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The Empuls Glossary

Glossary of Human Resources Management and Employee Benefit Terms

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Cost To Company (CTC)

Cost To Company (CTC) is a term used to describe the total amount of money that an employer spends on an employee in a year. This includes the employee's salary or wages, plus the cost of any benefits or perks that the employer provides. 

Benefits that may be included in CTC can vary depending on the employer, but they may include health insurance, retirement benefits, paid time off, bonuses, and other incentives. 

Understanding your CTC can give you a better idea of the total value of your compensation package, beyond just your salary or wages. This can help you make more informed decisions about your career and negotiate for better pay or benefits.

What is Cost to Company (CTC)?

Cost To Company (CTC) is the total amount of money that an employer spends on an employee in a year. This includes the employee's salary or wages, plus the cost of any benefits or perks that the employer provides.

Listen, recognize, award, and retain your employees with our Employee engagement software  

What are some examples of benefits included in CTC?

Benefits that may be included in the Cost to Company (CTC) can vary depending on the employer, but they may include the:

  1. Health insurance: Employers may provide health insurance as part of their CTC package to help cover medical expenses.
  2. Retirement benefits: Employers may offer retirement benefits such as a 401(k) plan, pension plan, or other retirement savings plan.
  3. Paid time off: This can include vacation time, sick leave, personal days, and other types of paid time off.
  4. Bonuses: Employers may offer bonuses based on performance, company profits, or other factors.
  5. Stock options: Some employers may offer stock options as part of their CTC package.
  6. Education and training: Employers may offer tuition reimbursement or other education and training opportunities.
  7. Other incentives: This can include things like company cars, employee discounts, or other perks that are designed to make working for the company more attractive.

Why is CTC important for employees to know?

Understanding your Cost To Company (CTC) is important for employees for several reasons:

  1. It gives you a better understanding of the total value of your compensation package: Knowing your CTC can help you understand the full value of your employment beyond just your salary or wages.
  2. It can help you make more informed decisions about your career: Understanding your CTC can help you compare job offers from different companies and make more informed decisions about your career.
  3. It can help you negotiate for better pay or benefits: Knowing your CTC can give you a better idea of the total value of your compensation package, which can be helpful when negotiating for better pay or benefits.
  4. It can help you plan for your financial future: Understanding your CTC can help you plan for your financial future by giving you a better idea of your overall compensation and benefits package.

How is CTC calculated?

Cost To Company (CTC) is calculated by adding up all the direct and indirect expenses that an employer incurs on an employee in a year. 

The formula for calculating CTC is:

CTC = Gross Salary + Employer's Contribution to Provident Fund (PF) + Gratuity + Medical Insurance + Other Statutory Expenses + Other Allowances + Perquisites

Let's break down each component of the CTC formula:

  1. Gross salary: This is the total salary or wages paid to the employee before any deductions.
  2. Employer's contribution to provident fund (PF): Employers in India are required by law to contribute to their employees' Provident Fund accounts. The employer's contribution is calculated as a percentage of the employee's basic salary.
  3. Gratuity: Employers may also provide gratuity, which is a lump sum payment made to employees who complete a certain number of years of service.
  4. Medical insurance: Employers may provide medical insurance or health benefits to employees as part of their CTC package.
  5. Other statutory expenses: This includes expenses such as employee insurance, professional tax, and other statutory expenses required by law.
  6. Other allowances: This includes any other allowances provided to employees, such as travel allowances, food allowances, or housing allowances.
  7. Perquisites: This includes any other perks or benefits provided to employees, such as a company car or mobile phone.

It's important to note that the components of the CTC formula can vary depending on the employer and the country.

How to calculate in-hand salary from CTC?

To calculate the in-hand salary from the Cost To Company (CTC), you need to subtract the deductions from the CTC. 

The formula to calculate the in-hand salary is:

In-Hand Salary = CTC - (Employee Provident Fund Contribution + Professional Tax + Income Tax)

Let's break down each component of the formula:

  1. CTC: This is the Cost To Company, which is the total amount that the employer spends on an employee in a year.
  2. Employee Provident Fund Contribution: This is the amount that is deducted from the employee's salary and contributed towards the employee's Provident Fund account.
  3. Professional Tax: This is a tax that is levied by some states in India on salaried employees.
  4. Income Tax: This is the tax that is levied on the employee's income based on their income bracket.

What is variable pay in ctc?

Variable pay is a type of compensation that is included in some Cost To Company (CTC) packages. Unlike fixed pay, which is a predetermined salary or wage, variable pay can vary based on certain factors such as the employee's performance, company profits, or other metrics.

Variable pay is usually structured as a bonus or incentive payment, which is paid out in addition to the employee's base salary. The amount of variable pay that an employee can earn is typically based on a predetermined formula or percentage, which may vary depending on the company and the employee's role.

Employee pulse surveys:

These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).

One-on-one meetings:

Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.

eNPS:

eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.

Based on the responses, employees can be placed in three different categories:

  • Promoters
    Employees who have responded positively or agreed.
  • Detractors
    Employees who have reacted negatively or disagreed.
  • Passives
    Employees who have stayed neutral with their responses.

What is the difference between CTC and in-hand salary?

The key difference between CTC and in-hand salary is that CTC is the total cost of employing an individual by an employer, while in-hand salary is the actual amount received by the employee after all deductions.

Can CTC vary for different employees in the same role?

Yes, CTC can vary for different employees in the same role based on factors such as experience, performance, and negotiation skills.

Are all companies required to disclose CTC to employees?

No, companies are not required to disclose CTC to employees, but many do provide this information as part of the employment offer or during annual performance reviews.

Can CTC be used to compare job offers from different companies?

Yes, CTC can be a useful tool for comparing job offers from different companies, as it provides a more complete picture of the compensation package than just the salary or wages alone.

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