Difference between CTC - Gross - Net Salary

Cost To Company - CTC:
Cost to Company or CTC as it is commonly called, is the cost a company incurs when hiring an employee. CTC involves a number of other elements and is cumulative of House Rent Allowance, Provident Fund and Medical Insurance among other allowances which are added to the basic salary. These allowances may often include free meals or meal coupons, such as Sodexo and the like, office space rent, cab service to-and-fro office, and subsidized loans et al. Basically, all these elements when combined together, form the entire Cost To Company.
To put it in simpler terms, CTC is basically a company’s spending on hiring and sustaining the services of an employee.
Let’s elucidate what CTC looks like with an example:
Mr. A has been hired by a company at a CTC of Rs. 4,00,000. A breakdown of his yearly income is illustrated below:
Basic Salary: Rs. 2,20,000
HRA: Rs. 88,000
CA: Rs. 19,200
Medical Expenses: Rs. 15,000
EPF Contributions: Rs. 21,600
Gratuity: Rs. 18,326
Special Allowance: Rs. 17,874

CTC is basically the sum total of Direct Benefits (sum paid to an employee on a yearly basis), Indirect Benefits (sum the employer pays on behalf of the employee), and Saving Contributions (saving schemes the employee is entitled to).
CTC = Direct Benefits + Indirect Benefits + Savings Contributions
Here’s every single element of a CTC broken down:

Basic Salary: Unlike other aspects of CTC, your basic salary will not vary and remains a constant always. The entire amount of your basic salary will be part of your in-hand salary.

Allowances: As part of your salary structure, you will receive a number of allowances which help you take care of your basic needs. These include:

House Rent Allowance (HRA): HRA is part of the CTC an employer provides its employees. HRA usually comes with tax benefits in case employees pay for accommodation each year and comes up to about 10% of the take-home salary.

Leave Travel Allowance (LTA): LTA is yet another tax-exempt element of a CTC which is provided for employees to cover their travel expenses anywhere within the country. Note that an LTA only pays for the travel allowance not for other expenditures like food, drinks, and the like.
Dearness Allowance (DA): Inflation numbers keep rising year or year and Dearness Allowances are provided to tackle this issue. This is basically a cost of living adjustment given to mitigate the effects of inflation on the economy.

Other such allowances include medical, vehicle, mobile phone, incentives, and special allowances.

Gross Salary:
Gross Salalryis employee provident fund (EPF) and gratuity subtracted from the Cost to Company (CTC). To put it in simpler terms, Gross Salary is the amount paid before deduction of taxes or other deductions and is inclusive of bonuses, over-time pay, holiday pay, and other differentials.
Employee Provident Fund, in India, is an employee-benefit scheme prescribed by the Ministry of Labor which provides employees with facilities such as medical assistance, retirement, education for children, insurance support, and housing. The Employee Provident Fund Organization (EPFO) has the authority to mandate policies on EPF, pension, and insurance schemes. The employer is required to contribute at least 12% of the employee’s salary towards his/her EPF.
Furthermore, the employee can then withdraw the full amount accrued in his/her PF account at the time of retirement, which is when the employee attain the age of 55 years.
In the occurrence of any of the following situations also, the employee can withdraw the amount accumulated in his/her PF account-
·         Termination of services
·         Retirement due to permanent disability
·         Migration for taking employee abroad

Gratuity on the other hand, is a section of an employee’s salary that is paid by the employer as a token of gratitude for the services the employee offered during the employment tenure. It is a defined benefit plan offered to the employee at the time of his/her retirement.
An employee may leave his/her job for various reasons, such as, retirement/superannuation, for a better job elsewhere, on being retrenched or by way of voluntary retirement.
Under Section 10 (10) of the Income Tax Act, an employee receives gratuity after completing 5 years or more of full-time service in an organization.
For the same example listed above, let’s deduce Mr. A yearly salary by subtracting gratuity and Employee Provident Fund contributions.
Rs. 4,00,000 - Rs. 21,600 - Rs. 18,326 = Rs. 3,60,074

This amount will now be considered as his gross salary, which is his total personal income before taking taxes and other deductions into consideration.
Net Salary or Take-Home Salary:

