Hello everyone,
I believe CTC is the total money that you spend on the employee... I would include the following factors in the CTC of an employee...
* Cost of Hiring - Entire recruitment & Selection costs
* Opportunity Cost when Hiring (Im not sure of this but i've heard that there is an opportunity cost when you select ONE person from a group which has 2 or more people who are equally eligible for the job after the selection process is over - i.e. you interviewed all and you found all of them suitable for the current job - but you could pick only one of them as you had only one opening. So just because you selected this person, you could not select any of the others - this is again an opportunity cost)
* Basic Pay / Salary
* Incentives / Bonus / Performance based pay
* PF, Insurance, etc,
* All the allowances - (details have been given in so many replies)
* Managerial time - (time you manager spend in teaching you the work - its an opportunity cost bcos he is not doing his work in the time that he spends with you - so it has to be credited to your account. )
* Training cost - training other than actual job (soft-skill training) or if you get an external trainer
* Cost of mistakes that you make
* Cost of Irrecoverable Mistakes that a company cannot do anything about (they obviously cant deduct this from your salary)
* Infrastructure Cost [Electricity, Computer, Internet (to use cite HR ;-)), furniture & Basic Amenities
* Cost of Re-Hiring - If this person whom they hire leaves the company before delivering results (uses our company as a door-mat Grrrrrr!!!! :evil: ) ---- *A part of this also goes as a cost of hiring for the next person on the same place* -- too confusing.. eh? :roll:
This is all what i could put from my understanding. Please add / give feedback on this...
Regards,
Manish Modani
I believe CTC is the total money that you spend on the employee... I would include the following factors in the CTC of an employee...
* Cost of Hiring - Entire recruitment & Selection costs
* Opportunity Cost when Hiring (Im not sure of this but i've heard that there is an opportunity cost when you select ONE person from a group which has 2 or more people who are equally eligible for the job after the selection process is over - i.e. you interviewed all and you found all of them suitable for the current job - but you could pick only one of them as you had only one opening. So just because you selected this person, you could not select any of the others - this is again an opportunity cost)
* Basic Pay / Salary
* Incentives / Bonus / Performance based pay
* PF, Insurance, etc,
* All the allowances - (details have been given in so many replies)
* Managerial time - (time you manager spend in teaching you the work - its an opportunity cost bcos he is not doing his work in the time that he spends with you - so it has to be credited to your account. )
* Training cost - training other than actual job (soft-skill training) or if you get an external trainer
* Cost of mistakes that you make
* Cost of Irrecoverable Mistakes that a company cannot do anything about (they obviously cant deduct this from your salary)
* Infrastructure Cost [Electricity, Computer, Internet (to use cite HR ;-)), furniture & Basic Amenities
* Cost of Re-Hiring - If this person whom they hire leaves the company before delivering results (uses our company as a door-mat Grrrrrr!!!! :evil: ) ---- *A part of this also goes as a cost of hiring for the next person on the same place* -- too confusing.. eh? :roll:
This is all what i could put from my understanding. Please add / give feedback on this...
Regards,
Manish Modani
Dear Anil Anand,
Many thanks for your detailed explanation..
My point is if i have to include the same in CTC then what should be basis for the same?..
Since it's a statutory requirement - on the onus of the company then should the burden be passed onto the new employee?
Since it's a part of the CTC as the part of the benefit accrued not yet claimed ..then should FBT be applicable?
Cheers,
Rajat
From India, Pune
101Many thanks for your detailed explanation..
My point is if i have to include the same in CTC then what should be basis for the same?..
Since it's a statutory requirement - on the onus of the company then should the burden be passed onto the new employee?
Since it's a part of the CTC as the part of the benefit accrued not yet claimed ..then should FBT be applicable?
Cheers,
Rajat
From India, Pune
Hi Promila,
No it is not like this. An employee will be eligible for gratuity only when he/she completes 5yrs. of continuous services & after that the rounding off formula will be applicable as under:
For less than six months service – will be ignored and
For more than six months service – will be considered as full yr.
However the formula is ok.
Regards,
Rajesh
No it is not like this. An employee will be eligible for gratuity only when he/she completes 5yrs. of continuous services & after that the rounding off formula will be applicable as under:
For less than six months service – will be ignored and
For more than six months service – will be considered as full yr.
However the formula is ok.
Regards,
Rajesh
Dear Rajat
Thanks for your compliments.
