Is CTC Legally Approved and Does It Comply with Labor Laws? Seeking Clarification on Government Approval and Compliance Issues

Clarification on Government Approval of CTC

I want to know which government (State/Central) approved CTC (Cost To Company). If you have any gazette notification for the same, please provide it to me.

Presently, all employers are hiring employees on a CTC basis. Employers are not providing any bonuses, incentives, increments, gratuity, compensation, overtime double wages, or holiday double wages to employees. They are also deducting PF and ESI amounts from both the employers' and employees' parts of the salaries. Is this considered CTC?

Compliance with Labor Laws

Does CTC violate the Payment of Gratuity Act, 1972, Payment of Bonus Act, 1965, ESI Act, 1948, EPF & Misc. Prov. Act, 1952, The Workmen's Compensation Act, 1923, Factories Act, 1948, Payment of Wages Act, 1936, Industrial Employment (Standing Orders) Act, 1946, Minimum Wages Act, 1948, Equal Remuneration Act, 1976, etc.?

Please clarify who approved the CTC.

Components of CTC

What are the particulars like Basic, DA, HRA, Travel allowances, LTA, Extra-Gratia, etc., included in CTC? Please clarify.

Thanks with Regards,

Thirumurugan

Dear HR Professionals & Seniors,

I want to know which government (State/Central) approved CTC (Cost To Company). If you have any gazette notification for the same, please provide it to me. Presently, all employers are hiring employees on a CTC basis. Employers are not providing any bonuses, incentives, increments, gratuity, compensation, overtime double wages, or holiday double wages to employees, and they are deducting PF and ESI amounts from the employer's part as well as from the employee's salary.

Is this called CTC? Is CTC violating The Payment of Gratuity Act, 1972, The Payment of Bonus Act, 1965, The ESI Act, 1948, The EPF & Misc. Prov. Act, 1952, The Workmen's Compensation Act, 1923, The Factories Act, 1948, The Payment of Wages Act, 1936, The Industrial Employment (Standing Orders) Act, 1946, The Minimum Wages Act, 1948, The Equal Remuneration Act, 1976, etc.?

Please clarify who approved the CTC. What are the particulars like Basic, DA, HRA, Travel allowances, LTA, Extra-Gratia, etc., included in CTC? Please clarify.

Thanks with Regards,

Thirumurugan

Only the company fixes CTC. This helps the company to remain alert about the cost of establishment, budgeting, and cash flow for running the affairs of the company.

There is no role of the Government to play in fixing CTC. If violations of any law are observed, the employee or their union can appropriately take it up with the management, and in case of a dispute, the competent court of law.

Hi all,

I work in a PSU. In recruitment advertisements, the approximate CTC amount for a particular post is shown, whereas the appointment letter shows the basic salary amount in a particular scale and other amounts given as per government norms in the organization.

Hence, based on my knowledge, there is no CTC system in Central/State/PSU/other government organizations.

Regards,
Sarma

If you go through my posts about CTC, you will find that I used to repeatedly say that this is only a practice and has no legal backing. It is okay in one way, that by declaring CTC, the employer is showcasing his offer in a better way so that he can attract good candidates. At the same time, if you fall for this CTC unknowingly, then you are stuck.

Please follow the link [Madhu.T.K: CTC Vs BTC](http://madhu-t-k.blogspot.in/2010/02/ctc-vs-btc.html)

Madhu.T.K

Understanding CTC and Indian Labor Laws

If an employer is not providing any bonuses, incentives, increments, gratuity, compensation, overtime double wages, or holiday double wages to employees, and is deducting PF and ESI amounts from the employer's part from employees' salaries, is this correct in all circumstances?

Simply put, the employer is stating that they have recruited you (the employee) on a CTC basis. All components such as Basic, DA, HRA, Travel allowances, LTA, Extra-Gratia, Bonus, Gratuity, etc., are included in that CTC. The employer cannot pay extra apart from your monthly salary in any situation. Is this correct? Additionally, they are deducting PF and ESI amounts from the employer's part from employees' salaries.

Does this not violate any labor laws of India (The Payment of Gratuity Act, 1972, Payment of Bonus Act, 1965, ESI Act, 1948, EPF & Misc. Prov. Act, 1952, The Workmen's Compensation Act, 1923, Factories Act, 1948, Payment of Wages Act, 1936, Industrial Employment (Standing Orders) Act, 1946, Minimum Wages Act, 1948, Equal Remuneration Act, 1976, Contract Labour Act, Maternity Benefit Act, etc.)?

