Dear All,
I will be joining a new company in a few days. I have been selected as an HR Executive. I will be handling all aspects of HR. The company is not new, but they have opened a new showroom in Navi Mumbai, and I will be placed there to oversee all HR activities of the showroom. The employees will be eligible for PF and ESIC. Everyone has been given an offer letter. In the letter, only the net salary is mentioned, and I have to structure the CTC based on it. I need some help with this. For example, if an employee's net salary is 15,000 (after deductions), how would you design his CTC? I am familiar with the various components of CTC, but I still require your valuable input because this is something I am doing for the first time.
From India, Mumbai
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48I will be joining a new company in a few days. I have been selected as an HR Executive. I will be handling all aspects of HR. The company is not new, but they have opened a new showroom in Navi Mumbai, and I will be placed there to oversee all HR activities of the showroom. The employees will be eligible for PF and ESIC. Everyone has been given an offer letter. In the letter, only the net salary is mentioned, and I have to structure the CTC based on it. I need some help with this. For example, if an employee's net salary is 15,000 (after deductions), how would you design his CTC? I am familiar with the various components of CTC, but I still require your valuable input because this is something I am doing for the first time.
From India, Mumbai
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Hi this is simple format u can use. CTC : Deduction Basic: PF HRA: PT Medical: Conveyance: Special Allowance : Total Deduction: Gross Net : 15,000
From India, Mumbai
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From India, Mumbai
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Dear All & Mandy,
I will provide you with a detailed breakdown of the CTC via email, or you can reach me on my cell - Monday to Friday. Understanding CTC is not rocket science; it is very easy to comprehend.
Nitin
9820436383
aimnitin@gmail.com
From India, Mumbai
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I will provide you with a detailed breakdown of the CTC via email, or you can reach me on my cell - Monday to Friday. Understanding CTC is not rocket science; it is very easy to comprehend.
Nitin
9820436383
aimnitin@gmail.com
From India, Mumbai
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Dear All Kindly let me know how to design CTC and percentages to calculate HRA, Conveyance, special allowance and minimum basic salary.
From India, Bangalore
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From India, Bangalore
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Cost To Company or CTC Salary: Understanding and Calculation
Are you always baffled by 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? Let's understand 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 Notion 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:
(a) money given to you (your in-hand component), plus
(b) the money spent because of you.
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.
Components of Cost to Company (CTC) Salary
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: Let's 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 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!
Company's 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 up to 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 annual 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 subsidized 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, 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? It's 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 Mumbai. You 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? It's 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 are considered on a cost-to-company (CTC) basis, it won't seem too less compared to the private sector!
From India, Chandigarh
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Are you always baffled by 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? Let's understand 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 Notion 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:
(a) money given to you (your in-hand component), plus
(b) the money spent because of you.
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.
Components of Cost to Company (CTC) Salary
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: Let's 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 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!
Company's 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 up to 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 annual 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 subsidized 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, 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? It's 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 Mumbai. You 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? It's 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 are considered on a cost-to-company (CTC) basis, it won't seem too less compared to the private sector!
From India, Chandigarh
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Dear smbhappy
Thanks for providing a wonderful in-depth write-up on the Concept of CTC and it application.
This is the kind of well-researched and highly informative post that is expected while posting opinion on a query. I hope it will inspire other members.
I would just like to add a few points, to supplement, on the "extras that government servants get"; including Post-retirement Benefits :
From India, Delhi
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Thanks for providing a wonderful in-depth write-up on the Concept of CTC and it application.
This is the kind of well-researched and highly informative post that is expected while posting opinion on a query. I hope it will inspire other members.
I would just like to add a few points, to supplement, on the "extras that government servants get"; including Post-retirement Benefits :
- Free Medical facility (upto any extent and covering even Terminal Illness cases) for family; defined for this purpose as - self, spouse, children (unmarried or widowed daughters, unemployed sons) and dependent parents; Post-retirement, it is restricted to self and spouse.
- A respectable pension, post-retirement, for a life-time, which in case of death goes to the surviving spouse for a life-time or till the children are 21 years of age
- PSU's and Govt undertakings like railways and aviation, also have their own sets of additional post-retirement benefits
From India, Delhi
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what i have to do when i join company and company dont give me offer latter. pleasse help me.
From India, Durgapur
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From India, Durgapur
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How can you join without an offer? Invitation -> Request -> Offer -> Acceptance. These are the four basics of a valid contract. Your contract with the company is not complete yet. You should ask for the offer letter and then accept it to formalize the contract.
From India, Chandigarh
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From India, Chandigarh
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Dear Surendera M. Bhanot,
Excellent efforts and thanks for the very well-organized and informative post. I would like to suggest only one thing: the employer's share for EPF is always 13.62% (12% + 1.62% admin charges for EPF organization) and gratuity (approximately 4.5% to 4.75% of your basic + DA).
Thanks to all for sharing knowledge. Keep posting.
Nitin
9820436383
aimnitin@gmail.com
From India, Mumbai
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Excellent efforts and thanks for the very well-organized and informative post. I would like to suggest only one thing: the employer's share for EPF is always 13.62% (12% + 1.62% admin charges for EPF organization) and gratuity (approximately 4.5% to 4.75% of your basic + DA).
Thanks to all for sharing knowledge. Keep posting.
Nitin
9820436383
aimnitin@gmail.com
From India, Mumbai
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Dear Vinay Kumar,
I am facing the same problem as Mandy. They gave me the employee NTH structure as Rs. 16,000/- and are asking me to do his CTC break up. Please send the CTC calculation structure and also let me know how to calculate the CTC when the company directly provides me with the candidate's Net Take Home Salary information.
Kindly let me know; it will be highly appreciated.
Awaiting your fruitful response...
Thanks & Regards,
SALAHUDDIN MOHAMMAD
Cell: +91 09948464669
From India, Warangal
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I am facing the same problem as Mandy. They gave me the employee NTH structure as Rs. 16,000/- and are asking me to do his CTC break up. Please send the CTC calculation structure and also let me know how to calculate the CTC when the company directly provides me with the candidate's Net Take Home Salary information.
Kindly let me know; it will be highly appreciated.
Awaiting your fruitful response...
Thanks & Regards,
SALAHUDDIN MOHAMMAD
Cell: +91 09948464669
From India, Warangal
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Offer letter.pdf
Sample Internship Offer Letter.doc