Cost to Company (CTC)

What is CTC in salary?

Cost to Company (CTC) refers to the total salary package of the employee. It is inclusive of all monthly components such as basic pay, reimbursements, various allowances, etc. and all annual components such as gratuity, annual variable pay, annual bonus, etc.

Companies use the word CTC to more properly depict the incremental cost per person (the idea of Direct Cost) from an organization's perspective.

How is Cost To Company(CTC) calculated in salary?

An organisation pays a monthly wage and additional perks to an employee at a cost to the company.

As per the CTC formula, the following is a hypothetical breakdown of CTC:

CTC = Gross Salary + Direct Benefits + Indirect Benefits  

For instance, if an employee’s salary is Rs. 50,000 and the organization pays an additional bonus of Rs. 5000 for their health insurance, the CTC is Rs. 55,000.  

Note: An employee may not receive the CTC amount as cash.  

Cost to company

What does CTC include?  

CTC contains all the monetary and non-monetary amounts spent on an employee. These include:

  • Basic Pay
  • 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

What is the difference between gross salary and CTC?

The whole amount of remuneration paid by an employer or corporation for an employee's employment is referred to as gross salary. Whereas, the total compensation for employees would be the Cost to Company, or CTC. The gross income of an employee is the CTC, but the net salary is the amount taken home. It covers the take-home pay, as well as various perks and allowances.

If we exclude EPF, Gratuity and other deductions from CTC, the amount will be known as gross salary.  

Gross Salary = Basic Salary + HRA + Special Allowance + Conveyance Allowance + Medical Allowance + LTA

On the other hand, the total amount of income received by an employee after taxes, incentives, and other private funds that have been excluded from their pay check is referred to as in-hand salary.

What benefits are included in CTC (Cost To Company)?

In addition to income and pay, the CTC includes benefits such as health care, pensions, and housing, travel, and entertainment allowances.  

CTC = Direct Benefits + Indirect Benefits + Savings Contribution

Direct Benefits

This refers to the employee's take-home or net wage, or the amount provided to the employee monthly by the employer, which is taxed.  

Indirect Benefits

These are the advantages that employees receive without having to pay for them. While the firm pays them on the employee's behalf, they are added to the employee's CTC because they are an expense to the company.  

Savings Contribution

This is the monetary value that is added to an employee's CTC, such as EPF.

Also read: How to discuss pay with your employees?

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