Are you wondering what is CTC meaning in salary and how is basic pay calculated? Don’t worry, understanding CTC isn’t rocket science. We have simplied the explanation so that you can have a clear understanding of CTC.
Organizations today don’t just pay salaries; they have created a new notion known as CTC which consists of various components. Employers’ services to their employees have become rather amazing and motivating as a result of this approach. Moreover, understanding all of the components of employees is a little difficult, but organizations are required to invest in all of them.
So what is the meaning of CTC in salary?
CTC full form is Cost-to-Company and in its most basic form, Cost-To-Company can be described as a word for a company’s entire wage package supplied to an employee. CTC is a total of an employee’s monetary and non-monetary expenses. India and South Africa are two examples of countries that adopt it.
It should be noted that an employee’s CTC is never equal to his or her take-home pay. There are several components of the CTC that are not included in the take-home pay.
CTC is simply calculated as follows;
Gross Salary + PF + Gratuity = CTC
CTC = Direct Benefits (Gross Salary) + Savings Contributions (PF) +Indirect Benefits (Gratuity)
Where Gross Salary = Basic Salary/Basic Pay + HRA + Other Allowances.
CTC per month means the total amount of money a business spends on an employee over the course of a month and its components include Basic Pay, Provident Fund, various allowances like Dearness Allowance/DA (which is usually given for government employees and not given by private companies), Conveyance Allowance, House Rent Allowance/HRA, Medical Allowance, Vehicle Allowance, Telephone / Mobile Phone Allowance, Special Allowance and reimbursements, Incentives or Bonuses.
Annual CTC meaning refers to the total amount of money a business spends on an employee over the course of a year. Annual CTC components include gratuity, annual bonus, annual variable pay, etc.
Expected CTC meaning implies a term used to describe what a candidate wants from the company in terms of compensation whereas Current CTC meaning refers to an employee’s entire cost to the organization, which includes things like salary, taxes, bonuses, and other benefits.
Then what is Basic Pay or Basic Salary and how is it calculated?
The amount of money earned regularly is referred to as a person’s basic pay or basic salary. It is a portion of one’s compensation package that cannot be changed. This is the most important portion of the remuneration system, accounting for 40-45 percent of the total compensation or CTC. So it is calculated as;
Basic Pay or Basic Salary= 40 % or 45% of CTC
For example, if an employee has a CTC of 4 lakh rupees per annum or 33, 300 rupees per month, then his basic salary will be 13, 320 rupees per month or 1, 60, 000 rupees per annum (these numbers are calculated by considering 40% of CTC).
The numbers would change slightly if the basic salary is calculated as 45 percent of CTC, as it varies from company to company.
The employee’s position, as well as the industry in which they work, affects the basic salary. It is vital to highlight that the amount of money earned by an employee working overtime has no bearing on his or her basic salary.
An employee’s basic salary will not be increased if he or she obtains an incentive bonus during the year. As a result, unless an employee negotiates with her or his employer, the basic salary does not alter.
Because basic salary is always taxed, it should not exceed 50% of the total cost to the organization. It should not, however, be maintained too low (below 40%) as this will result in a reduction in the other components of the compensation.
According to experts, personnel at the junior level often get a larger basic salary than those at the senior level. In such as case, those at the seniority level can ask for more CTC incentives.
However, most of the employees do not know how to make the most of the CTC incentives available. It is important to make an effort to raise the direct benefits component as much as feasible when bargaining. Here are a few suggestions:
- Instead of a pick-up or drop-off service, request tax-free transportation allowances.
- Inquire about a food allowance and the possibility of converting your subsidized food expenditures to it.
- If the organization provides ESI benefits, inquire if the health insurance can be converted to medical reimbursements.
- Inquire about health insurance for family members.
Furthermore, as an employee, you should also know what an in-hand salary or take-home salary means. The net amount of income received by an employee after taxes, benefits, and other voluntary contributions have been deducted from their paycheck is known as in-hand salary or take-home salary.
Moving on, as an employee you should also know about Employee Provident Fund and how to withdraw PF offline.
Employee Provident Fund
EPF is a retirement savings plan that allows you to build wealth while working for a private or government firm. This money pays interest and can be used to fund a portion of your post-retirement life or other objectives. Contribution to your EPF needs to be made by both you and your employer, under this scheme. The total is put into the Employee Provident Fund Organization’s account (EPFO). And on this sum placed with EPFO; you continue to earn a certain rate of interest each year.
According to the law, the EPF deduction must be 12 percent of your basic pay. For the first three years, if you are a woman, you just have to contribute 8% of your basic pay. You can claim the entire sum at the time of retirement or two months after changing your job.
How to withdraw PF balance offline or how to claim PF offline:
The processes to withdrawing your PF balance offline are as follows:
- To withdraw the PF balance offline or from a bank account, an individual must fill out Form 19. It can be obtained from the regional office or the EPF website.
- Then, in the application, fill in the required fields with the needed data.
- Also, any gazette officer, postmaster, notary public, or magistrate officer’s signature must be attested.
- Along with the application, a letter stating the cause for withdrawing the PF balance must be attested.
- Submit the withdrawal application to the office’s regional officer later.
- Within three months after applying, you will be able to get the funds.
- Every year, you will receive the full amount deducted from your account, plus a high interest rate of approximately 8.75 percent.
So, what’s the deal with EPF? In addition to providing excellent interest rates, the EPF is one of the best retirement planning tools available. In terms of taxation, it is exempt. It’s also a low-risk instrument because it’s backed by the government, has a pension, and is a highly handy way to save. After all, you won’t be doing much. You complete out some paperwork, and your HR or payroll department handles the rest.
You may think of EPF as a debt mutual fund Systematic Investment Plan, but with a lot less risk and no capital gains tax. Overall, the EPF may go a long way toward ensuring that you have a comfortable retirement fund provided it is well managed.
With so many critical elements included in a CTC, calculating the exact amount and processing the salaries for each of the employees can create a burden on the organization’s HR payroll team. Automating the payroll process with best-in-class software solutions not only takes off the burden from the HR team but also gives them the time to utilize in creating productive strategies for the company.
MKT software leverages state-of-the-art technologies to automate advanced payroll processes. It also ensures that the salaries are disbursed per the compliance laws, saving the company from the embarrassment of unwanted penalties.
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