What does CTC Include?
1. Fixed Compensation: It mainly includes things that are fixed and will be paid consistently, like salary, HRA, etc. Salary is a core component of CTC which is decided at the joining time with mutual agreement between employee and employer. It is taxable, so tax will be deducted from the base salary. This is the most basic form of compensation that an employee receives as a reward for contributing to the company. In general, the employee receives a basic salary every month. In some cases, the employee has to shift for the job, as the workplace is far from his residence, so in those cases employee lives on rent. Rental employees are eligible for this allowance in many companies, in which some part of their total package is provided with salary as house rent allowance. It is a part of CTC and the total amount that the employee receives as HRA will be determined by rental agreement.
2. Variable Compensation: These are not fixed, but employees can get them, like bonuses, and incentives. They work in the way that if the employee performs well during a period, then a bonus amount will be provided to the employee, which will be annually, or quarterly, depending on the company’s policies. It is different from base salary and also a part of CTC. They are provided to boost motivation in employees to contribute to the company’s goals. This is provided because it is observed that for receiving bonuses or incentives, employees perform their work more effectively and give their best for the company.
3. Retirement Benefits: Benefits are provided for financial security to the employees after retirement, like Provident Fund (PF) and Gratuity. A provident fund is an amount that is provided when an employee is retired from a company. It works like a saving scheme in which a small amount from a package of employees is deducted and added to the provident fund. In many years till retirement time, that small amount sums up to the big amount that is provided in retirement, and gratuity is an amount that a company provides for employees for working and contributing to the company for a long period.
4. Employee Benefits and Allowances: Employees are provided with benefits such as health insurance, life insurance, and other perks that enhance an employee’s quality of life and allowances such as travel, education, etc. By receiving health insurance benefits, the employee feels secure and cared for by the company. Health insurance schemes are like if an employee falls ill, then the amount paid for treatment can be paid using health insurance, it may be complete or some part depending on the insurance provider. Also, some companies offer travel allowances for visiting some places during holidays and education allowances so that their employee can learn more skills which will help in the development of the company.
5. Stock Options: The company can also provide stock options to employees. It works in the way that employees could purchase the stocks of the company at a predetermined price which was determined while joining by agreement of employee and company. They are a kind of long-term incentive, the value of shares will increase if the company grows and performs well in the future. They make employees an integral part of the company and they are also a form of compensation. So, it motivates employees to work for the growth of the company. Stock options are included as part of CTC.