CTC (Cost To Company) is a term commonly used in compensation/rewards management, in order to denote the amount of money spent by an organization

to retain an employee for a specific time period (most commonly, a year). CTC is the total expense of the organization for an employee in terms of direct as well as indirect pay. Ideally, the non-financial or nonmonetary components of the total compensation/reward package are supposed to be estimated in money terms and added to the financial or monetary components to arrive at a total figure for CTC. Some components of CTC are included in an employees take-home or net pay (after tax deduction and regular deductions) whereas some components are not part of the take-home pay. These are part of cost incurred by the company on an employee to retain the employee mostly in terms of fringe benefits/perquisites. The employees avail these benefits because of their membership to the organization or because of belonging to a certain position. Calculation of CTC is not restricted by any legal condition, so, practically every organization can include different combination of components in CTC offered to employees. Naturally, the manner of calculation might also greatly vary from designation to designation, within an organization, It is crucial for an employee to understand how exactly CTC is calculated for his/her position; otherwise, the quoted/offered CTC figure can be misleading sometimes. It is very important to note that the actual take-home pay at the end of the month can be substantially lower than the CTC, because of the way it is calculated and also, because of particular conditions. In spite of the difference among organizations in the way of calculating CTC, there are certain components which are most commonly included for calculating CTC, irrespective of organizational differences. They are: Base pay Dearness allowance (DA) House rent allowance (HRA) Conveyance allowance Medical allowance Leave Travel Allowance/Assistance or Leave Travel Concession (LTA/LTC) Vehicle allowance Telephone/Mobile allowance Special allowance * (Highly case-specific) Incentive or Bonus (If any, calculated as per company policy and practice)

Most of the time, the above mentioned components are part of the take home pay (after tax deduction and regular deductions), but there are also some common components in CTC which are included in the calculation but the employees generally dont receive the sum in their pay. They are: Companys contribution to provident fund Reimbursements Insurance premium Medical care and facilities Transport facilities Subsidized meals Others # ( Highly customized)

It is difficult to estimate what percentage of the CTC is actually an employees take-home pay, because of the difference and sometimes complications involved in CTC calculation. But, many industry observers and compensation experts advise to focus on take-home pay rather than CTC in order to assess the worth of a pay-package. Please take a look at following two articles:

Salary: How to avoid getting 'CTCed'

(Source: http://www.rediff.com/money/2007/may/28perfin1.htm)

'If you pay peanuts, you will get monkeys,' goes an adage. These days with a shortage of good
talent in the job market, the saying doesn't really hold true. Companies are willing to offer good salaries to the right candidates.

But even after this there are things that individuals should keep in mind while negotiating their salaries. What may look like an increase in salary may not lead to a real increase. This is primarily because these days most companies quote annual salary packages they offer to their employees in terms of what is known as 'cost to company,' or CTC. Cost to company is a term which essentially implies the amount of expenses the company will spend on an employee in a particular year. What may be an expense for the company need not be salary for the employee.

Hence very rarely does it happen that the CTC divided by the number of months in a year, i.e. twelve, comes down to the actual monthly salary that an individual receives. Let's look at the various ways in which companies boost the CTC packages they offer to their employees. a) Useless allowances: These days individuals get various kinds of allowances. The reason offered is that this brings down the taxable component of the salary. Fair enough. But at times some allowances are subject to producing bills. Let's take the case of mobile allowance that companies offer. An individual has a mobile allowance of Rs 3,000 per month. He will get that money only if he runs up a bill of Rs 3,000 during the month. Now if the individual does not really use this to the hilt, and usually gets a bill of around Rs 1,200 a month, then he faces a clear loss of Rs 1,800 in a month. This amounts to a loss of Rs 21,600 during a year. So while negotiating the CTC packages individuals should beware that companies are not stuffing up the CTC with such allowances, which he or she may never be able to claim. b) Food coupons: Food coupons are the rage these days with companies. The primary reason is that this helps bring down the taxable component of the salary. Food coupons, up to a maximum of Rs 60,000 in a year, are non-taxable. But having this as a part of the salary may or may not suit everybody. If you are single and don't cook at home, then there is hardly any way that you are going to use them. Some companies offer subsidised food to their employees. This subsidy is also at times added to the CTC salary. By doing this the subsidy does not remain a subsidy, the employee is actually paying for it. c) Interest subsidy: This trick is a favourite with private sector banks recruiting fresh candidates. Let's see how this works. The bank may promise a candidate a maximum loan of Rs 10 lakh (Rs 1 million) to a candidate during a year at a favourable rate of 3% per annum. The interest subsidy the candidate receives is directly added onto the CTC package. What this means is that if an individual after joining the bank were to take a loan from the bank of Rs 10 lakh, he would pay an interest of Rs 30,000 (3% of Rs 10 lakh) in the first year. If he had taken the same loan at a market rate of, let us say, 12%, then he would have paid an interest of Rs 120,000 during the first year.

