CTC! What happened to my Salary?

Scene: The day of placements at your b-school and there is palpable tension in the air and you finally hear the news – the XYZ Company has offered you a job and you have been offered an annual package of Rs 11,00,000 ! You blink for a moment and realize that you earn 1.1 million rupees annually! Not bad considering the situation the economy is in! And you slowly start putting on the airs of a new Rupee Millionaire till you receive your first pay check in hand. You see that you have got only Rs 60,000. Doesn’t that mean you are just receiving 7.2 Lakhs? Or considering Tax deductions, where did my 2.8 - 3 lakhs go? You start cursing the HR and the inefficient payroll department of your company and decide to give a earful to your payroll department, when they explain the situation in one word – ‘CTC’! CTC? It is not even a proper word, it’s an abbreviation! And yet it is supposed to explain where fantastic sums of money from your salary have disappeared!

CTC – Cost to Company, simply said- is looking at your salary from the company’s point of view. While calculating the CTC, your company factors in all the elements which would cost the company because of you. There are several components to your salary, most common of which are:

1. Basic

2. Incentives or bonuses/performance pay

3. House Rent Allowance (HRA)

4. Conveyance allowance

5. Medical allowance

6. Leave Travel Allowance/ Concession (LTA / LTC)

7. Telephone / Mobile Phone Allowance

8. Special Allowances

These components are part of your salary and are normally written in bold letters on your offer letter. However the hidden components which are visible at first look are the following;

1. Company’s contribution to Provident Fund:

Currently your contribution to the Provident Fund should be 12% of your basic pay. Your Employer also contributes 12% of your basic pay to your Provident Fund account. This 12% also forms part of your CTC since for the Employer, this is an expense they are bearing because of you.

2. Insurance:

This comes as Medical and Life Insurance. Most companies offer Medical Insurance and Life Covers for their employees. The premium that your company has to pay for to obtain this cover also forms part of the CTC! So if your company pays an annual premium of Rs 5000 to give you a Medical & Life Insurance Cover, your take-home pay reduces by this amount.

Interestingly a friend of mine who works for a leading brokerage house in India recently got a CTC hike of Rs 5,00,000 in the middle of the year! Before you say ‘Wow’ & ’India Shining’ etc, let me add that this hike did not reflect in a greater take-home pay. His employer simply changed the way they look at Insurance they were already providing him! Since he was being provided a Rs 5,00,000 life insurance cover, the employer just chose to add that as part of his benefits & hence to his CTC!!! I must admit that this is a pretty unique phenomenon but is now the norm at this particular brokerage house.

3. Facilities:

Transport facilities, Medical Facilities, Gym/Club Memberships, Libraries etc charges are costs borne by the Employer for you and some Employers may include these in your CTC!

4. Gratuity & Gifts during festivals are other not so visible components of your CTC

Heights of Innovation in CTC:

I came across an article where the Indian arm of a leading Investment Bank had included Office Space Rent in their Employees’ CTC! It is not a joke and this was how it was calculated. They would look at the size of your cubicle and multiply it by the per-Square foot rate! So an Employee occupying an 8 foot by 8 foot cubicle where the rent per square foot is Rs 250, is Rs 16,000 per month and is Rs 1,92,000 per year. I shall not take the name of that I-bank since I have heard that they have a team of litigators who love suing people. (My current CTC doesn’t permit me to take on law suits!)

Now before you turn all envious about that guy who landed a plum Investment Banking job, think about the commercial rental prices in Mumbai!

Indian companies usually talk in terms of CTC as the figures look more impressive. But often they may mislead a candidate. You need to carefully look at their offer and calculate yourself how much your take home pay will be. After all, all deductions are based on fixed percentages and you can easily arrive at a close figure.

The list above contains some of the CTC’s not-so-visible components, however payroll departments of companies keep churning out fancy and more innovative methods of CTC almost every day. Do you know of any innovative CTC component