Personal Finance

CT scan your CTC

Anand Kalyanaraman | Updated on September 03, 2011 Published on September 03, 2011

Fresh out of college, Nikhil was all smiles when he landed an appointment letter from a reputed company. The offer seemed to have it all – the job profile was in sync with what he wanted to do, the company was a marquee name, and importantly, it came with a neat pay packet – the cost-to-company (CTC) mentioned was Rs 7,50,000 a year. The figure that worked out to Rs 62,500 each month was not bad for a rookie, he thought. After a month , when he checked his bank account, Nikhil's enthusiasm quickly turned to disbelief and anger. Instead of Rs 62,500 , the amount credited in the account was Rs 45,000, a good 28 per cent lower! Nikhil tried to contact the HR department to seek an explanation, but it was late Friday evening, and most of the office had left.

“What a lousy start to my weekend!” wondered a flustered Nikhil and headed home. Waiting there was his cousin and confidant, Ashwin, a veteran of many a company. Sensing from his young cousin's sour mood that ‘all is not well', Ashwin probed, “Trouble at office?” “No, not really.” droned Nikhil. “Touchwood, work is good. It's just that I received my first salary today, and I am at a loss to understand how I have been paid much less than what I was promised.”

A faint smile crossed Ashwin's lips. He seemed to know the reason. “If you don't mind, could I see your appointment letter and payslip?” asked Ashwin. “Sure” said Nikhil. After a brief perusal of documents, Ashwin asked “Did you read these carefully?” Nikhil sheepishly admitted that he had not. “That would have saved you a lot of anguish today,” said Ashwin. “Often, what you see is not what you get. What's mentioned in the offer letter is CTC - the sum which your company says it will spend on you. This is not the amount which the company has said it will pay you. What it actually pays you is mentioned in your pay-slip and credited to your bank account. Do you see the difference?” Startled, Ashwin fumed, “But why should there be a gap between my CTC and the money I finally get to take home? Is this not cheating?”

“Calm down”, said Ashwin. “First and foremost – understand that the CTC mentioned in the offer letter is a pre-tax amount. Your company is obliged to deduct tax from your salary and pay it to the government. So, the amount credited to your account is a post-tax figure. See the tax deducted amount on your payslip…that explains a chunk of the gap.” Looking at the payslip, Nikhil whined, “What the government did not take, the company seems to have pinched”. Ashwin explained, “The offer letter states that the company provides some benefits in kind. Just because you don't get it in cash does not mean that it is not part of your CTC – it does cost the company to give you these extras, doesn't it? Tell me, does your company provide food and transportation facilities?” “Yes”, replied Nikhil, “Snacks and lunch which would otherwise cost around Rs 40 a day is provided at a subsidised rate of Rs 5. Also the HR manager mentioned that the company incurs a monthly transportation cost of around Rs 1,500 per employee”. Ashwin interrupted, “So, that translates into around 2,500 bucks per month included in your CTC. Some employees are also given food vouchers or gift coupons which also form part of CTC. Remember, there is no such thing as a free lunch and free ride in most corporate set-ups.” Ashwin continued, “Also, your payslip shows 12 per cent of Basic Pay and Dearness Allowance as being deducted towards provident fund (PF). The company also pays a similar amount towards your PF which is not reflected in your payslip. Now, this benefit, though not apparent, is real and will stand you in good stead in the future. In addition, your company provides group health insurance for employees. A pro-rata portion of the insurance premium may be included in your CTC.”

Nikhil who was all ears interjected, “But all this still does not explain the huge gap.” Smiled Ashwin “Because there is more to come. Bonus, for instance. Your offer letter mentions that come year-end, you would be paid up to Rs 60,000 as variable pay - provided your performance is reckoned to be at 100 per cent levels. Now, this 60K forms part of your CTC, whether or not you finally pocket the entire amount. Some companies base bonus amounts on other factors too including the company's and the team's performance. Now, this may not be fair to high-performers, but we don't live in an ideal world, do we?” Ashwin continued “Then, there is the whole gamut of reimbursements – medical, telephone, fuel, periodicals. You could claim reimbursements against these expenses up to certain limits on submission of bills. These do not reflect in your current pay-slip, but form part of your CTC. Likewise, leave travel allowance which you will receive against claim, or at the end of the year also adds to the company's cost. Employees who avail of perquisites such as company provided accommodation and vehicles will see their CTC bulge. Several banks provide loans at concessional rates to employees. The difference in interest cost also forms part of CTC. And yes, don't forget the amount company provides towards your gratuity payment. You receive this largesse not on a monthly basis but only when you serve a long stint in the company, say 5 years. Nevertheless, the company accounts this provision as a cost incurred for the employee.” At this point, Ashwin couldn't resist a chuckle “And if I know you well, you may as well kiss this amount goodbye. Your staying in a company for five straight years seems improbable, if not impossible.”

Nikhil, somewhat relaxed by now, retorted, “Thanks for the compliment, Mr. six jobs-in-seven years. But seriously, all this gyaan has been a revelation. Had I known earlier, I would have bargained for a better package”. Ashwin smiled “You'll learn from experience, bro. You know, some companies take the idea of cost-to-company to extreme lengths. There are companies that include training expenses and rent for office space as part of CTC. So, it's important to take a close look at the offer letter to get a sense of what you'll finally be able to take home.”

Ashwin concluded, “All said and done, before joining or jumping companies, view what's on offer in a holistic way. CTC and take-home are undoubtedly important but don't join just for the money. Ignoring intangibles such as the fit with your skills and interests, the culture, and work-life balance could leave you disappointed. Get a career, not a job…the money will follow.”

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