The difference between the two interests amounts to Rs 90,000 (Rs 120,000 - Rs 30,000). This is known as the interest subsidy and added to the CTC package. The issue that arises here is that an individual may not want to take the loan of Rs 10 lakh. Or he might take a part loan. And even if he does take the entire loan, with the interest subsidy being added to the CTC, he is paying a market rate of interest. d) Variable salary: These days companies also offer a variable component in the salary subject to the candidate reaching certain set goals during the course of the year. Usually the maximum possible variable salary that an employee can get in a year is added onto the CTC. Achieving this may or may not be possible. Currently this may not matter much because the Indian economy is doing well and individuals may be able to achieve their high targets. e) Gratuity: At times even gratuity gets added onto the salary. Now this is a payment that an employee gets only if he quits after having spent at least five years in an organisation. Going by the rate at which individuals change jobs these days, it's been a long time since one heard anyone getting a gratuity. f) High leave travel allowance (LTA): This is another standard trick that organisations use. The leave travel allowance usually is paid to an employee with the salary of the last month of a financial year. So this financial year's leave travel allowance will be paid along with the salary of the month of March 2008, nearly 10 months from now. Even though an individual gets the amount in the end, he will lose interest on that amount had he chosen to invest it, if he got the amount month on month. For a company this makes utmost sense, because they don't have make a payment month on month and can earn an income from investing that amount. WYSIWYG (pronounced Wizwig) is an acronym commonly associated with computers and stands for 'What you see is what you get.' Now that is certainly not true of CTC salaries. The simplest way for individuals while negotiating salaries is to clearly ask what the take home salary at the end of the month is going to be. -------------------------------------------------------------------------------------------------------------------------------------

Source: http://www.raagvamdatt.com/Cost-to-company-or-CTC-salary-understanding-and-calculation/256/

Cost To Company or CTC salary: Understanding and Calculation

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? The concept of Cost to Company (CTC) Simply speaking, CTC is the amount that you cost your company. That is, it is the amount that the company spends directly or indirectly because of employing you. Thus, it is the money given to you (your in-hand component), plus the money spent because of you. Youll understand this better while we discuss the various components of your CTC salary, so lets 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. Components of Cost to Company (CTC) Salary In Understanding components of your salary, we saw the various components of your in-hand salary. These are: Basic Dearness Allowance (DA) Incentives or bonuses Conveyance allowance House Rent Allowance (HRA) Medical allowance Leave Travel Allowance or Concession (LTA / LTC) Vehicle Allowance Telephone / Mobile 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: Lets understand this using a simple example. Say your basic is Rs. 15,000 per month, DA 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 Rs. 3,63,600 per year.

Now lets 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! Companys contribution to Provident Fund (PF) 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. 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. Reimbursements Various reimbursements that you get from your company can also form a part of your CTC package. This includes reimbursement of: Medical bills Phone bills Magazine 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. Life Insurance and Health insurance Most 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. Medical Facilities Many 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. Transport Facilities Many 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. Subsidized Meals Many 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: Lets 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, your CTC package becomes Rs. 4,05,980.

Taking it too far 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: Office phone bill The bill for the office phone that you use can be included in your CTC salary too. Office space rent 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: Lets say your office is in Churchgate in Mumbai. Your have a small cubicle, say 6 feet by 8 feet (48 square feet). Lets 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, your overall CTC package becomes Rs. 5,21,180! A side note: Remember this when you read about the whopping, exorbitant salaries paid out to fresh management graduates (Like the IIM Ahmedabad MBAs)! Their large salaries might include the office space rent as well!! A note on government salaries 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 CTC point of view. When we talk about government salaries, we only talk about the in-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: The 12% of basic that the government deposits in their PF accounts, just like private companies Membership 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 huge subsidy on items bought from their canteens (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! _____________________________________________________________________________________________