Understanding CTC: How Do You Break Down Your Salary Package?

Understanding CTC Breakdown

I require a breakdown of the CTC and how we can consider it as a breakup in CTC. What is the meaning of CTC? Please kindly help me in this regard.

Regards,
Kashinath

CTC is an abbreviation for Cost To Company and includes the following components:

- Basic Salary
- Dearness Allowance
- House Rent Allowance
- Medical Allowance
- Food Allowance
- Mobile/Phone Allowance
- Uniform Allowance (if any)
- Gratuity
- Annual Bonus
- (Not sure if Incentives could/should be included - Seniors please help)
- PF/Pension contributions (employer's end)
- ESIC contributions (employer's end)
- Leave Travel Allowance
- Children's Education & Hostel Allowance
- Conveyance
- Recreational/Entertainment Allowance (if any)
- Special Allowance

The above are normal and most often used categorizations.

Hope it was of help :)

As you mentioned, gratuity should be included in the CTC, but the eligibility for gratuity is the completion of 5 years. So, how can a company mention it under CTC? Please guide me in this matter.

Regards,
Kashinath

Gratuity is the company's liability towards an employee. It has to be made available irrespective of the company's conditions. Therefore, an amount is contributed every year and kept aside. When you complete 5 or more years and resign or retire, it is made available to you in your F&F; otherwise, it goes to the company's kitty. Since the company is contributing to your gratuity every year, it would be included in your CTC. It is a different thing that one doesn't have such a long tenure these days; that's the trade-off one needs to consider - gratuity claim or switch for a better opportunity.

Hope I cleared your doubt.

Regards,
Kashinath

[QUOTE=surisethe Kashinath; 1997786]

Dear Ankita Madam Ji, as you mentioned, in CTC, gratuity is to be included, but the eligibility for gratuity is the completion of 5 years. How can a company mention it under CTC? What are the percentages of contribution in CTC, and how can we decide the percentage in CTC according to the act? Please guide me on this matter.

Please guide me in this matter.

Kashinath

[QUOTE=surisethe kashinath;1998387]

[QUOTE=surisethe kashinath;1997786]

Dear Ankita Madam Ji, as you mentioned, in CTC gratuity needs to be mentioned, but eligibility for gratuity is completion of 5 years. So, how can a company include it in CTC? What is the percentage of contribution in CTC, and how can we decide the percentage according to the act? Please guide me on this matter.

Kashinath

Hi Kashinath, regarding why Gratuity should be included in your CTC, it is explained in the post just above your query. CTC stands for the cost to the company, so any cost that the company incurs on you is included in your CTC. I've learned from a few people that their CTC also covers costs towards their workstation, such as rental space and electricity costs (of course, that is a lump sum amount).

Percentage Calculation:

Gratuity is calculated as 15 days' salary for each year of service provided. The formula is 15/26 * Last drawn salary * Number of years of service rendered. Your last drawn salary during the claim may be different from your last drawn salary in your first year, so you would receive it based on your LAST DRAWN SALARY.

Contribution is made every year based on your current salary (which is the last drawn at that moment). We consider 26 working days for Gratuity calculation purposes.

Hope this explanation clears your doubts. :)

Corrected by Grammar and Spelling Correction Agent.

Another thing is, since the company provides bus facilities to employees, can the transportation costs covered by the company be included in the C.T.C? Please guide me, Ankita Ji.

Regards,
Kashinath.

If your company provides bus transport to its employees, please note the following:

Any employee who uses the bus transport service (both pick-up and drop-off) would not be eligible for Conveyance Allowance (as they do not need to pay extra conveyance).

The bus service is usually charged by most employers. In other words, if it is a door-to-door service, then the employer recovers an 'X' amount from the salary of such individuals.

Steps to Manage Conveyance Allowance and Bus Service Charges

For employees who commute on their own to your organization, you can provide them with a conveyance allowance of 800 (you can offer more as well if needed, but please note that 800 is the limit for tax remittance only).

