Cost to company

Not to be confused with expense, liability (financial accounting), or accounts payable.

Cost to company (CTC) is a term for the total salary package of an employee, used in countries such as India and South Africa. It indicates the total amount of expenses a company (organisation) spends on an employee during one year. It is calculated by adding salary to the cost of all additional benefits an employee receives during the service period. If an employee's salary is £50,000 and the company pays an additional £5,000 for their health insurance, the CTC is £55,000. Employees may not directly receive the CTC amount.[1][2]

Difference between CTC and pay slips

CTC can include many elements in addition to salary/wages, such as healthcare, pension, and allowances for housing, travel and entertainment. Tax is also withheld from the cash amount the employee receives directly. The term CTC is used by companies to more accurately reflect the incremental spend per employee (the concept of direct costs) from the perspective of an organisation. Another way to look at CTC is: all the money that would not need to be spent if the number of employees is reduced by one. Indirect costs such as facilities, support services, and utilities would still be incurred regardless of a headcount reduction of one — thus, CTC does not include any component that can not be attributed directly to the employee specifically.

A hypothetical breakdown of CTC is given below:

Component of salary Amount (£) Taxable amount
Basic salary 240,000 240,000
House rent allowance 60,000 36,000
Conveyance allowance 8,000 0
Entertainment allowance 6,000 6,000
Overtime allowance 6,000 6,000
Medical reimbursements 10,000 0
Gross salary 330,000 288,000
Medical insurance 3,000
Provident fund (12% of basic salary) 55440
Total benefit 58440
CTC = gross salary + benefit 446,880

Break up of take home salary:

Deductions/take home salary Amount
Tax (10% of taxable amount) 28,800
Employee provident fund (12% of basic salary) 28,800
Professional tax 2,500
Total deduction 60,100
Gross salary 330,000
Net salary (gross - deduction) 269,900
Monthly take home salary 22,491

If a company provides an annual performance based variable payout (also known as a bonus or commission), this will also get included in the CTC. The variable payout is usually a certain percentage of Gross Salary and typically varies from 5% to 30%. Since it is performance based, the employee may be eligible for anywhere from 50% to 150% of their variable payout based on their performance for the year.

In India, the CTC is usually expressed as LPA (lakhs per annum). Other terms in common use are CCTC (current CTC) and ECTC (expected CTC). A common ratio used by many recruiters is the CTC to total experience. For example, a person with 4 years of experience earning 6 LPA has a ratio of 6:4 = 1.5

References

  1. ^ "What is CTC in Salary and How is Basic Calculated?". SumoPayroll. 27 November 2017. Retrieved 4 March 2021.
  2. ^ "Know the difference between basic salary, take-home salary, gross salary and CTC? – The Times of India". The Times of India. Retrieved 4 March 2021.c

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