The cost to the company is the full form of CTC. Cost to the company (CTC) is the amount of expenditure incurred by the business for the employee’s yearly compensation package. The CTC affects an employee’s monthly and yearly pay. The firm determines the cost to the company (CTC) based on several variables. CTC and in-hand or take-home pay are not the same.
What is CTC?
The annual expense incurred by the firm to pay the employee’s salary and benefits is known as the cost to the company (CTC). CTC consists of several parts. These elements work together to produce a particular quantity known as CTC.
How is CTC calculated?
The following elements are necessary to compute CTC:
- Basic wage
- Provident Fund or the Employer Provident Fund
- Public Provident Fund No. 5 (PPF)
- Health and life insurance
- Licensed taxes
These factors are taken into account by every organisation or corporation while calculating CTC for each employee. The employer pays for several perks that are provided to employees. As a result, CTC equals the total gross pay and benefits.
How is the CTC made?
Cost to business (CTC) is determined by several variables that differ from person to person. The following variables impact CTC:
- Academic credentials
- Previous and current CTC
- Experience years
These elements influence CTC decisions. Every employee’s CTC varies depending on the above parameters. An employee’s CTC may vary in conjunction with a promotion or wage evaluation.
What is ECTC?
Expected Cost to Company (ECTC) is the full version of this term. The complete compensation package (ECTC) a job applicant anticipates from the employer at the time of their employment. If the business agrees to pay the applicant the expected CTC (ECTC), the ECTC will change to the CTC after the applicant is hired because they are now an employee.
In conclusion, CTC stands for the yearly wage and perks provided to employees at the company’s expense. The sum an employee earns after deductions is known as their salary or take-home pay.
CTC: How can I maximise the opportunities presented?
Make it a point to try to increase the immediate advantages component as much as you can during negotiations in your favour. Here are a few illustrations:
- If at all feasible, ask for transportation allowances rather than pick-up or drop-off services because they are tax-free.
- You should also ask for a meal allowance and the option to transfer your subsidised food expenses to it.
- Find out if the health coverage may be turned into medical reimbursement if the company offers ESI benefits.
- Check into health insurance for your loved ones.
The CTC Breakup
Both monetary and non-monetary benefits for an employee are covered under CTC. Benefits and contributions are only two of the many components that make up a CTC.
As previously mentioned, CTC consists of several parts. The following are important components.
According to the offer letter, it makes up the majority of the CTC that an individual will receive. It never changes and consists of Basic DA, HRA, etc. Basic pay is another name for a fixed wage.
It’s performance-based compensation, and any employee who outperforms the group will receive a bonus.
Net Salary: The money an employee receives after withholding income taxes and other taxes under the business policy. It’s also referred to as take-home pay.
The formula to determine net salary is as follows: net income = total income – income tax – personal property tax – professional tax
The following are additional perks and compensation that are included with CTC.
The amount that an employer pays workers as compensation for fulfilling service obligations is known as an allowance. It is a payment made in addition to the base wage. It differs from business to business. House rent allowances (HRA), local transport allowances (LTA), conveyance allowances (travel allowances), dearness allowances (DA), medical allowances, etc. are a few examples of routinely offered allowances.
Provident Fund/Employer Provident Fund
EPF/PF is the monthly money invested by both the employer and the employee. An EPF/lump-sum PF payment is merely a retirement benefit package. The individual’s bank account will receive a direct deposit of this amount.
Public Provident Fund
PPF is not related to the employer in any way, and neither the offer letter nor the payslip makes any mention of it. Typically, a PPF account is formed as a long-term investment or to save taxes.
When an employee leaves a job, the employer typically gives them a gratuity as payment for the services they provided. This sum will only be paid after five years of employment and will be deducted annually from the employee’s CTC.
Life Insurance and Health Insurance
Nowadays, the majority of businesses provide their employees with life and health insurance. The insurance cost will be taken out of the employee’s CTC.
In India, employees must pay tax on their wages if they earn more than a certain threshold. At various income levels, there are varying income taxes. TDS is the term for tax withheld from an employee’s salary (tax deduction at source). Employers will pay TDS to the government.
The term is self-defining. It is the fee the Indian government levies to let a person work in a certain industry. The standard payment amount is INR 2500. It could vary across Indian states.
The money that is not included in an employee’s compensation is known as reimbursement. To get reimbursement, a person must provide the bill, which may include those for medical services, phone calls, newspaper subscriptions, etc.
FAQs regarding CTC
Salary and cost to the company (CTC) are not equivalent. The CTC is the total compensation paid, whereas the pay is the amount paid to an employee after deductions.
CTC stands for total compensation, as determined by the employer for the employee.
When calculating CTC, several factors are taken into account, including basic pay, benefits, insurance, and EPF.
Expected Cost to Company (ECTC) is the full version of this term.