Salary Breakup: Salary Format, Structure, and More
A salary breakup structure, also known as a CTC (cost-to-company), is a method for determining an employee’s take-home pay by breaking down the CTC into different parts.
Employers and employees both need to understand the salary breakup structure. However, it might be a little complicated because many factors are considered when calculating income.
Everything you need to know about the CTC, salary breakup and its parts are covered in this article.
Describe Salary Breakup or CTC.
CTC
The whole wage package that a corporation offers a candidate during recruitment is known as the CTC or cost-to-company. After all, it’s important to remember that CTC is never the same as the take-home pay received at the end of the month.
The total amount a firm spends on a worker, directly or indirectly, is known as the CTC. It consists of various elements, including a basic salary, a provident fund, and other benefits. Some businesses determine it by adding the employer’s PF (Provident Fund) and gratuity contributions to the gross salary.
Salary Breakup
The basic pay, housing rent, special allowance, LTA, automobile allowance, provident fund, and other components make up a salary breakup structure.
The employer has already established this salary structure, and the gross and in-hand salaries are computed.
What Factors Determine Salary Structure?
Every employee’s pay structure is unique and is determined depending on several factors, including:
- Years of experience and educational background
- Their line of employment and the importance of the work being done
- The location of the job and the city’s cost of living
- The employee’s skill sets and the demand for those skill sets
- Talent availability and demand in the relevant field
Salary Breakup Structure Elements
1. Basic Salary
The fixed portion of the wage, exclusive of any benefits or privileges, is the basic salary. Depending on the position’s location, sector, and title, it may change. It makes up 40 and 60 per cent of the CTC and is wholly taxed. Therefore, if the basic income is kept too low, it may not comply with minimum wage standards, and if it is too high, it may result in additional tax and PF costs.
2. Allowances
Allowances are the costs your company incurs for you to provide the necessary services. These extra payments are made on top of your base pay and depend on your employment position, classification, and location. The amount of the allowance is determined by the specific corporate policies. The most typical types of allowances are listed below.
- House Rent Allowance
- Leave Travel Allowance
- Conveyance Allowances
- Special Allowances
Read more in our blog post, “Are You Willing To Relocate?”
3. Performance bonus or statutory bonus
The employer gives a statutory bonus to recognise a worker’s outstanding performance. According to the Payment of Bonus Act of 1965, it is paid as an incentive to the employees in addition to the base income. The bonus amount is expressed as a percentage of the base salary depending on the company’s policies.
4. Employee Provident Plan (EPF or PF)
An employee retirement benefit offered by the employer is a provident fund. Every month, a specific portion of the employee’s basic salary is set aside from their CTC, and the company also contributes a monthly amount to this fund.
After one month without employment, an employee is eligible to withdraw this sum. This is a component of the company’s retirement benefit programme and is typically based on 12 per cent of the base pay.
5. Gratuity
It is a one-time payment made to company employees after working there for five years. As the name implies, it is the sum of money given to employees to appreciate their loyalty and labour throughout their employment. The Payment of Gratuity Act of 1972 states that the gratuity amount is based on 4.81 per cent of the basic pay.