My submissions to your queries are as under
1. Basis for inclusion of Gratuity in CTC.
Basis will remain same as defined under the Payment of Gratuity Act. i.e Last drawn Basic Pay / 26 * 15 * No. of years of service( Max. 40 as per act)
However for making payment towards the approved gratuity fund , the calculation of gratuity is being done on yearly basis. In general trust created by employer and approved by Income Tax Authorities , makes a request to employer for providing data (Current salary , DOJ, DOB) in respect of continued employees and newly joined employees to update the records and recalculate the gratuity due till the date of next renewal.
In case of CTC we have to recalculate the due gratuity on the current salary data ( After revision / addition / deletion of increment) and to add the difference between the amount due and available balance with gratuity fund to currently calculated due. I believe that this is the only way to calculate and reassess the annual cost to company with respect to individual case.
2. Passing on of statutory burden to employee. There seems to no harm in doing it. Yes employee will object that he / she will be entitled to gratuity only when they become eliglible for the same under the provisions of the act and why employer is declaring this as a component of CTC.
Here comes the intention part of both employee and employer. Employer is bound by statutory provisions and have to discharge the liability under all circumstances. Objective of this statutory provision was rewarding an employee for his long association with employer and his / her contribution towards the business of employer. But in so many cases it has come to the notice that employees have started defeating the objective. Employees remain with employer for five years just to encash the statutory applicability, they are fully aware that after five years of service , employer is bound to pay the same. But one of the court case employer refused to pay the gratuity and employee went to court. The verdict went in favour of employer. It was brought to the records the intention of employee even with respect to his past employments. Court in this case was also very clear in achieving the objective of the statutory provisions. Hence in my view we can pass on the burden to employee to make him aware of the objective of the provisions and his contributions towards the employer's business.
3. Regarding applicability of FBT : Under rule 115WB of income tax rules there is no mention of Approved gratuity fund for the purposes of FBT. Though along with Gratuity Fund , Superannuation fund has been taken under consideration for appilcablity of FBT.Hence In case of approved gratuity fund ( Approved by Income Tax authorities under sub-rule (1) of rule 4 of Part C of the Fourth Schedule of income Tax Act,1961 ) provisions as defined under rule 115WB are not applicable on Gratuity. Section (e) of subrule 1 of rule 115Wb of I Tax rules do talk of applicability of FBT on statutory obligations but again there is no mention of gratuity.
Objective of FBT is to tax considerations made by employer being provided to employees for employment. Gratuity has been separately liable for tax at the end of employee's. I believe FBT is to tax the benefits provided by employer to employees in terms of facilities and not in terms of cash. These facilities are being quantified in terms of cash and further taxed at specific rates, considering the data available with I Tax department. In view of the above FBT is not applicable on gratuity and employer is not going to bear extra tax burden due to employees.
I hope my this submission will clarify on the doubts which are just due to unawareness.
Regards
Anil Anand
From India, New Delhi
Thanks for your compliments.
My submissions to your queries are as under
1. Basis for inclusion of Gratuity in CTC.
Basis will remain same as defined under the Payment of Gratuity Act. i.e Last drawn Basic Pay / 26 * 15 * No. of years of service( Max. 40 as per act)
However for making payment towards the approved gratuity fund , the calculation of gratuity is being done on yearly basis. In general trust created by employer and approved by Income Tax Authorities , makes a request to employer for providing data (Current salary , DOJ, DOB) in respect of continued employees and newly joined employees to update the records and recalculate the gratuity due till the date of next renewal.
In case of CTC we have to recalculate the due gratuity on the current salary data ( After revision / addition / deletion of increment) and to add the difference between the amount due and available balance with gratuity fund to currently calculated due. I believe that this is the only way to calculate and reassess the annual cost to company with respect to individual case.
2. Passing on of statutory burden to employee. There seems to no harm in doing it. Yes employee will object that he / she will be entitled to gratuity only when they become eliglible for the same under the provisions of the act and why employer is declaring this as a component of CTC.
Here comes the intention part of both employee and employer. Employer is bound by statutory provisions and have to discharge the liability under all circumstances. Objective of this statutory provision was rewarding an employee for his long association with employer and his / her contribution towards the business of employer. But in so many cases it has come to the notice that employees have started defeating the objective. Employees remain with employer for five years just to encash the statutory applicability, they are fully aware that after five years of service , employer is bound to pay the same. But one of the court case employer refused to pay the gratuity and employee went to court. The verdict went in favour of employer. It was brought to the records the intention of employee even with respect to his past employments. Court in this case was also very clear in achieving the objective of the statutory provisions. Hence in my view we can pass on the burden to employee to make him aware of the objective of the provisions and his contributions towards the employer's business.