If the employer is recruiting all employees on a CTC basis, what is the use of the aforementioned Indian labor laws?

If an employer is not spending even one rupee towards employees except for the employees' monthly salary, can this be called CTC?

Thanks with Regards,

T. Thirumurugan

Clarification on CTC and Legal Compliance

Merely raising an academic question without discussing the real problem cannot solve your issue, if there is any. For example, you have queried, "Who approved the CTC," referencing various employment laws such as the Payment of Gratuity Act, 1972, Payment of Bonus Act, 1965, ESI Act, 1948, EPF & Misc. Prov. Act, 1952, The Workmen's Compensation Act, 1923, Factories Act, 1948, Payment of Wages Act, 1936, Industrial Employment (Standing Orders) Act, 1946, Minimum Wages Act, 1948, Equal Remuneration Act, 1976, etc.

Your primary question, "Who approved the CTC," has already been addressed by the members.

When you assume that all these laws have been violated, the question that arises is: How can all these laws be flouted simultaneously by CTC? It would have been helpful if you could provide examples illustrating how you perceive that all these laws have been violated by establishing CTC.

If you have a personal issue, it would be more beneficial to discuss it in detail to receive appropriate feedback from the members based on their knowledge and experience.

While there may be violations of the law, when you accept the CTC as outlined in your offer or appointment letter and do not take legal action to challenge any alleged violations, who has the authority to determine it as illegal? It is the employees or the employee union who should raise concerns either with the management or in a court of law by identifying specific violations. Merely stating that something is illegal, as in, "CTC Is Violating The Payment Of Gratuity Act, 1972, Payment Of Bonus Act, 1965, ESI Act, 1948, EPF & Misc. Prov. Act, 1952, The Workmen's Compensation Act, 1923, Factories Act, 1948, Payment Of Wages Act, 1936, Industrial Employment (Standing Orders) Act, 1946, Minimum Wages Act, 1948, Equal Remuneration Act, 1976, etc.," without concrete evidence, does not serve the interests of individuals or employees in general.

It is advisable to state the actual facts clearly instead of needlessly prolonging the discussion, which may lead to misunderstandings and confusion among the members.

Regards,
Thirumurugan

Understanding CTC (Cost to Company)

CTC is an abbreviation for Cost to Company. This naturally includes every rupee spent by the organization towards a particular employee.

Thus, while calculating CTC, each and every payment, whether it is a percentage of PF, ESIC (Employers' share), Gratuity, or any other welfare payments, is taken into account. CTC is merely a term that exactly depicts the cost to the company for hiring a particular position. In other words, all lawful, ex-gratia, and other willful payments made or to be made in respect of a particular employee/position constitute CTC. Hence, merely using the term CTC does not violate any act.

Having clearly understood this, there should not be any more confusion.

Regards, Arun Dixit.
[Phone Number Removed For Privacy Reasons]
[Phone Number Removed For Privacy Reasons]

Understanding Cost to Company (CTC) in Various Sectors

From a logical standpoint, if the employer complies with all employee-related acts and wants to emphasize every rupee spent on the employee, then the term "Cost to Company" seems appropriate. For example, in the past, factories that employed more than 500 employees used to provide their employees with subsidized tokens for the canteen. These days, in the IT/ITeS sector where people work abnormal shifts, there are facilities like cabs, lunch/dinner, etc. Similarly, I believe that factories more than 50 km away from the city provide transportation to the employees at subsidized rates, where the employer covers a major part of the cost. Is this understanding correct?

Regards,
[Username]

Understanding Cost to Company (CTC) and Employee Benefits

In the past, allowances or payments by the employer were considered outside the package and were accounted for as employee welfare costs. Now, these payments are included in the cost of labor. From the employer's point of view, this is appropriate because these are costs directly attributed to an employee, and as such, the employee should know what costs the employer incurs.

If there is an understanding of what constitutes the Cost To Company (CTC), the employee can also decide what their take-home salary will be, what their annual component will be, or what their entitlements will be at the time of retirement. HR should also be transparent and provide a salary breakup showing the gross salary and the monthly take-home salary apart from the CTC offered. This would reduce any confusion that may arise in the future.

