Company Cost (CTC)
11-minute read
CTC: What is it?
The total amount of money a business spends on an employee, including their pay, benefits, incentives, and any other costs associated with their employment, is known as the cost to company, or CTC.
Businesses use it to refer to the entire amount of money they spend on staff. It is one of the most important measures that companies use to assess how hiring and keeping people will affect their bottom line.
Understanding the entire compensation package being offered is beneficial to both the company and the employee.
The take-home pay, which is the amount an employee receives in their bank account after taxes and deductions have been made, is different from CTC, which can fluctuate depending on a number of circumstances.
In essence, CTC consists of every element that makes up the Indian Payroll System’s wage structure. Employees receive salaries from their employers, which are set sums of money.
What is included in CTC?
1. Basic Salary: This is the monthly set portion of an employee’s pay. It makes up 40% to 50% of CTC and is taxed.
2. Allowance for Dearness (DA)
Employees receive this payment to help them cope with the rising expense of living.
3. Bonuses and Incentives
The sum, which is fully taxable, is typically given to workers as payment for their superior performance.
4. Allowance for Conveyance
the costs related to lodging, meals, and transportation when on business trips.
5. Allowance for House Rent (HRA)
It is a type of monthly assistance given to qualified tenants to help them pay for their housing. Section 10-13A of the IT Act states that it is exempt from taxes under certain circumstances.
6. Medical Benefits
the monthly salary that a person receives from their employer, regardless of their health. It is frequently mistaken for medical reimbursement.
7. Concession or Leave Travel Allowance (LTA/LTC)
It pays for an employee’s travel expenses when they go to meetings for business. Only the fare paid by bus, train, or airplane is exempt.
8. Allowance for Vehicles
the costs associated with employees’ commutes between their place of employment and home.
9. Allowance for Mobile and Telephone Use
The company sends money each month to cover business-related mobile expenditures.
10. Special Permission
It is the residual factor or the money that does not fall under any other heading.
How Is CTC Calculated?
CTC Formula, Components, and Full Form
CTC (Formula) = Gross Salary Savings Contributions or Deductions Direct Benefits Indirect Benefits
Ram’s base pay, for example, is Rs. 20,000. The employee makes a 10% contribution to the Employee Provident Fund (EPF), while the company pays an extra Rs. 4,500 for health benefits.
Rs. 20,000 Rs. 4,500 10% of Rs. 20,000 = Rs. 26,500 is the employee’s CTC.
Is CTC determined on a monthly or annual basis?
CTC is often the amount of money a business spends on staff each year. The amount paid by the corporation is determined by each employee’s compensation and other factors.
What are the advantages for the company?
Included are three different types of benefits:
CTC is equal to the sum of the direct benefits, indirect benefits, and savings contribution.
1) Immediate Advantages
It is the amount that is taxed and due to the employee each month. Among them are:
Base pay: It is the main component of an employee’s pay and makes a substantial contribution to the total amount paid.
Dearness Allowance: Typically, this crucial cost-of-living supplement aids workers in overcoming inflationary pressures.
Conveyance Allowance: This kind of compensation covers the cost of transportation between an employee’s home and place of employment.
Allowance for House Rent (HRA): It is tax-free and given to employees regardless of their rent status.
Medical Allowance: Regardless of the worker’s health, this benefit is paid each month.
One kind of stipend that pays for an employee’s travel costs while on vacation is the Leave Travel stipend.
Mobile Allowances: The costs incurred by the business for using a phone and mobile device at home.
Bonuses and incentives: An employee receives this kind of compensation for their outstanding performance.
Performance bonuses are given to workers in accordance with their performance. It is typically included in the CTC as a percentage of the base pay.
2) Indirect Advantages
It is the benefit that an employee gets without having to pay for it. They are usually an expense to the company and not the employees. Among them are:
Health Care Costs: It covers the health care benefits provided to an employee, like health insurance, at times covering the family members too.
Taxis/Buses for Commute: This happens when the organization provides charter bus or taxis for their employees to travel to the office.
Low-Interest Loans: Only bank employees are allowed this, a loan at a subsidized rate.
Meals and Snacks: Most modern office spaces are decked with meal and snack outlets for the employees to enjoy.
Office Space Rent: Few companies bear the expense of a space that the employees use.
Company Leased Accommodation: Many companies bear the additional overheads when an employee has to relocate for the job.
3) Savings Contribution
It is usually the monetary value added to an employee&rsquos CTC, such as EPF. Among them are:
Gratuity Amount: It is paid at 4.81% as per the Indian law, and the employee loses the amount if he-she leaves the firm before completing 5 years tenure.
Employer Provident Fund Contribution: 12% of the basic salary of an employee goes towards their PF account directly from the employer.
Superannuation: A pre-defined amount is donated to an account the employee withdraws at the time of their retirement.
How to calculate Gross and Net Salary?
Difference between net salary, gross salary and CTC
A. Gross Salary
It is the employee&rsquos salary before deductions. It comprises of:
Basic pay includes salary remunerations, salary arrears, overtime incentives, etc.
Allowances include HRA, travel allowance, medical allowance, special allowance, etc.
Perquisites cover fuel charges, electricity rent, sick leave, etc.
Here is the formula to calculate gross salary of an employee,
Gross Salary = Basic pay allowances Perquisites
It is usually a taxable amount after including deductions like PF, LIC, PPF, and Mutual fund.
B. Net Salary
It is the employee&rsquos net pay after deducting the gross salary amount. While some deductions are mandatory, others are dependent on the organization&rsquos policy.
Here is the formula to calculate net salary of an employee,
Net salary = Gross salary &ndash Income Tax (TDS) &ndash Professional Tax &ndash Gratuity &ndash EPF
