What is CTC?

Definition

CTC, or cost to company, is the total annual amount an employer spends on an employee. It is not salary, and the money that reaches the employee bank account each month is always less than a twelfth of it.

How it works

CTC bundles together everything the employer pays out on account of one person: the salary components, the employer contribution to provident fund, any gratuity provisioning, insurance premiums, and often variable pay that depends on performance or on the company hitting a target. Several of those never touch the employee bank account at all, and some of them may never be paid.

What it means in India

A typical Indian CTC breaks into basic salary, house rent allowance, other allowances, the employer provident fund contribution of twelve percent of basic and allied wages under the Employees Provident Funds and Miscellaneous Provisions Act 1952, and a gratuity provision. Take-home is the gross monthly salary less the employee provident fund contribution, professional tax where the state levies it, employee state insurance where applicable, and tax deducted at source. The gap between a CTC figure and monthly take-home is commonly thirty to forty percent.

What people get wrong

• Quoting CTC to a candidate as though it were what they will receive. It is the single most common cause of a new hire resigning in the first month.
• Comparing two offers on CTC alone. An offer with a large variable component and a small basic can have a lower guaranteed monthly payout than a smaller CTC that is mostly fixed.
• Assuming the gratuity provision inside CTC will be paid. Gratuity under the Payment of Gratuity Act 1972 generally requires five years of continuous service, so somebody leaving at three years has been costed for something they will not receive.

Terms this one depends on

More on pay and salary structure

Where this shows up in practice

Almost everything on this page ends up as a line on a payslip or a figure in a register. Shiftelio keeps attendance, leave, salary structure and the statutory deductions in one place, so the number in the letter and the number in the payslip come from the same record.