Deciding on a prospective job has many facets that you need to take into account. Apart from career growth, the other most important component is the offered salary. However, understanding the salary structure of any company demands familiarity with the terms that are often used to denote different parts of the pay packet. The two most used terms are ‘cost to company’ (CTC) and ‘in-hand salary’. Are these the same? Why do companies calculate your salary hike based on your previous CTC? Let’s try to understand the basic tenets of any salary structure so that you can understand and negotiate better.

• CTC is the expanded form of your salary that accounts for all the allowances and subsidies offered by the company.
• The in-hand salary is always lower than the CTC because it is the amount after specific deductions are made towards vital ends.
• Companies design CTCs to inspire employees while not having to spend significantly more.

CTC

CTC is a gross salary that includes various perks, allowances, or even reimbursements. Here is a detailed look at what a typical CTC comprises.

1. Grade pay and basic pay: These are two important concepts to understand right at the beginning. Your grade pay denotes the pay scale that you are considered in based on your expertise and experience. This bracket has your basic pay and other components like the provident fund and gratuity that are calculated on this amount. Notably, the tax you will be paying to the government will also be decided on your basic pay.
   
   
2. Allowances: When you opt for a job, you also agree to the various demands of the job that often require payment. Your company usually accounts for these expenses and adds these components to your CTC as allowances, such as dearness, conveyance, medical, house rent, or travel. The most important among these are probably medical and house rent allowances, especially if you are relocating and have dependents to take care of.
   
   
3. Reimbursement: As a part of the new job role, you need to enhance your skills to meet the demands of your daily responsibilities. Acquiring these skills often requires enrolling in paid courses for which the company usually reimburses the employee. Apart from skill enhancement, you might need to pay for calls you need to make for business purposes, internet, or food bills, all of which are duly reimbursed by the company.Miscellaneous: Your CTC might also have the incentive component that the company pays if you meet or exceed company expectations with regard to performance.
   

In-hand salary

The concept of in-hand salary is pretty self-explanatory. It is the net amount that your company credits to your bank account every month. This amount is calculated after all the deductions are made on your gross salary, such as your contribution to the Provident Fund or the subtraction of the medical insurance premium. In other words, your in-hand salary looks significantly lower than your CTC because you are either making savings or keeping aside provisions for an emergency.

To start with, every company has a fixed budget for every hire they make based on conditions of merit and industry experience. Employees are expected to deliver top-notch performance consistently so that the cumulative efforts sustain the goodwill of the company and usher in profits. To achieve these goals, companies are not shy of paying competitive salaries to deserving candidates. Additionally, they add the component of variable pay (incentives) so that the employee stays focused and motivated.

Playing it smart

Most companies have stringent HR policies that their talent acquisition team has to adhere to. It is the job of this team to design compensation structures in such a manner that the company does not need to shell out significant amounts. Also, they keep the perks and allowances relevant and meaningful so that the employees feel validated and are inspired to deliver their best.

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