The salary offered by a particular job is the most important part of evaluating any job offer. It is also important when planning to leave a company to fully understand the full scope of compensation in the present company. However, surprisingly, most people are not able to properly understand a salary structure. While appearing to be simple at first glance, a salary offer may be confusing or even downright deceptive. What may appear to be a handsome offer may soon turn out to be a very mediocre package. Hence, it is important that we understand the different components in a salary to properly be able to evaluate a salary and get a truly appropriate offer.
CTC is the acronym for Total Cost to the Company. It is the sum total of all the perquisites and fringe benefits which an employee gets from the company including the salary. The Cost to the company is an important criterion which is to be calculated when evaluating a job offer or when planning to leave a company. The Cost to the company while appearing simple is not always obvious. This is because some of the benefits are not paid in the form of cash and are hard to measure from a financial perspective. The CTC is the sum of the gross salary, the bonus, other perquisites, and benefits. The CTC contains benefits such as medical reimbursement, Travel Allowance, Telephone expenses, etc. In addition, some companies may enable employees to get loans at specially reduced interest rates.
The different components in a compensation package are:
Basic Salary: The Basic salary is the pay you get without all the other benefits such as medicare, provident fund and other allowances. This pay is fixed and constant.
Gross Salary: Gross Salary is the amount of pay that includes the Basic pay and all the allowances you are entitled to, such as, cell phone, travel, entertainment etc. Gross Salary also includes Bonus and Overtime. Gross Salary is calculated before deduction of Tax.
Net Salary: This is other wise known as Take-home pay. This is the salary that you take home. This is the salary calculated after the deductions to the income tax, PF etc are done.
OTE (On Target Earnings): “On Target Earnings” is a form of salary that is variable in nature. It is particularly used for sales personnel. In this form, the employee involved in sales of a product or service is paid a basic salary and a commission based on the achievement of pre-determined targets. This commission is calculated differently in different companies.