Net salary, more commonly known as Take-Home Salary, is the income that the employee actually takes home once tax and other such deductions are carried over with. It refers to the in-hand figure that is calculated after deducting Income Tax at source (TDS) and other deductions as per the relevant company policy.
Net Salary is Income Tax deductions, Public Provident Fund, and Professional Tax subtracted from gross salary, which means,
Net Salary = Gross Salary (-) Income Tax (-) Public Provident Fund (-) Professional Tax
Public Provident Fund and Employee Provident Fund are a stipulated percentage of the employee’s salary, typically no less than 12% of the basic salary. Whereas, gratuity is a percentage of the basic salary, typically 4.81% of the employee’s basic salary.
Therefore, an employee’s take home pay should ideally look like-
Take Home Pay / Net Salary = Direct benefit (-) deductions (taxes, PF etc.)
Income Tax in this case, is deducted at source by the employer and is based on the gross pay of the employee. Also, basic salary of an employee should be at least 50%-60% of his/her gross salary.
Mr. A’s Salary Example:
In Mr. A’s case, he comes under the 10% Tax Slab as his salary falls between the Rs. 2,50,001- Rs. 5,00,000 range.
Mr. A’s income stands at Rs. Rs. 3,60,074.
10% of Mr. A’s income would come up to Rs. 36,007.4.
So, Mr.A’s income after tax and other deductions would be Rs. 3,24,066.6
Bottom-line, the various aspects of a salary isn’t as complicated as it is made out to be. A quick read of this page would give you all the details you will ever need.


Difference Between Offer & Appointment Letter

Job Letter -
Job Letters are the letters or emails sent to the employers to position oneself also called self-selling letters. In short it is an application for a job.
An offer letter (also called as Letter of Intent) is a document (soft/hard) given by any company to a Person interviewed by them. Company is extending an offer to a person to join them. However, there is no obligation on any of the parties.

Offer Letter -
Offer Letter contains:-
·         Nature of Job and Designation
·         Salary Break Up /Benefits / Perks
·         Company Policies and Rules
·         Some may also include the Joining Date
·         Last date to accept the Offer
However either parties are free to back off in the offer process. Company can revoke the offer as per their strategies and so can the person offered, if he is not convinced with the offer made.

Joining Letter -
Joining Letter can be referred to as Acceptance letter by the person who has received the offer. If a person is accepting the offer made by the company, he writes an e-mail expressing his interest to take up the position and join the company. It is suggested to write the email irrespective of whether verbal acceptance is made or not.

Appointment Letter-
Coming to Appointment letter, is proof of appointment that a person is accepting the offer and ready to work for the company and agree with the terms and conditions of the company.

Consists of -
Date of Joining, Time and Venue
Medical Tests if needed /Contract / Agreements if any
Documents / proofs to be submitted on reporting date.
These days however companies first share the salary break up with the selected candidates and negotiations happen if any, and then a full-fledged official offer letter is rolled out with joining date. There is no separate concept of appointment letter as such. Once the candidate accepts the offer made- an acceptance mail is sent to the employer confirming the joining date. 

Some companies just share the break up initially and give away the hard copy of Offer Letter once the candidates joins the company. So there no thumb rule as such.


What Makes Good Employees Quit ???

Here are those few common reasons good employees quit, according to company leaders and HR professionals who have seen it from both perspectives:

1. Lack of trust and autonomy
Leaders who struggle with trusting their employees end up creating restrictive work environments that leave employees feeling stressed, anxious and unable to do their best work. Good employees don’t want to work in a job where they’re not trusted by leadership. If you want to attract and keep great employees, it all begins with you. Your job as the leader is to trust and guide your team, to support them in their roles and let them shine. When you learn to let go and trust your team, they will deliver at levels you never even imagined. You’ll not only attract, but keep, better employees who are motivated, enthusiastic and produce great results.

2. Not being appreciated or recognized
From my 10+ year of experience in the world of staffing and recruiting, the primary reason that I have seen for someone leaving a company is not being appreciated. This lack of appreciation can come in many forms including being underpaid, not receiving positive feedback for a job well done, broken promises, especially those around end-of-year bonuses, valid complaints that are shrugged off and reasonable change suggestions that go ignored. When leadership makes these mistakes, the environment in an otherwise healthy company can start to feel toxic and encourage a mass exodus of high-quality employees that are difficult to replace. 

Companies lose good employees primarily because they do not recognize their talent in time. The employer should be aware that he is dealing with a skilled person and motivate him to engage in the development of the company. Talent management is about identifying and supporting the development of the most talented employees to implement the company’s plans.. The lack of talent management in companies means that the most talented employees usually leave their companies. 

3. Lack of respect
Good employees quit/leave for a variety of reasons, but in my experience it stems from one main source…respect. If an employee isn’t receiving the respect they know they’ve earned and deserve then you will be hard pressed to get them to stay. 

Respect could mean how they’re treated by managers and coworkers, or the types of assignments and projects they receive to work on. When people say they left a job because they weren’t paid enough, it normally means the company didn’t respect their work and abilities enough to compensate them appropriately. Remember: People don’t leave good jobs without a reason, and the reason is often based on a lack of respect from someone within the company and how that lack of respect is handled.

