we outsource candidates is including 13.61% instead of 12% as a CTC component. Should PF admin charge and EDLI charge also be a part of CTC, or what we are following, i.e., 12%, is the correct one?

Mr. Raghunath is correct. CTC must include all the costs to the company for that particular employment.

Regards,
S. Sethupathy

I disagree with your views. CTC is generally denoted from the employee's point of view. In this case, the employee is not going to receive the extra 1.61%, but only 12%. The tangible benefits for employees are the only ones included in CTC. Following your argument, CTC should encompass all the overheads and expenses to be incurred on the employee, such as PCs, tea provided during office hours, space charges, etc., which are not commonly included in industries. I work for one of the top 5 companies in India, and they do not include 13.61% in CTC but only 12%.

Regards,
Pon

Understanding Gross Salary and CTC

Gross Salary is the amount fixed for the employee, and CTC is the amount fixed for his employment. The CTC is the cost to be booked in the books of accounts.

Considerations for ESI and Gratuity

What about the 4.75% on ESI and 4.81% on basic for gratuity? You may say that the employee will benefit from the entire 6.5% of ESI. However, in the case of gratuity, if the employee resigns before 5 years, the amount deducted for gratuity will revert back in the books of account.

Honestly, I don't know about the deductions made for Tea, Electricity, ID Card, etc. Many companies show expenses for Uniforms and Leave Encashments in their CTC.

With Warm Regards,
S. Sethupathy

Dear Sethupathy, I am not dwelling on the CTC booking in the accounts. I meant the CTC shown in the appointment letter. Yes, gratuity is also a part of CTC. I don't know about ESI as I am out of this ESI component. It is true that some companies show the leave encashments in CTC, but it is wrong as very few are encashing the leaves and the majority avail the leaves. To conclude, no uniform system is prevalent on CTC formulation across the companies in India.

Regards,
Pon

Dear Aparajita,

Understanding Net Pay, Gross Pay, and CTC

Net Pay, or Hand Taking Pay, is the amount we receive in hand. Gross Pay is the sum of Net Pay plus Employee PF, ESI at 1.75%, and other authorized deductions reflected in the Pay Sheet. CTC, or Cost to the Company, includes Gross Pay, Employer PF at 13.61%, Employer ESI at 4.75%, and other perquisites spent by the company for the employees.

I hope you can understand the difference between Net Pay, Gross Pay, and CTC. However, in some companies, as mentioned by Mr. Ponraj, the employer's PF is shown as 12% instead of 13.61%. The correct figure for the cost incurred on an employee by the company is known as CTC.

Regards