May 16, 2018 | Author: meg2209 | Category:Documents
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c What is Cost to Company or CTC salary? How is it calculated? If your CTC package is so high, why do you get so little in hand? This article explains it all. Your company offered you a salary of Rs. 6 Lakhs per year. That means you should be getting Rs. 50,000 in hand every month. Even if you consider income tax, you should be getting about Rs. 40,000 in hand. But you get only Rs. 32,000 in-hand every month! Why? Where did the promised money vanish? Is your company cheating you? No! It is because the company promised you the salary as Cost to Company, or CTC. So, what exactly is CTC?

c c cc Simply speaking, CTC is the amount that you cost your company. That is, it is the amount that the company spends ± a a ± because of employing you. Thus, it is the money given to you (your in-hand component), plus the money spent . You¶ll understand this better while we discuss the various components of your CTC salary, so let¶s jump into it right away! We will also use an example parallel to the discussion, so that you can understand the concept of CTC better.

c c c cc In ³ ´, we saw the various components of your inhand salary. These are: m m m m

Basic [earness Allowance ([A) Incentives or bonuses Conveyance allowance

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House Rent Allowance (HRA) ?edical allowance Leave Travel Allowance or Concession (LTA / LTC) ·ehicle Allowance Telephone / ?obile Phone Allowance Special Allowance

All the above are a part of your in-hand salary, and therefore, are a part of your CTC pay as well. Example: Let¶s understand this using a simple example. Say your basic is Rs. 15,000 per month, [A is Rs. 10,000 per month, you get conveyance allowance of Rs. 800 per month, and you get HRA of Rs. 4,500 per month. So, your package so far is . Now let¶s look at some of the other components of your CTC pay ± the parts that inflate your CTC package but may not be actually given to you!

a a It is mandatory for you to contribute 12% of your basic towards provident fund (PF). Your employer makes an equal contribution (12% of your basic) to your PF account. (Please read ³Î ΠΠδ to know more about provident fund) So, although this amount is not given out to you every month, for your company, it is an expense that it incurs on you every month! Therefore, this forms a part of your CTC pay. Example: 12% of your basic is Rs. 1,800 per month. That is, Rs. 21,600 per annum. Your CTC package becomes Rs. 3,85,200.

·arious reimbursements that you get from your company can also form a part of your CTC package. This includes reimbursement of: m m m m

?edical bills Phone bills ?agazine subscriptions Book purchases, etc.

Example: Say you get reimbursement of medical bills of upto Rs. 15,000. So, your CTC package becomes Rs. 4,00,200.

a ?ost respectable employers provide free health insurance cover to their employees and their dependents. Some companies also provide life insurance for their employees free of cost. The premium amounts paid for such insurance on your behalf can be included in your CTC salary. Example: Say you get a health insurance cover of Rs. 1 Lakh for yourself and your family. The premium for this is Rs. 2,000. Thus, your CTC package becomes Rs. 4,02,200.

a ?any companies have in-house health centers, hospitals or other health care facilities where medical care is provided free of cost to employees. Companies work out a per-employee cost for such facilities, and can include that in your CTC pay package.

! ?any companies provide free transport facility to their employees from their place of work to the job location. The cost of such transportation can be added to your CTC package.


a #a ?any companies run canteens or cafeterias for their employees, which provide subsidised meals to the employees. Such subsidy can be included in your cost to company package. Example: Let¶s say your company provides you lunch for Rs. 10, and the actual cost of that lunch is Rs. 25. Thus, there is a subsidy of Rs. 15 per meal. For 21 working days in a month, this is Rs. 315. Or, Rs. 3,780 per year. Thus, ! $% &'().

The components of your CTC salary sound reasonable so far, right? After all, this is the money that you get in one form or the other. But some companies take the concept of cost-to-company too far! Look at the following:

o The bill for the office phone that you use can be included in your CTC salary too.

o Shocked? Its true! There are many companies ± especially large investment banks ± that include your office space rent in your CTC package!! Yes, it defies logic, but it is true! Example: Let¶s say your office is in Churchgate in ?umbai. Your have a small cubicle, say 6 feet by 8 feet (48 square feet). Let¶s say the going rate for rent for office space in that area is Rs. 200 per sq. ft. per month. What is the cost of your cubicle in that case? Its Rs. 200 * 48 = Rs. 9,600 per month, or Rs. 1,15,200 per year. When this is included in your CTC, !$% ‘*++)! , a : Remember this when you read about the whopping, exorbitant salaries paid out to fresh management graduates (Like the II? Ahmedabad ?BAs)! Their large salaries might include the office space rent as well!!

r We often hear people say that the salary of government employees is quite low. Although there is truth in this, government salaries wouldn’t seem too less if we look at it from a ³CTC´ point of view. When we talk about government salaries, we only talk about the ³in-hand´ component. But we forget that on a cost-to-company basis, it can be quite substantial. What extras do government servants get? Here’s a sample list:

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The 12% of basic that the government deposits in their PF accounts, just like private companies ?embership of government clubs or gymkhanas Free stay at various circuit houses and government guest houses Free telephone connection at home Free car with driver Reimbursement of newspaper bills Free use of many libraries In case of defense personnel (Army / Navy / Air Force), a % subsidy on items bought from their ³canteens´ (like groceries, appliances, etc.)

When these things are taken into account and salaries of government employees is considered on a cost to company (CTC) basis, it won’t seem too less compared to the private sector!

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