Seeking Advice: Is My CTC Format Correct for Including Paid Leave and Vehicle Use?

Dear Seniors,

Kindly let me know your opinion as to whether the CTC Format I have made is correct. The reason for this is:

1. Can we show the value of Paid leave, although I haven't added it to CTC?
2. If an employee has been given a vehicle for office and personal use, can we add 1/3rd of maintenance/depreciation/fuel to CTC?

Your early response and guidance will really help me. Looking forward to hearing from you.

Thanks and Regards,
Anagha

Hi Anagha!

My views:

Gratuity is payable after 5 years of continuous service. What will be your stand if someone leaves after 3 years? Furthermore, if at any point in time you pay gratuity, it will be based on the basic salary at that point in time. How will you calculate it? How will you convince the employee? I opine that gratuity should not be included in CTC.

The company should not include Paid Leave in CTC (however, it is not 'cannot').

Vehicle depreciation cost should not be added to CTC. Who is going to pay the salary for the driver? Who is going to arrange for fuel? It is advised to have the employee arrange the same, and the company reimburse his expenses for the same. You can refer to FBT provisions or consult your A/c. - Finance dept. for the same.

Also, you can consider Medical Allowance/Reimbursement as part of CTC. It helps the employee get IT exemption. The same is the case with food coupons.

CTC has to be understood and agreed upon by both parties well in advance to avoid any negative feelings later on based on actual earnings.

Have you fixed the ratio (proportion) for Basic and allowances? Why have you kept the Education allowance and special allowance blank? It helps to distribute the allowances into 4 - 5 heads.

I hope the above is of some help to you.

Let me have your feedback.

- Hiten

Thank you, Hiten, for your quick inputs.

My clarification is as follows:

1. This is a sample, and we have bifurcated the salary into allowances.
2. The company normally provides a driver (24 hours), and for fuel, we have arrangements with petrol pumps.
3. Gratuity is shown, but it has been clarified that it is payable after completion of 5 years. The logic behind this is that the employee must feel that this amount accrues and is payable after 5 years of service, acting as a motivation.
4. Since the vehicle is given to the employee and is at his service for 24 hours, why shouldn't a part of maintenance and depreciation be added to his CTC?
5. For medical purposes, we have mediclaim and accident policies in place.
6. Paid leave is just shown and is never included in CTC.

Now, after these clarifications, could you please let me know if this is the correct method of calculating CTC?

Regards,
Anagha

Hi Anagha!

Noted your points.

1. Clarified. You do have a breakup system.

2. For fuel arranged through petrol pumps, you should have clarity on monthly consumption/limit with the employee concerned. Also, you will have to have clarity about consumption on fuel for commuting for duty, occasional official tours, and personal tours. Driver's salary is cleared.

3. Your intention of using gratuity payment as a motivational factor is appreciated, but practically, you will have to process a number of F & F settlements before 5 years. Will you take into account the gratuity payment?

Take this example - A manager joins in 2007 with a basic salary of 40000. In 2014, he leaves at a basic salary of Rs. 65000. Now gratuity for 2007 is 1650 (approx), but if you pay him gratuity in 2014, you will pay him gratuity @ 65000 for all 7 years. Calculate what you would have budgeted for him and what the actual payment will be.

Further, if someone leaves in say 2010, can't he ask for payment of the sum calculated towards gratuity for 3 years? People do this. They ask for it and logically they are justified. Per annum Cost to the company is supposed to be paid within a year, and one cannot project part of CTC at the end of 5 years.

4. The ownership of the vehicle will remain with the company, so depreciation should be a liability of the company (owner) and not the user.

5. Regarding medical allowance, an employee can claim exemption from IT if he is paid a medical allowance as part of salary (max. up to 15000 per annum). Inclusion of medical allowance will help them have tax benefits. Mediclaim policy is different than this which you can count as part of CTC.

6. Paid leave - you have clarified.

Further, as a thumb rule, we follow the ratio of 50 - 50 for Basis - allowances as components of CTC. So if CTC is Rs. 100000, then basic would be 4200 per month. This you can consider as an option. The industrial practices are between 40 to 60%.

Hope the above is of help to you.

Regards,

Hiten