CTC – Importance and meaning

CTC is the yearly expenditure that a company spends on an employee. Each employee’s CTC depends on their basic salary and variables. In colloquial terms, it is also termed as total salary package, i.e., the cost an employer bears to hire, train, and sustain its employees. 

To understand the concept better, here are a few questions that we have answered for you:

• CTC in salary example
• CTC breakup example
• What is monthly CTC?
• What is CTC full form in salary?
• How is CTC calculated?
• What is the difference between Gross Salary and CTC?
• How does HROne payroll software help

What is a CTC salary example?

If the annual basic salary of an employee is ₹5,00,000 and on top of that, the company pays an additional ₹50,000 for their health insurance, the CTC is ₹5,55,000. CTC is the sum of everything that an employee is costing to the company including PF and mediclaim.

CTC breakup example

CTC is made of several components that include benefits, allowances, take home salary and such. Below we breakdown the major CTC elements that are present in most of the cases.

• Basic salary: This comprises the largest portion of your CTC, around half of the total or a little less.
• HRA: This is the rent allowance that the company includes in the salary breakup to help employees pay for their accommodation.
• EPF: This is 12% of the basic salary. If the basic salary is more than 10,000, the employee can also discuss with the HR if they want PF to be deducted from their account. It can be made a part of their gross salary. 
• Mediclaim: This is a fixed amount that is deducted from employer’s end and employee’s end for the health insurance, collective or individual

What is monthly CTC?

While making an employment offer, the employer mentions a total annual salary package on the payslip after adding all types of earnings and benefits to the basic pay. If you divide that number by 12 (months in a year), then the monthly salary attained is also known as the monthly CTC.

What is CTC full form in salary?

Full of CTC in context to salary is Cost to company. As the word suggests, it is the total amount that rendering an employee’s service is costing to the company including their salary, health insurance and other deductions.

How is CTC calculated? 

CTC is calculated by adding salary and additional benefits that an employee receives such as EPF, ESI, gratuity, house allowance, food coupons, medical insurance, and travel expenses among other factors.

What is the difference between Gross Salary and CTC?

Gross salary is the amount an employee receives as a salary, prior to making deductions. As opposed to the net salary, gross salary is the income which is typically stated on an annual basis, before any deductions or taxes come into effect. CTC, on the other hand, refers to the total amount that the employee will cost the company including all the benefits.

CTC is the yearly expenditure that a company spends on an employee. Each employee’s CTC depends on their basic salary and variables. In colloquial terms, it is also termed as total salary package, i.e., the cost an employer bears to hire, train, and sustain its employees. 

What exactly does CTC salary include?

In India, CTC comprises of the following components-

• Basic Pay
• Dearness Allowance (DA)
• Telephone / Mobile Phone Allowance
• Special Allowance
• Incentives or bonuses
• Medical allowance
• Leave Travel Allowance or Concession (LTA / LTC)
• Vehicle Allowance
• Conveyance allowance
• House Rent Allowance (HRA)

Note: The CTC includes both direct and indirect benefits.

What do direct and indirect benefits in the CTC stand for?

Since, CTC is the sum of direct, indirect benefits and the saving contributions made by employees and employers. Here is what they mean-

• Direct Benefits: This stands for the salary an employee takes home every month, cash in hand that is subjected to government tax laws. 
• Indirect Benefits: These benefits are the ones that the employee gets without actually paying for them. The company pays these components of CTC on behalf of the employee. It is included in CTC because that is what the employee is costing to the company.
• Savings Contribution: This is the component that is deducted in the name of savings from the salary of an employee like the employee provident fund.
  

How does HROne payroll software help?

HROne payroll software helps businesses in multiple ways, a few of them are mentioned below.

1. The software, if integrated with the recruitment software, auto-calculates CTC of the employee in your place as per the rules you defined
2. The employee can access their CTC breakup via the profile section anytime by entering their login passcode
3. The employees can also download their payslip using a unique passcode for added security

Also Read: CTC Breakup: All Your Salary Components Decoded!