3. Regarding applicability of FBT : Under rule 115WB of income tax rules there is no mention of Approved gratuity fund for the purposes of FBT. Though along with Gratuity Fund , Superannuation fund has been taken under consideration for appilcablity of FBT.Hence In case of approved gratuity fund ( Approved by Income Tax authorities under sub-rule (1) of rule 4 of Part C of the Fourth Schedule of income Tax Act,1961 ) provisions as defined under rule 115WB are not applicable on Gratuity. Section (e) of subrule 1 of rule 115Wb of I Tax rules do talk of applicability of FBT on statutory obligations but again there is no mention of gratuity.
Objective of FBT is to tax considerations made by employer being provided to employees for employment. Gratuity has been separately liable for tax at the end of employee's. I believe FBT is to tax the benefits provided by employer to employees in terms of facilities and not in terms of cash. These facilities are being quantified in terms of cash and further taxed at specific rates, considering the data available with I Tax department. In view of the above FBT is not applicable on gratuity and employer is not going to bear extra tax burden due to employees.
I hope my this submission will clarify on the doubts which are just due to unawareness.
Regards
Anil Anand
From India, New Delhi
Hi,
Can anayone tell me if the reimbursements of mobile bills / petrol bills / books and periodicals etc can be taken as FBT benefit .
Will it attact fringe benefit Tax ?
and if it does will it be ok if this is included in the CTC
Would appreciate if all could post the replyies as soon as possible and also mark an email to
thanks in advance
amar
From India, Bangalore
Can anayone tell me if the reimbursements of mobile bills / petrol bills / books and periodicals etc can be taken as FBT benefit .
Will it attact fringe benefit Tax ?
and if it does will it be ok if this is included in the CTC
Would appreciate if all could post the replyies as soon as possible and also mark an email to
thanks in advance
amar
From India, Bangalore
Hi All,
Please help me with F & F process.
Our co. notice period is 30 days.One of our employee resigned on 4th May wnd will be serving till 20 May. How should i go about calculating amt to be recovered from him.Does it mean that 16 days we pay ,and 15 days pay he has to give us so net effect we will be paying him for 1 day during notice.
And also please him in leave encashment process .He just got confirmed last month after completing 6 month probation and 17.5 leaves have been credited to his balance.for whole year
Ours is a small sized software company with strength of 50.We never had leave encashment process for resigned employee.Please help i am really confused about everything.
Regards
Smita
Please help me with F & F process.
Our co. notice period is 30 days.One of our employee resigned on 4th May wnd will be serving till 20 May. How should i go about calculating amt to be recovered from him.Does it mean that 16 days we pay ,and 15 days pay he has to give us so net effect we will be paying him for 1 day during notice.
And also please him in leave encashment process .He just got confirmed last month after completing 6 month probation and 17.5 leaves have been credited to his balance.for whole year
Ours is a small sized software company with strength of 50.We never had leave encashment process for resigned employee.Please help i am really confused about everything.
Regards
Smita
Hi Smita,
First what have you decided the policy on resignation, whether the basis for notice would be on Basic salary or CTC?..
If not framed, then it is better to take CTC as the base.
The leave would be encashed on the basis of basic salary.
Format is as follows:-
Salary for all heads upto 20th May'06 in proportionate
Add:-
Leave encashment on 17.5 days on one months basic for 30 days.
Less :-
Notice period for 15 days salary
PF deduction on leave encashment 12%
Taxes
Statutory dues
Net Amt-
Hope this helps you..should you have doubts please feel free to ask.
Cheers,
Rajat
From India, Pune
First what have you decided the policy on resignation, whether the basis for notice would be on Basic salary or CTC?..
If not framed, then it is better to take CTC as the base.
The leave would be encashed on the basis of basic salary.
Format is as follows:-
Salary for all heads upto 20th May'06 in proportionate
Add:-
Leave encashment on 17.5 days on one months basic for 30 days.
Less :-
Notice period for 15 days salary
PF deduction on leave encashment 12%
Taxes
Statutory dues
Net Amt-
Hope this helps you..should you have doubts please feel free to ask.
Cheers,
Rajat
From India, Pune
One of the simpler ways to calculate the full cost of an employee to a company is to use an activity based accounting methodology, which not only takes into account the 'direct' costs associated with an employee (most of which have been mentioned in various responses you have received, but to also measure how much the employee costs in terms of 'indirect' costs. This means that in addition to the parameters that have been mentioned you should also take into account the cost of assets used by a particular employee (furniture, computer etc), the actual space in the office allocated to them, the per person utlilization of utilities and amenities of the office and so on. This is a more consulting manner of cost measurement and the objective is to actually guage whether or not each employee is a profit generator or a cost centre. You will have both in the organization. Therefore, having both is not a matter of concern. Obviously, you would want to have higher revenue generators than cost.
Hope this helps.
Hope this helps.
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