Implementing CTC Method in Garment Industry: Insights on Compensation Management and Union Negotiati - CiteHR

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Hi! I just wanted to know if we can bring the CTC (Cost to Company) method to the garment industry. Our organization is small-sized, with only 20 staff and 100 workers. What should I consider when implementing it, such as standing orders and more?

Thanks and Regards,
Naveen .R

From India, Tiruppur
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Dear Naveen,

CTC has nothing to do with the type of organization or the number of employees. It is one of the management tools to understand the cost to the company per employee per year for proper costing of manpower and control if required. It even has no legal status.

Thanks & Regards,

S K Bandyopadhyay (West Bengal)
USD HR Solutions
+9198310 81531
skb@usdhrs.in

From India, New Delhi
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Dear friends participating in this discussion,

Why is there such hype about CTC?

Why is there such hype about CTC as if it is going to create tangible and intangible advantages for both labor and management in the realm of compensation management?

CTC is nothing more than an accounting expression of the total annual cost incurred by the company per employee, inclusive of wages/salary and fringe benefits. It is particularly used by some Asian Transnational Corporations to entice employees with their compensation packages.

In short, CTC equals Direct benefits + Indirect benefits + Savings. Direct benefits include basic salary, dearness allowance, HRA, medical allowance, LTA, CCA, conveyance allowance, incentives, bonus, etc. Indirect benefits encompass interest-free loans, food coupons or subsidized meals, medical insurance premiums paid by the employer, company-paid accommodation, and the like, while "Savings" denote statutory contributions paid by the employer to EPF and Gratuity Fund, and other superannuation benefits payable under the contract of employment.

Differentiating CTC from Gross Salary

Therefore, it is essential to differentiate CTC from 'Gross Salary,' which simply indicates the total salary before deductions. The mentioned Indirect Benefits are not paid in cash to the employee. Similarly, the accumulations of EPF and Gratuity are only payable upon termination of employment, with gratuity being solely the employer's statutory liability subject to specific conditions and ceilings.

By critically analyzing the concept of CTC, one can discern that it is not a novel concept in salary and wage administration but rather an age-old practice with a trendy name. Presenting the compensation package in terms of CTC in recruitment advertisements and offer letters simply enhances the offer's attractiveness, as CTC can vary over time with service.

From India, Salem
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After a detailed and excellent submission by Mr. Umakanthan, I would like to add the following.

Union Negotiation Styles

First of all, any union negotiation has its own style, but the common goal in any negotiation is the objective from the union's point of view to secure better facilities for the employees. From the management's point of view, it is about assessing the additional cost impact on the organization. Ultimately, any additional costs must be absorbed by the business; otherwise, the existence of the business will face significant challenges.

Keeping the above in mind and based on what Mr. Umakanthan has explained, the concept of CTC is not a new one. Nowadays, most managements are considering presenting this to the union during negotiations for a better understanding of the total cost.

Understanding Total Cost Impact

At the end of the day, both the union and management, as partners in the business, should comprehend the details of the total cost for the betterment of the organization. For instance, if the union demands a salary increase of x amount along with free transport to ferry employees from home to the office and back, and if the management agrees to this, there will be a total cost increase, both direct and indirect, impacting the business. The union will negotiate in its unique style, but it's crucial for both the union and management to grasp the total impact by the end of the negotiation.

Thanks & Regards,

S K Bandyopadhyay
USD HR Solutions
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From India, New Delhi
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