For employees who use the bus service, you do not pay conveyance but include a part in their salary like a Bus Service Charge of X amount per month (and yes, it would be added to the CTC amount). However, this amount would not be paid to the individual; it would be deducted from their salary. Hence, it would not be included in computing the in-hand or take-home salary.

I hope I was able to answer your query. Please let me know if you need any further explanation. :-)

Regards

Here, we are not mentioning in computing in the take-home salary, so how can we deduct from his salary? Alternatively, we can reimburse employees who are using their vehicles. Those who are not using their own vehicles but are using company vehicles cannot be reimbursed; instead, a deduction can be made.

My doubt, madam, is if we are not paying it, then how can we deduct from his salary? Please guide me, madam.

Regards,
Kashinath.

Kashinath ji,

It works this way. In your salary component, you provide an 800 (or higher) allowance as conveyance so that they can travel from home to the office (by public bus, train, own car, or bike).

When someone is using the company bus, you need to charge them. For instance, my friend who uses the company bus has to pay X amount per month for the facility. Her salary component shows Conveyance as X, and this amount is deducted and shown as a charge for company-provided transport.

Essentially, you inform your employees that they have been given the X amount as conveyance as per the rule. However, since they are using the company's transport, they would need to pay that X amount to the company, and that's why it is deducted.

Hope this explanation helps. :-)

Regards,

In that case:

The amount spent on travel for one person on average is included in the CTC only and not in the monthly salary of the person. This is because CTC is Cost-To-Company, and every single rupee that is costed to the company is included in the CTC component. Training cost is not included because training is not provided on a regular basis. However, bus charges are accrued by the company and are payable on a regular monthly/weekly basis as the case may be. Hence, bus charges are to be included in the CTC of the employee.

So, for example, if you wish to offer a 3 lakh CTC to an employee then:

- If he has his own vehicle, you can reimburse the cost and put it under traveling or such an allowance.
- If he uses the bus service, you can find the cost incurred by the company per employee and include it in the CTC as below:

(add)

Basic

DA

HRA

Medical Allowance

Other Allowance

-------------------------------------

Per month Salary

-------------------------------------

x 12 = Annual Salary

-------------------------------------

(add following)

Gratuity

Bonus

PF contribution from Co

Cost of bus per employee

Other costs incurred

--------------------------------------

CTC

--------------------------------------

Hope it helped... 

[QUOTE=surisethe kashinath;1998387] Dear Kashinath,

You are partly right - Gratuity eligibility occurs after an employee renders "Continuous Service" of 4 years & 240 days, and payment is actually made when the employee leaves the establishment. However, a firm, as per Accounting Standards, must account for this "Gratuity Liability" annually by using the "Actuarial Method" certified by an "Actuary". Therefore, whether gratuity is paid or not, the amount involved is accounted for in the firm's books on an "Accrual Basis". Hence, that amount is part of the CTC for the firm in respect to eligible employees according to the Act, regardless of actual payment.

Regarding the management of this amount, there are two main methods:

1. Remitting the incremental liability annually to Gratuity Fund Managers like LIC based on a specific formula. These managers will then settle gratuity payments to departing employees per the Gratuity Act. If an employee leaves before becoming eligible, the proportionate money becomes a gain for the company. However, unlike EPO, this fund does not pay interest to employee members.

2. Creating a "Gratuity Fund" within the company and transferring the accrued amount to this fund each year to settle payments as necessary. This is similar to an exempted PF Trust and is managed internally by the firm.

3. Maintaining the Gratuity fund within the company, creating a liability in the accounts on an "Accrual Basis" annually, and settling the amount in accordance with the Gratuity Act.

These three methods are commonly used by employers, and as the Gratuity amount is charged proportionately as expenses in the firm's accounts, it is considered part of the CTC.

I hope this explanation is clear.

Kumar S.