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What is Cost to Company?

WRITTEN BY: HARSH THAKKAR ON FEBRUARY 27, 2012 NO COMMENT

2 Votes Profit is the final objective of the company. Who drives it ? Employee. Companies are often criticized for the fact that they earn tonnes of money and pay peanuts to the money makers i.e. employees. Consider your home, is living at home free ? No. How can making others work for your company be free? There is a cost attached to profit making. Over here, we are talking about Cost to the company (CTC). The Cost to Company refers to the total expenditure a company would have to incur to employ you. It is often mistaken as salary. Salary ideally is fixed salary and may even include variable pay but for CTC many other factors come into picture. It is simply a sum of various components put together.Of course, every rational organization attempts to minimize this as much as possible. The fact of the matter is that today, stuff-selling mega-corporations have a huge influence on our daily lives. And because of the competitive nature of our global economy, these corporations are generally only concerned with one thing.. the bottom line. That is, maximizing profit. David Suzuki

The essence of a successful business is really quite simple that people will pay for at a price sufficiently above your costs, ideally three or four or five times your cost, thereby giving you a profit that enables you to buy and to offer more products and services.

Components of CTC - Fixed Salary - Fringe Benefits - Perquisites - Bonus - Retirement Benefits Fixed Salary Fixed Salary includes Basic, Dearness Allowance and House Rent Allowance. It is taxable in nature. It is generally determined by first 2 Ps of 3P compensation which are Person, Position & Performance. DA differs from city to city as this is directly associated with the cost of living. E.g. DA in Mumbai is surely higher than that paid in Baroda. This basket is revised periodically by the government and given to the company which contains cost of living details considering the prices of essential commodities. House Rent Allowance (or HRA): Paid to meet expenses of renting a house. The least of the following is exempt from tax. Actual HRA received 50% of salary (basic + DA) if residing in a metropolitan city, or else 40% The amount by which rent exceeds 1/10th of salary (basic + DA) The normal business practice to give HRA ranges from 10%-40% Fringe Benefits These are the benefits which are not in direct relation with employees performance. Its shown as extra by the company but the fixed expenditure from companys side is divided amongst all employees. E.g. Z company providing Pick-Drop Facility. Does it matter whether 50 employees are in the bus or 60. Company has borne that expense irrespective of employee performance or no. of employees Bonus Benefit paid on satisfactory work performance for employee motivation. Though this amount is not assured to the employee, most companies include the maximum amount that can be paid as bonus, to the CTC. Fixed Annual Bonus: Paid on the basis of employee performance, either monthly or in most cases annually, it is a fully taxable amount. Every company may not follow this rule. Variable bonus depending upon performance is a better way. It actually drives people to work and % slabs can be formed which will also distinguish star performers from poor performers. Retirement Benefits PF, Gratuity, Super Annuation Fund PF stands for Provident Fund. It is compulsory to be given by organizations who have more than 20 employees. 12% is the amount of Basic contributed in the ratio 1:1 by the company as well as the employees. This reflects is salary slip and is paid when the employee leaves the organization.

Gratuity is for expressing gratitude for long term services by an employee. Its for more than 5 years of service. The amount is depostited in actuaries. E.g. LIC is a recommended one and normally government bodies for this are more reliable than the private organizations. It is compulsory. It is not applicable for banks. Super Annuation Fund is not compulsory. It is normally given by organizations to White collared employees on a managerial level. The entry level employees and the blue collared workers are not given this. Perquisites Non Government Employees The value of perquisite is an amount equal to (i) 15% of salary in cities having population exceeding 25 lakhs as per 2001 census; (ii) 10% of salary in cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census It includes motor car, residential accommodation, bills paid by company, gift vouchers, club membership, interest free loan etc.