4. Little to no opportunity for growth and development, no advancement opportunities
One of the top things most applicants are looking for is future growth or promotional abilities at a new company. If you are part of a large organization, you can probably speak to the promotions past incumbents of the position have received.Good employees always want to continue moving up, forward, earning more, learning more, etc. 
5. Feeling underutilized
Most great employees often leave a company because they frequently feel as though they are being underutilized and not challenged enough within the workplace. Companies would only hope to hire on self-motivating employees to carry out the work that needs to be done. But sometimes managers aren’t giving their employees the support they need. 

6. Bad manager
High-performing employees often leave a company due to frustration with their direct supervisor. Maybe this frustration is rooted in disagreements over work philosophy, lack of resources, lack of professional development or lack of opportunity to move up or on within the organization. This is why it’s so important for team leaders to recognize what motivates each of their team members as individuals, and adapt their management style according to ensure each person on the team is staying engaged and will be provided with sufficient challenges and opportunity to keep them on the team for the longer haul.

7. Poor management & communication
If the team lead or a manager is not able to motivate an employee, point him in the right direction or provide proper and relevant feedback, he will feel lost after a while.
A good employee leaving an organization is also a failure of communication. An astute manager should be able to read the employee and get an early warning that something is not right. Employees who are not happy will bring issues to the attention of their manager, but if there is no interest or follow-through after a while they will shut down. This is the time when they start to seek new opportunities in order to escape an untenable situation.

8. Feeling over-stressed or over-worked
One of the great ironies of the American workplace is that the highest performing employees are often burdened with the most unreasonable volume of work to perform. This leads to a stress level that isn’t controllable, and these high performers naturally look for better fits elsewhere in time.

9. Lack of support
Good employees typically want to operate in a high-performing environment. When they feel coworkers are dragging them down, or that management is not supporting them or helping pull them up through the organization.

10. Uninspiring or unhealthy work environment or company culture
Several of my employees have said they have left previous jobs because they needed a more positive working environment. A negative atmosphere in the workplace is a common reason for many good employees to leave a business. No matter how many perks or rewards a business may offer, they won’t count for much if, when the employee is in the office, there is a toxic environment. 

11. Seeing good employees leave
A seldom considered reason why good employees leave is…other good employees leaving. There’s a saying that employees join companies and leave managers. It’s true, but the reverse is also correct. When you watch the long term movements of top notch employees you’ll begin to notice a pattern. They often leave in waves.


How to minimize workplace negativity ???

  • Provide opportunities for people to make decisions. The single most frequent cause of workplace negativity is traceable to a manager or the organization making a decision about a person’s work without their input. Almost any decision that excludes the input of the person doing the work is perceived as negative.
  • Make opportunities available for people to express their opinion about workplace policies and procedures. Recognize the impact of changes in such areas as work hours, pay, benefits, and assignment of overtime hours, dress code, office location, job requirements, and working conditions. These factors are closest to the mind, heart and physical presence of each individual. Changes to these can cause serious negative responses. Provide timely, proactive responses to questions and concerns.
  • Treat people as adults with fairness and consistency. Develop and publicize workplace policies and procedures that organize work effectively. Apply them consistently. 
  • Treat your employees as trustworthy because they are. Start from a position of trust when you hire a new employee. Verify their performance, truthfulness, and contribution over time to confirm your original position. Do not start from a position of believing that people must earn your trust. That positioning ensures that negativity will take over in your workplace. Employees have radar machines and they are constantly scoping out their work environment. If you don't trust them they will know you don't.
  • Do not create rules for all employees when just a few people are violating the norms. You want to minimize the number of rules directing the behavior of adult people at work. Treat people as adults and they will usually live up to your expectations and their own expectations.
  • Help people feel included—each person wants to have the same information as quickly as everyone else. Provide the context for decisions, and communicate effectively and constantly. You cannot over-communicate if your desire is to reduce negativity and gain the confidence and support from your employees.
  • Afford people the opportunity to grow and develop. Training, perceived opportunities for promotions, lateral moves for development, and cross-training are visible signs of an organization’s commitment to staff. Make your commitment to employee growth and development by creating mutually developed career path for every employee.
  • Provide appropriate leadership and a strategic framework including mission, vision, values and goals. If they understand the direction, and their part in making the desired outcomes happen, they can contribute more. People make better decisions for your business when you empower them with the information they need to make decisions that strategically align with your overall direction.
  • Provide appropriate rewards and recognition so people feel their contribution is valued. The power of appropriate rewards and recognition for a positive workplace is remarkable. Suffice to say, reward and recognition are two of the most powerful tools an organization can use to buoy staff morale.