Five hidden facts about CTC your employer won’t tell

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​Campus placement is fashionable today. Students feel very proud and happy to share with others about their pay package. They think higher the pay package, higher will be their monthly salary. They just divide their package by 12 and calculate the monthly cash inflow and build their castle on it. These castles prove to be sand castles as they just melt away on the day they receive their first salary.

Mohan was very happy to get an annual package of Rs. 10,00,000 and was expecting a monthly intake of Rs. 83,000 or so. His castle blew away when he saw that his monthly salary was only Rs. 42,000, half of his expectations. Let us examine how his expectations were shattered.

What is CTC?
It is the abbreviation for cost to company. There are several hidden costs added to CTC, which inflate the salary package when initially offered, and then the employee crashes down when he gets his first salary slip. This may appear to be a short-sighted exercise by the employer, but they still get away with it.

Let us first take a look at what the hidden costs of CTC are, and then how the employers get away with it, and why employees reconcile to it.

Hidden cost No. 1: Adding the employer’s contribution in Employee’s Provident Fund
While provident fund is deducted from the salary of an employee every month, employers are also required to contribute a similar amount. This amount of the employer’s contribution is added to the CTC, and the employee is not going to get the money at the end of the month.

Hidden cost No. 2: Including the one-time joining bonus in CTC
To lure qualified and experienced employees, employers offer one-time joining bonus with a rider that if the employee leaves the job before a predetermined period he or she will have to return this amount. Adding this amount inflates the CTC.

Hidden cost No. 3: Including gratuity, insurance premium, food coupons and transport facilities in CTC
Almost all companies offer the above facilities as part of the job. However, they also add the cost of these facilities as part of the CTC and thereby inflate it to make it more competitive in the job market. These facilities, too, do not convert themselves into cash inflow and therefore go on to reduce the monthly intake.

Hidden cost No. 4: Adding a notional variable component in CTC
Dividing the salary package into fixed and variable components is very common. The trick is to make the variable component – which depends on performance rating – larger. Very few lucky employees get the best performance rating and, therefore, the full variable component. The others have to satisfy themselves with much less variable component by getting even less than the promised annual CTC.

Hidden cost No. 5: Putting stock options in CTC
Offering stock options is another enticement to get qualified and experienced employees. The stock option also comes with preconditions that they cannot be sold before a fixed period. The employee is stuck with those options and there is no cash inflow at the end of the month.

A first-time employee will be fooled by the above hidden costs. So always remember that your CTC is not your take-home pay.

K. Ramalingam is the chief financial planner at Holistic Investment Planners, a leading financial planning and wealth management company. The opinions expressed here are the personal views of the author. NDTV is not responsible for the accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.

Source:- NDTV PROFIT