Several news reports recently surfaced highlighting that some of the premier Management and Technology institutes across India have blacklisted a bunch of startups after they failed to honor their committed cost-to-company (CTC) package offered to graduates. If reports are to be believed than few of those companies even went ahead to trim nearly 25% of the salaries they promised to graduates.
While tussle between institutes and companies continues, it is critical to understand that hefty packages do not necessarily translate into higher take-home for employees. Hiring decisions made by managers are dominated by budgets rather than desired skills of candidates required for a job. Under such circumstances, employers often structure impressive CTC package, which in reality, has nothing tangible to offer to employees. TimesJobs.com survey this year revealed that 60% of hiring managers agree that CTC is given preference over skills.
Given this reality, it is prudent to be aware of what is put on the table than being ignorant. Here are five common tools that hiring managers employ to bloat CTC without causing any substantial hike in take-home salary.
- Variable Pay - Variable pay is one component, which adds up to CTC but could fail to reach employees’ hands if conditions are unmet. Variable pay depends on performance of both employee and company during a year, which if unsatisfactory could simply force organizations not to pay it.
- One Time Bonus - Many organizations offer one-time bonus when a candidate agrees to accept the offer. As the name suggest, this bonus is only one-time and could result in sharp fall in CTC during the subsequent year. Moreover, bonus is released only after being taxed as per an individual’s tax slab, which makes little sense than the same amount being added to take-home salary.
- Structuring salary to avoid PF - Employers also indulge in designing salary structures that will take away their PF liability. Nowadays, employers are structuring basic salary component above Rs 15,000 per month to make EPF contributions voluntary for employees following new EPF rule. Due to lack of awareness, most employees opt out of scheme, which save employers from contributing their share to EPF, minimum being Rs 1,800 per month. In case, if an employee insists on continuing EPF account than employers add this mandatory EPF share to the CTC, resulting in reduced take home.
- Employee Stock Options - Another fancy component that can make a staggering impact on CTC is stock option. Employers award stock options, which allows employees to buy pre-specified amount of company’s shares at a fixed price within a set period of time. Employers quantify these shares, but actual gains come only when employee sell those stocks and thus, it is not a real booster to CTC.
- Other Incentives - Employers add group insurance, training facilities, and cafeteria allowances into CTC, which are less desirable. First of all, group insurance does not matter much because an employee should ideally have his/her own separate insurance cover irrespective of whether it is provided by employer or not. Though training allowance can be a huge incentive, it will get reimbursed only if an employee puts extra time to pursue an approved course. Meanwhile, food coupons or travel allowances are mere reimbursements, and such payouts are far lesser than actual expenses incurred.
Becoming familiar with intricacies of CTC structure gives more power to employees to negotiate wisely with their employers and choose the best for their future. It also enhances an individual’s decision-making to align their salary structure from tax perspective.
About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.
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