What is CTC?
CTC means Cost-to-Company.
CTC is the pay package of an employee. It is basically the total salary, which an organization is paying to workers in a year. It is not the definite amount; but it is all the amenities which a worker gets during the working period. In simple terms, CTC is the total amount one would cost an owner, which may include provident fund, medical aid contributions, etc.
People new to the job market can find this quite deceptive and be surprised to find out that their net salary is significantly less than the initial package (remuneration) advertised. However, in short, it is the way for the employer to state that this is the only amount available in the budget for the worker and all related profit. In the organization, some deductions are compulsory. The organizations share their own right to choose the final package.
The compulsory deductions may include salary pension, unemployment insurance and of course, you have to pay taxes. In some companies, the travel allowance is compulsory; while optional deductions may include medical aid allowance. Many of the deductions are sometimes not paid completely by the organization. Thus, the owner of the company has to set out a budget for employing a new person. This allows the company to adequately plan the payroll financial plan without surprise costs. In other cases, taxation is between the employee and the country's tax institution, such as SARS (South African Revenue Service). Employers only deduct the tax (PAYE - Pay As You Earn) and pay it to the government's tax institute on your behalf.
The following income would usually not be part of a cost-to-company remuneration:
- Production bonuses
- Restraint of trade payments
- Subsistence allowances
- Any attendance bonuses
- Long service awards
CTC = Gross Salary + Other Benefits
CTC = Net Salary + Deductions + Other Benefits
Essentially, the take-home salary (net salary) is quite less than the CTC offered to an employee. At times, the net salary may amount to be 35% to 50% of the CTC.