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COMPENSATION & CTC
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WHAT IS COMPENSATION?
Compensation is the
remuneration received by an
employee in return for his/hercontribution to the
organization. It is an organized
practice that involves balancing
the work-employee relation byproviding monetary and non-
monetary benefits to
employees.
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COMPENSATION
EMPLOYEE
COMPENSATION
EXECUTIVE
COMPENSATION
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EMPLOYEE COMPENSATION
Compensation of employees (CE is measured by thevalue of the remuneration in cash or in kind which an
employee becomes entitled to receive from an employer
in respect of work done! during the relevant accounting
period - whether paid in advance! simultaneously! or in
arrears of the work itself.
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EXECUTIVE COMPENSATION
E"ecutive Compensationishow top executives ofbusiness corporations are
paid. This includes a basicsalary, bonuses, shares,options and other companybenefits.
It has become integral part of
management.
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Aims of Employee Compensation
Attract capable employees to the
organization.
otivate them toward superior
performance.
!etainment of their services over an
extended period of time.
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COMPENSATIONINCLUDES
DIRECT
PAYMENT
INDIRECT
PAYMENT
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salary
Basic + DA+
Commission etc
Normal components
Allowances
Perquisites
Taxable
To
employee
Fringe
Benefit tax
Taxable
To Employer
Applicable
To companies
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COMPENSATION
Be Adequate - must work to
ttr!t "# r$t%" st %"t'os$ r$s w'$r$ t'$%"t$r"t%o"( or)"%*t%o" 's
t'$ )r$t$st "$$#s "#o++ortu"%t%$s,
Be Cost Efective- s'ou(#.!%(%tt$ tr"s.$r o.%"t$r"t%o"( $m+(o/$$s %" t'$most !ost-$$!t%0$ m""$r .ort'$ 1rm "# 2$ $s to
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Be Motivating - s'ou(# 2$
su4!%$"t to mot%0t$$m+(o/$$s to '%)'+$r.orm"!$ ($0$(s "#
r$%".or!$ #$s%r$# 2$'0%ors,
Be Equitable - $m+(o/$$s
s'ou(# 2$ m#$ to .$$( t't!om+$"st%o" s/st$m %s$5u%t2($3 E6t$r"( & I"t$r"(E5u%t/,
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I"T!#$%CTI#" #& CTC
Cost to Company 'CTC( is a term used to
describe an investment without return.
Cost to Company can also be used to refer
to the total cost that an organization isspending towards their employee including
the )alary, *er+s, Cost related to benefits,
Cost related to hiring, Training, !etirals,)tatutory Contributions etc.
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CTC is simply the money given to you the money
spent on you
Includes both monitory and non-monitory.
asic $A *erformance lin+ed pay onus /!A Allowances !eimbursements 0TA *er+s *er1uisites )ocial benefits 'li+e *&,2ratuity, )uperannuation( Insurance edical
!eimbursements Training costs ealcoupons Transport Club membership fees other subsidies 3.
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asics
2ross )alary4 is salary before deductions
"et )alary4 is what you get after deductions
$eductions 4 *& Taxes 0oans etc.
CTC 4 CTC means Cost To Company
Cost to company 'CTC( is the total cost that
an employee is incurring in a company.
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Judge the benefits holistically!
Your tk$-'om$ +/
P/ .or P$r.orm"!$
A((ow"!$s
7$%m2urs$m$"ts
PF
8rtu%t/
Su+$r""ut%o"
Post r$t%r$m$"t'$(t' 2$"$1ts
So!%( s$!ur%t/m$sur$s (%k$2$"$0o($"t .u"#s
Tr%"%") to %m+ro0$/our k"ow($#)$ &sk%((
O"-9o2 ($r"%")
Em+(o/$$ sto!ko+t%o"s
H$(t' %"sur"!$
M$#%!( 2$"$1ts
S'ort T$rm Lo")-t$rmM$#%um T$rm
Com+$"st%o" %s (w/s!om+r$'$"s%0$:
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Components of Cost to Company 'CTC(
)alary
asic
5$earness Allowance '$A(
5Incentives or bonuses
5Conveyance allowance
5/ouse !ent Allowance '/!A(5edical allowance
50eave Travel Allowance or Concession '0TA 6
0TC(57ehicle Allowance
5Telephone 6 obile *hone Allowance
5)pecial Allowance.
