5 tricks employers use to increase CTC numbers and give wrong impression to employees.
There are several ways companies can inflate the CTC Numbers and give you an impression that you are getting the best deal, only for you to realize later that the other job was better.
A lot of Freshers in the job market have little idea about how salaries are structured. Broadly, while CTC includes all the payments and benefits, fixed and variable, that you are entitled to, your take-home salary is what you get after all the mandatory deductions, such as Employees’ Provident Fund (EPF) contribution and various taxes. Decoding your salary is very important when you are negotiating with the employers. Don’t let companies fool you.
Read on to know how the companies increase the CTC numbers.
Trick 1 – Including their EPF share inside the CTC itself
Employee is supposed to contribute 12% of the basic pay and dearness allowance in the PF account, the employer is supposed to deposit an equal amount. Typically, employers include their share of PF contribution in the CTC). This makes your in-hand salary low in contrast to the high CTC showing in your offer letter.
Don’t let employer deduct their ‘employer’s share’ of EPF from my salary. This was a trick to inflate the CTC. Employer show their part of EPF which they any how have to pay as per law to increase your CTC. This doesn’t increase your in hand salary. You would have been getting the same salary at the end of the day.
Tips: The higher the basic, the higher your EPF contribution would be, so you need to be careful of a very high basic component because that would mean less take home pay. But high basic also means that you will be eligible for higher gratuity (which is paid at the time of leaving the company provided you have completed five years with the employer),”.
If your EPF contribution is higher so will be your employer’s. This amount is being saved and you are getting interest on it. So make your decision keeping all points in mind.
Trick 2 – Adding One-time Joining or Retention Bonus in CTC
Companies add these bonuses in the CTC which is paid in lumpsum but makes your in hand salary lower. Retention bonus is the company’s way of ensuring you stay with them for a fixed tenure of time. (Typically, Company will pay you this amount if you stay for 1 year since the date of joining)
Tip: Try to convert your retention bonus in Joining bonus this way you get the money at the start of the year. (Companies attach clauses like you have to return the joining bonus if you leave the company within 1 year or so.) Therefore, ultimately you have to stay for 1 year. So why not get it at the start of the year. Also, Make sure that the joining bonus is paid to you at the joining and not in part during the year. This is also a trick.
Trick 3 – Adding Stock Options in CTC
Another simple trick employers play is to add your Stock Options to your CTC. Stock Options again are not a regular payment source, however they do increase the CTC considerably. In case your company goes for IPO this can be a huge opportunity for you.
Tip: Look into this option carefully and read all the terms and conditions. (This can be a huge opportunity or only seems like one)
Trick 4 – Adding Insurance Facilities, Food coupons, Transport Facilities to CTC
You do not get these things as CASH, but instead as benefits. However, the company adds all these to your CTC figure, as it is paying for it.
Trick 5 – Putting Large chunk of the variable component in CTC
Another head that may not show up in your salary, depending on whether your employer pays it monthly, quarterly or annually. Employers are not mandated to pay the full variable pay mentioned in the CTC as it is linked to your performance, your team’s performance or your company’s profit.
Tip: If the variable component of CTC is high. Negotiate with the company to convert about a % of the variable component into joining bonus. It is advisable to negotiate for a higher take-home salary and a lower variable portion.
During annual appraisals well Identify which part of your CTC has increased. If the rise is under fixed components, you will definitely take home more money. However, if the hike is under the variable head, you must negotiate with the employer and ensure your direct benefits such as PF and gratuity see a rise.
Understanding which salary components can help you maximize not just your monthly income but can also free up money for investments in the long term.
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Trick 6 – Putting Reimbursement component in CTC
You claim by producing the relevant bills and receipts. Reimbursements usually get credited at a different date than your salary. The good part is that most of the allowances qualify for tax benefit. So even if this does not show up in your salary upfront, it will ultimately add to your in-hand salary by reducing your tax liability. So Reimbursements can be a good thing.
In the image below you can see how a job with low CTC can lead to a higher take home salary – all because the package with the higher CTC was inflated by injecting various components.
Now that you know the methods to smartly enhance a salary structure, you will focus more on the final take home and not be fooled by CTC numbers.
Tip: If the employer contacting you is not sharing CTC document upfront, then something is not right. Take the lead and make sense of your salary structure now
Is always advisable to ask for a salary breakup to understand how much salary is fixed and how much salary is performance linked. Specially in sales-related jobs, where candidate are fooled in pretence of higher salary only to find that most of it is variable pay. Reach out to existing employees to understand regarding target setting, achievement and Non achievement possibilities.
While you may not be able to negotiate in your first job due to lack of experience and awareness, while switching jobs, you can do some course correction.