Regards,
Madhu.T.K

Like Madhu TK mentioned above, it's more about 'HOW' things, in this case, Salary, are projected. Why not provide the details of the ACTUAL SITUATION you have in mind that prompted you to post this issue? While the general picture is what other members stated, there are always nuances based on the actual issue or situation.

For example, you mentioned 'deducting PF and ESI amounts of the employer's part also from employees' salary'—it's unclear whether you mean the company REALLY DEDUCTS the employer's contribution from the employee's salary [which is illegal] OR if it mentions this figure as a part of the CTC figures [which is factually correct].

There's another aspect to this issue—psychologically, employees have been accustomed to the model or practice of salary disbursal in the form you mentioned for decades. However, since the mid-1990s, after liberalization in 1991, many corporate practices have changed, with CTC replacing the earlier model being one of them. This model gives employers a better idea and control over cash outflows [this is a typical American model].

So, I guess it is also imperative for employees to be in tune with the trends. In this case, he or she needs to go through the salary breakup carefully and clearly to figure out the salary components, deductions, and take-home pay.

Frankly, gone are the days when employees could just expect the take-home figure and let the rest of the expenses incurred by the employer be the employer's concern, whatever the name or term for it. That used to be the employee mindset earlier when things were more laid-back, especially in the public sector [which was the highest employment-generating mechanism until 1991 or so]. No more freebies after that.

If you are referring to an ACTUAL situation, please provide clear details so that members can give their suggestions or feedback more accurately.

Regards,
TS

Dear all,

My name is Tilak, and I'm working as an Executive HR in my company. The CTC system is also operational in my organization. However, I believe it may be illegal because CTC stands for Cost to Company, and all legal dues to employees such as PF, ESI, Bonus, LWW, and gratuity cannot be deducted from the employees' salaries. According to legal provisions, it is the employer's responsibility to contribute to employees' PF and ESI as the employer's share of the contribution.

If this understanding is incorrect, please clarify.

Thank you.

Dear Tilak Bhardwaj, mere speculation about the legality of a term cannot suffice to prove it as illegal unless there is a provision in the law that declares it so. CTC cannot be deemed illegal unless it is legally declared so by a court's decision or through a provision in the law by the Government of India or the States. However, if you have knowledge of any section declaring CTC as illegal, it would be beneficial to quote that for the guidance of the members here.

Also, if you are working as an HR Executive, you could better inform the members about the terms your company uses to convey salary offers to candidates during the appointment process.

In fact, CTC denotes the total liability of the company, which includes all dues such as PF and ESI of a worker/employee. It does not imply that the employer avoids their responsibility to contribute to these funds, nor do the PF & ESI laws prohibit doing so out of the CTC. The term CTC does not in any way mean the take-home salary of the employee.

However, if an employee objects to the term CTC, they are free to negotiate with the company on this issue at the time of recruitment to convince the recruiters or decide not to accept the job offer on those terms. Once CTC is accepted by an employee, it becomes part of the employment contract. So far, I have not come across any case where an employee has challenged the CTC in a court of law to get it declared illegal after accepting it.

However, if you believe that CTC is illegal, you can take the initiative to challenge it in a court of law to obtain a legal verdict on the matter.

Regards

Understanding CTC (Cost to Company)

You seem to have some confusion regarding the term CTC. Please understand that CTC is merely a term and nothing else. It shows the exact amount of financial burden the employer carries in respect of any specific position or employee. Nowadays, it has become a trend to clearly indicate this to the employee at the time of an offer. Simply indicating Cost to Company does not imply that the employer expects the prospective employee to pay the employer's share from their salary or wages; this would not be accepted as it is not only illegal but also illogical.

Furthermore, the reality is that the employer is legally obligated to pay their respective share of contributions for the benefit of the employee, whether it is included in the monthly package or reserved for future welfare. Examples of such contributions include the employer's contributions to PF/FPF, provisions for the payment of Gratuity (when eligible), payments to ESIC, and other applicable welfare schemes. In a broader perspective, these contributions by the employer could be viewed as part of the employee's salary or wages, either in the monthly take-home package or at the time of eligibility as per respective enactments.

Considering the CTC in light of the above information, I am confident that your doubts will be clarified.

Regards, Arun Dixit

[Phone Number Removed For Privacy Reasons]

[Phone Number Removed For Privacy Reasons]