How to Structure CTC in IT: Balancing High CTC with Low Take-Home Pay?

Dear Seniors, I have joined as an HR in an IT company. Here, we need to modify the CTC. To date, the salary was not structured, and PF is also not being deducted. Now, the company is asking to create a structure of CTC in the new FY where the following heads are to be added:

- Amount spent on employees' training
- Welfare
- Refreshment
- Any party thrown by the company
- Two outings in a FY
- Employee referral scheme

In the above scenario, the CTC will be very high, and the net take-home will be very low. How will this be calculated? Please help and guide.

Regards, Mili Bharadwaj

Understanding CTC Components

As per my understanding, the CTC is the total cost incurred by the employer for the employee. However, you can't include training, refreshment, or party expenses as part of the CTC. Of course, some welfare benefits shall be added to the CTC.

The following are commonly included in the CTC:

a) Fixed wages (Basic, DA, Conveyance Allowance, Medical Allowance, Food Allowance, HRA, Special Allowance, Night Shift Allowance, etc.)

b) Variable wages (Incentives, Performance Bonus, Retaining Allowance, etc.)

c) Benefits (Gratuity, Employer Contribution to ESI & EPF, Statutory Bonus, etc.)

Thank you.

Dear Jeevarathnam,

Thank you for your quick reply. It will help me too, but my question is still unanswered. The director is asking to create a format for CTC where all the expenses made on employees can be shown. Is there any way these can be applied?

Regards,
Mili Bharadwaj
9825199492

Dear friend,

Attached is the Excel worksheet for your reference. It will be helpful for you.

Regards,
Prabu

Hi,
Please find attached the CTC working for your reference.

Thank you.

Understanding CTC: Comprehensive Cost Analysis

The definition of CTC is exactly what it says—the total cost of an employee to the company. This includes the entire salary, all welfare activities, employees' contribution to statutory dues, and training costs. For factories in remote locations, it also covers costs of stay, electricity, etc.

So yes, your director is correct when he says all these are to be included. What you are referring to is a modified version of CTC that has become popular in India. It is often used by HR teams to give candidates the impression that they are paid more than they actually are. If the purpose is to know the actual cost, yes, all of these are to be included.

Dear Sir,

You provided a CTC calculation. Upon reviewing the CTC calculation, it was noted that the PF contribution has not been revised in line with the new ceiling, etc. If someone's basic is more than 16000/-, according to the new calculation, the contribution will be @15000/-. Therefore, kindly revise the same.

Thank you.

Reevaluating Employee Compensation

If your Director wants every penny spent on an employee—like training, refreshments, gifts, outings, tea, coffee, and more—to be included in the compensation, it would be better to ask him to reevaluate everything based on the benefits that he or his organization gains by employing the employee. It is really unfair, and these people do not understand that without human resources, they are not going to produce anything. Without the human factor, the capital employed is a waste. Remember that each human resource has value, which is why we ask, "Why should we hire you?" at the end of every personal interview with a candidate. If we do not derive any benefit, will we hire any person? Will we tolerate paying a salary if they are just sitting on the reserve bench?

Please read 'CTC Vs BTC' posted sometime in 2007 by me, and I think the relevance of that article has not diminished.

http://madhu-t-k.blogspot.in/2010/02/ctc-vs-btc.html

Regards, Madhu.T.K

I think that CTC should not include welfare expenses because a company has to pay a certain amount, which depends on the company's turnover, as welfare expenses. The company can get a rebate under Income Tax for welfare expenses. Secondly, a company has to spend a certain amount on CSR (Corporate Social Responsibility), so your company can get rebates on expenditure of this nature and should not charge the same from employees.

In my opinion, CTC should include Salary, Employer PF & ESIC, Bonus, Gratuity, Leave Encashment, and any other payment which the company pays to employees in cash.

Regards,
Avinash Dubey