CTC (Cost to company) is a term for the total salary package of an employee. It indicates the total amount of expenses an employer spends on an employee during one year. It includes all the earning and other components.
Earnings are the components that an employee earns for his work in the company. It includes Basic HRA, Conveyance, Medical, LTA, etc
Statutory component are the components defined under certain enactments passed by government bodies like Employee Provident Fund Organisation (EPFO) and Employees?ÇÖ State Insurance Corporation (ESIC). Contributions are made by employees and employers towards the employees?ÇÖ long term financial and social well-being.
Gross salary is the salary to be paid to you without deduction, in other words, gross salary mean your monthly salary including PF-employee part, ESI, Professional tax etc.
Net salary is the amount due after deducting your recoveries like insurance premium, provident fund, health insurance etc. In other words it is the actual cash employee receives every month.
Salary Components:
Earning components
* **Basic** * **HRA** * **Special allowance** (variable)Deduction components
* **Taxes** * **Labour Welfare Fund**Statutory component
* **Employee Statutory component** * **Employer Statutory component**
CTC components comprises of: Earning components + Employer Statutory component
Pay components comprises of: Earning components - (Deduction components + Employee Statutory component)
Example
A company hires a person at a CTC of Rs. 3 lacs. Suppose the person earns Rs. 10,000 for getting a job done in the company. The company also pays him Rs. 13,500 as the sum of all the special allowances given to him. He and his employer both contributes Rs. 1500 to his provident fund. Employer deducts Rs. 2000 as sum of all the deduction components.
Earning: Basic = 10,000 Allowances = 13,500
Gross salary: Basic + Allowances = 23,500
Employer Provident Fund (EPF) = 1,500
Monthly CTC: Gross salary + EPF = 25,000
Yearly CTC: Monthly CTC x 12 = 3,00,000 (also commonly known as package)
Deductions: PF = 1,500 Deductions = 2,000
Deduction components: PF + Deductions = 3500
Net Salary: Gross salary - Deduction components = 20,000 (also commonly known as in hand salary or Net income)
(Net salary + Deductions = monthly CTC)
Salary Break-up is a document that contains the detailed information of all the earning and deduction components of any employee. Employee can ask for the salary break-up from his employer.