Payroll calculation is a complicated yet important process if it isn’t streamlined. While the salary process differs from one business to another, but there are certain components which remain constant, like taxes and standard deductions.

The majority of employees has never understood their payslips and has various queries for the human resource team. It leads to miscommunication and often leaves workforce irate about the deductions. ‘Salary deductions’ is where most of the confusion arises, but it can be easily avoided if the employee knows about standard salary deductions!

The term ‘CTC’ raises a big question mark to employees and hence, it is important for them to have basic knowledge about CTC to understand it in a better way. It will also save unnecessary hassles of exchanging emails with the payroll team.

They always get confused between CTC and take home salaries. So, let’s decode and understand about CTC more to avoid this confusion. In order to simplify this ‘CTC’ term, here is an in-depth article regarding the ‘Cost to Company’ i.e. CTC. This post hopefully resolves various queries of many employees related to their salary structure. This well-described article can easily clear your basic doubts related to the CTC.

The first thing employees need to understand here is that each organization has its own method of CTC calculations and hence, your CTC and take home salary varies sometimes. While accepting any new job offer, try to get a clear idea about your salary breakup. Do not just look at the numbers of CTC as it involves various components that may not part of your monthly take home.

It is important for both an employee and HR people to understand the details of a salary. Employees should be well aware with various components and breakups of their compensations.

First of all, CTC is not only the salary, it also includes many components such as medical facilities, meal, phone bill, etc. Some organizations also add office space rent in the CTC package. It means if your organization gives you such facilities, then the value of these facilities will be included in your CTC.

The post covers below mentioned points in detail, take a look!

  • Full form of CTC
  • What is CTC in salary?
  • What is CTC breakup?
  • Basic CTC glossary
  • How to calculate basic salary?

Let’s understand what is CTC in salary first and then deep dive to get more information about CTC!

  • Full form of CTC

The full form of CTC is Cost to Company.

  • What is CTC in Salary?

It is the total cost that an organization incurs, on an employee in a year. It is the per month pay as well as other benefits that the organization pays an employee, is actually cost to the company.

  • What is CTC breakup?

CTC is a complete salary package and benefits of an employee per year. It is inclusive of monthly components such as Cost to Company (CTC), basic salary, bonus, allowances, insurance, provident fund (PF), gross salary, net salary and tax.

Now, it is time to understand some basic CTC associated terms so that when you receive your payslip, you will not get confused.

Basic salary is the exact amount compensates to an employee before any payment deduction or extra addition and it comprises of around 40-45% of total CTC.

Gross salary is the amount calculated by adding up an employee’s basic salary and special allowances before any deductions.

Net salary is also known as ‘take-home salary’. This is employee’s take home income after tax and other deductions.

Allowance is the amount paid to an employee to meet service needs and some basic variants of allowances are HRA, conveyance, travel allowance, etc.

Gratuity is the sum of the amount paid by the employer to an employee at the time of retirement.

Professional Tax is levied by a state government and it needs to be paid by every individual earning income. This tax calculation and amount collected varies from one state to another.

  • How to calculate basic salary?

As such there is no fixed formula to calculate basic salary, but based on a few factors, the basic salary of an employee is calculated. Generally, basic salary is 40% to 50% of CTC (Cost to Company). You can also do the reverse calculation to get the basic salary amount from the gross pay.

Basic = Gross Pay – DA – HRA – Conveyance – Medical – Other

Pocket HRMS, cloud based HR solution, helps small to large companies to perform payroll calculations accurately. Automated mechanism of our payroll software makes sure no errors are committed while calculating salaries. The system is compatible to any business vertical. No more worry about salary calculations!

Besides calculating salaries, it also helps in generating payslips and other important reports just at the click of a button. This payroll management system also takes care of all necessary statutory compliance duties with ease. It solves all your tax related concerns at once. Thus, saves efforts and time of your HR professionals.

In fact, all calculations are performed responsibly keeping into considerations the latest Tax laws. Now, enjoy timely, accurate and error-free salary and tax computations with our payroll software. In addition, we provide subscriptions to suit the budget and preferences of startups and small business owners. Feel free to check out our HR software plans here!

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