Cost to the Company
Cost to Company (CTC) is the total amount a company spends on an employee, including salary, allowances, bonuses, and various other benefits.
CTC Calculation:
Cost to the Company is the sum of all the benefits i.e. direct & indirect and savings contributions that a company pays for an employee.
Direct benefits includes salary, perquisites, health insurance, and housing allowance.
Indirect benefits are things like vacation time, sick leave, and retirement contributions.
Savings contribution is the money you put into a savings account or retirement fund.
Difference between Gross Salary, Take-home Salary and Cost to Company
Gross salary is the amount of money that an employee earns before any deductions are taken out. This includes taxes, social security, and health insurance contributions.
Take-home salary is the amount of money that an employee receives after all deductions have been taken out i.e. Income Tax (TDS on salaries), Professional Tax (PT), Provident Fund (PF), Employees State Insurance (ESIC), etc. The take-home salary is also called net pay or net salary.
Cost to Company (CTC) is the total amount that a company spends for an employee, including salary, taxes, and benefits.
CTC is usually more than gross salary because it includes extra things from the employer. These things are not always guaranteed, and they may vary depending on the company’s policy.
- Employers calculate CTC on yearly basis i.e. Annual CTC to see how much is their people costs.
- Few Companies, show CTC in the offer letter as well to showcase the prospective employees, all the benefits they get from their employer.
Professional CTC Calculator:
Step-by-Step Process for Using the CTC Calculator
Step 1: Input Basic Details
- Enter Monthly Gross Salary: Input the gross monthly salary amount in this field.
- Specify Registration Status: Select “Yes” or “No.” whether the company is registered under Provident Fund (PF) and Employee State Insurance (ESI)
Step 2: Review Allowances
- Basic Salary: Enter the percentage based on your company’s policy.
- House Rent Allowance (HRA): Enter the percentage as per your company’s policy.
- Conveyance Allowance: Select “Yes” or “No” for this allowance, and if applicable, enter the monthly amount.
- Medical Allowance: Select “Yes” or “No” for this allowance, and if applicable, enter the monthly amount.
- Special/Other Allowances: This field represents the remaining balance after allocating other allowances and is automatically calculated.
- Total Gross Salary: This is the sum of all the above components.
Step 3: Review Deductions
- PF Contribution by Employee: Automatically calculated as 12% of the basic salary if PF is applicable. PF contributions are assumed to be limited to ₹1800 as per EPF rules
- ESI Contribution by Employee: Automatically calculated as 0.75% of the gross salary if ESI is applicable.
- Professional Tax (PT): Select “Yes” or “No” for this allowance, and if applicable, enter the monthly amount.
- Other Deductions: Select “Yes” or “No” for this allowance, and if applicable, enter the monthly amount.
Step 4: Calculate Net Salary
- The calculator will compute the net salary using the formula: Net Salary = Total Gross Salary – Total Deductions
- Verify the result in the net salary field.
Step 5: Calculate CTC
- Employer PF & ESI: These are automatically calculated based on the selections made in Step 1.
- Gratuity: If selected “Yes,” this is automatically calculated. Gratuity is calculated at 4.81% of the basic salary, representing 15 days of basic pay for each year of service as per statutory requirements. The calculation is simplified as:
- Gratuity Percentage = [15/(26*12)] * 100 = (15/312) * 100 = 4.81%.
- Bonus: If selected “Yes,” this is automatically calculated. The minimum bonus is equivalent to 1/12th of the employee’s annual basic salary, translating to 8.33% of the annual salary. Companies may choose to pay more.
- Other Allowances: If selected “Yes,” enter the value in the designated field.
- Total CTC: The calculator will display the total cost-to-company (CTC) after factoring in all components.
Examples:
Example 1: Gross Salary- Rs.66,000 per month, CTC Structure (% of Gross Salary): Basic – 30%; DA – 10%; HRA- 40% of Basic Pay (Basic + D.A); Conveyance Allowance – 1600 per month; Other Allowances – 20%.
Example 2: Gross Salary – Rs. 20,000 per month, CTC Structure (% of Gross Salary): Basic – 30% on Gross; DA – 10%; HRA- 50% on Basic+D.A or 20 % on Gross; Other Allowances – 40% on Gross. Employer also Contributing to Gratuity @ 4.81% of Basic Salary (Basic + D.A).
Example 3: Gross Salary – Rs. 75,000 per month, CTC Structure (% of Gross Salary): Basic – 40%; HRA- 50% of Basic Pay; Other Allowances – 40%. Employer also Contributing to Gratuity @ 4.81% of Basic Salary
