Understanding CTC: Does It Cover Both Employee and Employer PF and ESIC Contributions?

Hello All, I have confusion about CTC. Does CTC include the Employee's and Employer's contributions of PF and ESIC as well?

Regards,
Jamith

Understanding CTC Components

CTC - Cost to Company (to engage an employee) can include every paisa the company spends on an employee, directly or indirectly. It depends on the company which costs are included while calculating CTC for an employee. The philosophy of cost components varies from company to company.

So, PF, ESIC, Gratuity, Bonus, Uniform, Free transportation, etc., could also be part of CTC. You may want to see some of my old posts on the subject as well.

Regards,
Shailesh Parikh
Vadodara, Gujarat
[Phone Number Removed For Privacy Reasons]

[QUOTE=govindsinghnegi;2053405]Dear Jamith, It does include. For more reference, check out the post below.

Thanks a lot for the reply, Govind! I have seen your post; it's really good and useful. I got some new information from your post, but I am still confused about the CTC part. For example, if a person's salary is Rs 14,000 per month, I want to make this figure the CTC, which means it should include both the PF and ESIC contributions of the employee and employer.

How to Calculate CTC and Display on Salary Slip

So, how do I calculate the salary and how do I show it on the salary slip? I would be really thankful if you could guide me on this matter. Thanks!

(Your blog, forum, and FB page are really good - Thanks for sharing)

[QUOTE=Shailesh Parikh_HR Pro;2053465]

DATE: 25th April, 2013
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Thank you for taking the time to reply to my query. I agree with everything you mentioned, but I have a question that I asked in my previous message. Please refer to it and advise me on how to document this on paper.

Regards,
Jamith

I hope you are not clear on Shailesh's reply. He had explained the question you asked. If you are inquiring about how to show that on the salary slip, then CTC can be detailed in the Offer/Appointment letter and not on the pay slip. You can display Gross Salary + Employer PF + ESI + any special components like Medical Insurance, etc., in the Offer/Appointment letter. The deduction part, such as Employee PF and PT, will be shown as deductions.

You cannot have both displayed in one document. This decision is based on the organization's policy. Please let me know the sector you work in, as it will help us provide more clarity on the query.

Hi Mahr, Thanks a lot! A lot of things got clarified from your reply. In the appointment letter, it should be CTC that includes everything, but I am not able to figure out CTC. How to make 14k CTC which includes basic, HRA, medical allowance, conveyance allowance, and other allowances, including employee and employer contributions of PF and ESIC? Is there any tool or Excel formula to calculate this?

Waiting for a reply!

Regards,
Jamith

Can anybody help me out and show me a practical example of how to bifurcate a 14k CTC?

Understanding CTC (Cost to the Company)

CTC means Cost to the Company, which includes the contributions made by the employer to your PF account, as well as Gratuity, Mediclaim, LTA, Bonus, ESIC, and any other expenses on the employee's head.

Note: Travel Allowance submitted by employees against travel bills is not mentioned in your appointment letter because travel allowance is not certain. However, all the statutory expenses along with salary components spent by the employer on the employee's head are known as CTC (Cost to the Company).

Note: Regarding your last query about the bifurcation of the 14k CTC, it differs from organization to organization, so it's not possible to bifurcate.

With Regards

Dear Jamith, this breakup is for your kind information as you requested Annexure-1:

Name of Employee: JAMITH

Designation:

| Elements | Per Month (Rs.) | Per Annum (Rs.) |
|---------------------|------------------|------------------|
| Basic Salary | 5996.00 | 71,952.00 |
| Conveyance Allow. | 1199.00 | 14,388.00 |
| Medical Allow. | 600.00 | 7,200.00 |
| HRA | 2398.00 | 28,776.00 |
| Special Allowance | 1799.00 | 21,588.00 |
| Monthly Gross Salary (A) | 11,992.00 | 143,904.00 |
| LTA | 500.00 | 6,000.00 |
| Bonus | 500.00 | 6,000.00 |
| Annual Benefit (B) | 1,000.00 | 12,000.00 |
| PF (Company's Contribution) | 720.00 | 8,640.00 |
| Gratuity | 288.00 | 3,456.00 |
| Retiral Benefit (C) | 1,008.00 | 12,096.00 |
| Cost to the Company (A+B+C) | 14,000.00 | 168,000.00 |

Take Home Salary (A - PF): 11,272.00 (Per Month), 135,264.00 (Per Annum)

* Income Tax & Professional Tax will be deducted as applicable.
* PF - Company's contribution is 12% of basic (limit of Rs.780/pm).
* Gratuity is payable as per the Payment of Gratuity Act.