Understanding CTC Components: Can Gratuity Be Included and What Else Should We Consider?

Components of CTC

What should be the components of CTC? Can Gratuity be a part of CTC? Additionally, what other components can be used for CTC? My company operates in the Education, Websites, and Entertainment sectors in Noida, with an approximate manpower strength of 200. We are currently in the process of finalizing our HR policies. We are also facing challenges during salary structuring. Your assistance would be greatly appreciated.

Thanks & Regards,
Daisy Singh

Yes, Gratuity is part of CTC. CTC means Cost to Company, i.e., whatever cost is invested in an employee will be a part of CTC. I hope you have clarity now. If you need further clarification, feel free to reach out to me at [Email Removed For Privacy Reasons].

Regards

Thank you for your reply. Suppose the employee does not continue their services for 5 years, then what will be done with the deducted amount? Also, what can be the components of CTC?

Thanks & Regards,
Daisy Singh

Hi Daisy, While making the CTC, you are not deducting anything; instead, you are adding the additional cost of an employee to their gross salary. There is no need to worry, as it is understood that Gratuity is paid only after 5 years of continuous service. Alternatively, you can explain this to your employee while offering them the CTC.

Components to Add to an Employee's Salary

Other than gross salary, you can add the following components to an employee's salary:

1. Employer's share of PF contribution
2. Employer's share of ESI contribution (if applicable)
3. Any premium paid towards medical insurance
4. Amount paid towards lunch
5. Amount paid towards transportation
6. Performance bonus/yearly bonus paid
7. Any other monetary benefit provided by an employer

Thanks,
Roopa Mehra

Suppose an employee's monthly salary, or say monthly CTC, is Rs. 30,000, then the bifurcation can be done as follows:

Basic Salary

Basic salary = 12,000 (40% of 30,000)

HRA

HRA = 4,800 (40% of 12,000 for non-metro & 50% of basic in case of metro)

Medical

Medical = 1,250

Conveyance

Conveyance = 800 (Fixed)

Special Allowance

Special = 11,150 (30,000 - basic + HRA + medical + conveyance)

Deductions

Less: P.T. = 200 (State-wise differences)
PF = 780 (If basic is more than 6,500 = 6,500 * 12%, if basic is less than 6,500 = whatever basic * 12%)

The above are the various components of CTC.

Regards,
Satyajeet Padhee

Yup, gratuity should not be included as a component part of CTC because gratuity is something paid to the employee after the successful completion of 5 years in an organization. It is paid to the employee for their loyalty towards the company and is paid on an F&F (full and final settlement) basis as a lump sum. That is why gratuity is not included as a component part of CTC.

Regards,
SATYAJEET PADHEE

Gratuity and Its Role in CTC

It is normally a gratuity given to a person who has been with a company for more than five years, which is not tabulated in CTC. Therefore, gratuity should not be included as a component part of CTC. Gratuity is something paid to the employee after successfully completing five years in an organization. It is paid to the employee for their loyalty towards the company and is paid on a F&F (full and final settlement) basis as a lump sum. That is why gratuity is not included as a component part of CTC.

In the sugar industry, this is the norm.

Regards,
Vasudev

Gratuity should be included only after an employee has completed five years of service in the company. The amount of the gratuity may be kept as a reserve in the company until the individual employee completes five years of service therein.

Understanding Gratuity Calculation

There is no specific formula to calculate gratuity. It varies from company to company and depends on the policies in place. However, one important point to remember is that if gratuity is mentioned in the offer letter, there will be a deduction of 4.81% from the basic salary.

Regards,
SATYAJEET

Please do not get confused between Gross and the Total Cost to the Company (CTC). When you say CTC, it includes every single expense that you spend on your employee. If it is Gross, then you do not need to mention or include the Gratuity.

Hope this clarifies...

Giving due respect to everyone's views mentioned above, I want to add one point. CTC, i.e., Cost to Company, includes every single penny a company spends on its employees. In that case, Gratuity is undoubtedly a part of CTC. However, Gratuity is payable only after the completion of 5 years of service by any employee, and those employees who attain the age of superannuation (58 years) cannot claim the Gratuity Amount. It is solely the company's decision whether to provide the Gratuity Amount to an employee after completing 5 consecutive years. If an employee leaves the organization before completing five years, they will be deprived of the gratuity amount, which they can only receive after completing 5 continuous years of service in any organization.

Regards,
Vinisha Wilfred

Understanding CTC Components

What to include in CTC and what not is the prerogative of the HR function of the company, decided after discussions and agreement with the management. The key is how you explain the CTC to an employee during hiring. Clear communication about this while fixing the salary is essential to avoid confusion later.

As a standard practice, CTC should include all the monetary benefits given to an employee under various heads, including gratuity. Some companies do not include the gratuity part in the CTC, though it is advisable to do so. The components of CTC are decided based on the organization's objectives regarding why they want to project CTC.

Expanded CTC: Total Cost To Company (TCTC)

Some companies have developed a more expanded form in this respect called "Total Cost To Company (TCTC)" where they capture even the indirect expenses on an employee, such as pro-rated facility expenses (share of the office premises expenses like rentals, electricity, and other consumables), pro-rated value of work-related electronic equipment given to an employee, pro-rated communication expenses, pro-rated expenses of employee events/corporate parties, and expenses against employee gifts, etc. These all depend on the organizational objectives concerning how they will use this information.

Steps to Decide Your Company's CTC Components

The first step to deciding your company's CTC components may be to brainstorm with the leadership team and clarify the objective as to why you want to introduce this concept.

Regards,
MK Saseedharan

Dear Sir,

If there is no deduction from the employer's side, can we show nil deduction on the salary slip? My company is a manufacturing industry with 50 employees (workers and staff). If possible, please send me the format for the salary slip with no deductions.

Regards,
Yahvi

Understanding Gratuity Calculation

Per the Gratuity Act, gratuity is calculated as half a month's wages for each completed year of service. What is meant by wages? Is it just the basic salary, or does it include basic salary plus other fixed allowances? It's worth noting that most companies do not include Dearness Allowance (DA).

Regards,

Hi,

Suppose an employee's monthly salary, or say monthly CTC, is Rs. 10,000, then the bifurcation can be done as below: