CTC (Cost to Company)

Meaning & Definition

The term “CTC“, or Cost to Company, refers to the total compensation incurred by an employer for an employee over the course of one year. In addition to the employee’s basic salary, it contains allowances, bonuses, employer contributions towards the employee’s provident fund, employer-funded insurance, employer’s gratuity or leave pay, and other perks offered by the employer. 

Importance of CTC

• Employers’ ability to determine the actual expense of hiring an employee.
• Facilitates clear communication of salaries between employers and prospective employees.
• Educates HR professionals on developing accurate budgets for salary expenses.
• Provides clarity and understanding of an employee’s salary structure, thereby enhancing employee satisfaction.
• Strengthens employees’ ability to compare compensation across all levels and roles.

Legal Compliance / Policy / Regulation

• CTC is not defined by any Indian labour legislation. 
• However, the elements of CTC that are required by law must be compliant with applicable Indian laws. 
• The employer contributions to PF and ESI must be within the limits set by the law. 
• Gratuity must be paid in accordance with the Payment of Gratuity Act, 1972. 
• Taxes such as income tax and TDS will be applicable on the taxable portions of CTC.

To clarify, although CTC is not legally regulated, each of its elements is required to comply with statutory requirements.