HR Glossary

Cost to company

What is cost to company?

Cost to company (CTC) refers to the total annual cost an organization incurs for an employee, including salary components, benefits, statutory contributions, allowances, and other perks.

How is CTC calculated?

CTC is found by adding up the annual costs of direct benefits, indirect benefits, and savings contributions that an organization spends on its employees. Direct benefits include an employee's salary components, such as basic salary, HRA, dearness allowance, and more. Indirect benefits include insurance premiums and other reimbursements. Statutory contributions include components such as Provident Fund, gratuity, and more.

What are the different components of CTC?

Here are some of the key components that are included in an employee's CTC:

• Basic salary

Basic salary is the fixed amount that employees receive every month as part of their compensation. It forms the foundation for calculating statutory components like provident fund, gratuity, and other bonuses and incentives. Basic salary usually differs across roles, experience, departments, and locations.

• Housing and Rental Allowance

As the name suggests, Housing and Rental Allowance (HRA) is a component that is offered to employees to help them meet their rental and housing expenses.

• Dearness allowance

Dearness allowance is a component that is offered to employees to help them meet the impact of inflation on their basic salary.

• Education allowance

An education allowance is offered to employees to help them meet the education and academic costs of their children.

• Performance bonuses

This is one of the most important salary components that is paid to employees as an appreciation for their good work while achieving their performance targets. This may be offered monthly, quarterly, or annually, based on the company's policies.

• Provident Fund

This is a savings contribution that employers make to employees' accounts to help them save for their retirement.

• Mediclaim policy

A mediclaim policy is considered an indirect benefit. The employer-paid premium for this policy also forms a part of an employee's CTC structure.

• Company perks

Other perks that may be included in an employee's CTC structure are meal coupons, grocery coupons, travel coupons, fuel reimbursements, training reimbursements, and intern reimbursements.

What is the difference between CTC and take-home salary?

CTC represents the total annual expense an organization incurs per employee, including salary components, statutory contributions, and other benefits. Take-home salary, on the other hand, is the amount that is credited to an employee’s account every month after taxes and other deductions are applied.

What is the difference between CTC and gross salary?

CTC covers all employee-related expenses borne by an organization. In contrast, gross salary is what an employee earns before statutory deductions like income tax, professional tax, and Provident Fund. Gross salary comprises basic salary, HRA, dearness allowance, education allowance, and variable pay such as incentives and bonuses.

Can the CTC change during an employee's employment period?

Yes, CTC can change during an employee's employment period when they receive salary hikes and performance incentives like joining bonuses, retention bonuses, and prosperity sharing plans.

Is the CTC structure similar across all industries?

Based on the market standards and job demands, the CTC structure can differ across industries, even though the components of CTC may stay the same. The benefits and perks they offer may also vary. For instance, companies in the IT sector may focus more on performance-based bonuses, internet allowances, remote work allowances, and vehicle allowances. Organizations in the manufacturing sector may prioritize saving contributions like Employee Provident Fund, Voluntary Provident Fund, and medical insurance. The benefits offered can also be tweaked based on the needs of the sector.