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asic salary
asic salary is a fixed component of your ta+e-home
pay for the wor+ you do8
It is also the base of computations of other benefits li+e
*&, 2ratuity, 0TA and sometimes /!A
It is taxable and best if it is be around 9:; of CTC.
The paradox here is higher ratio of basic salary means
more tax and low ratio means impact on socialbenefits li+e *& and 2ratuity etc.
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Allowance
Allowances paid to the employee
irrespective of the expenditure incurredunder the head of allowances.
a
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$earness Allowance
It is the allowances is paid to neutralize impact
of Inflation.
This is something li+e ma+ing cost-of-living
ad
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/ouse !ent Allowance
/!A is usually a ma
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/!A and tax exemptions
?ou must have /!A component in your salary
?ou must be paying rent
?our spouse shouldn@t be the owner of the house
?ou are not allowed to pay rent to your spouse and get tax
exemption8 /owever, you can do claim tax exemption if you pay
rent to your parents or your relatives.
Amount eligible for tax exemption which ever is lowest of the
following B conditions
>. In etros '$elhi , umbai,ol+ota and Chennai( =:; of
annual salary, for rest of India 9:; of annual salary
D. Actual /!A !eceived from the company
B. The amount of rent actually paid in excess of >:; of annualsalary
)alary means asic $A *erf. 0in+ed bonus . 'Allowances and
per1uisites to be removed(
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Conveyance Allowance
Transport allowance is paid to meet traveling
expenses from residence to office
Amount up to !s :: per month '!s. F,G:: per year( is
tax exempted no need to produce receipts.
City compensatory allowance
*aid to compensate the costs involved in a city life8
Taxable
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0eave Travel Allowance
0TA is for Travel with your family ')elf,
)pouse and Children (to any place in India
The tax implication in layman@s language is
simple ,Tax exempted if you provide proof of
travel and expenditure else taxable
Two 0TAs in a bloc+ of four years is allowed
for tax exemption.
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*ay for *erformance6Incentives
*ay for performance organizations give
a part of the salary as pay forperformance
The periodicity of payment may differfrom company to company
The amount received under this head istaxable
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onus
onus payment in many organization is governed by
*ayment of onus act >FG=,India
%sually paid once an year, mostly profit sharing with
employees by the company some times as a percent of
basic to all employees or may be based on employeeHs
performance and contribution
There can be many types 3.here are few3 *rofit 6 2ain sharing
&estival bonus
oining bonus
!etention bonus
Employee referral bonus
onus is Taxable
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!eimbursements or Claims
!eimbursement of certain expenses li+e *hone,
obile, Internet etc.
!eimbursements are Tax free.
If you are entitled to !est. D::: obile expences,
and you have a bill of !est. >:::, ?ou will get only!s.>,:::.
!emember it is an reimbursement not an
allowance8
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edical !eimbursement
edical expenditure incurred on self or
dependants
Amounts up to !s.>=,::: per is not
Taxable sub
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Children Education allowance
Children Education Allowance is *aid to aid
children@s education. !s D,9:: per year is tax-free.' !s.>:: *er
month per child up to D children(
Children /ostel allowance 4
!s J,D:: per year is tax-free.' !s.B:: *er
month per child up to D children(
& i b fi
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&ringe benefits
/umanistic consideration 4 education, health,
housing )tatutory 4 canteens, rest sheds, crKche,
maternity, paternity,
)ecurity 4 2ratuity, *&, *ension, edical
/azard of industrial life 4 E)IC, wor+mencompensation act, /ospitals
Tax considerations 4 transport, interest freeloans, loans at concessional rates
%tilization of leisure time 4 holiday homes,foreign trips, guest houses
Inculcating a sense of involvement 4concessional lunch, subsidized picnics
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