Payroll and HR glossary
CTC
Cost to company
CTC is the total yearly cost of an employee to the employer: gross salary plus the employer's PF and ESI contributions, gratuity, bonus and other benefits. Take-home pay is lower, because employee deductions and employer costs never reach the salary account.
Why it matters to your business
CTC is the number you negotiate with a candidate and the number in your budget. What the employee cares about is take-home pay. When the two are explained clearly, and the structure follows the labour codes, you avoid disputes at the first payslip and surprises in your statutory costs.
How it works
As of September 2026, a typical CTC has three layers:
- Gross salary: basic pay, dearness allowance, HRA, special allowance and other allowances paid every month.
- Employer contributions: employer PF (12% of wages), employer ESI (3.25%, for employees within the ₹21,000 wage limit), and EDLI and PF administration charges.
- Other benefits: a gratuity provision, statutory or performance bonus, insurance premiums and similar costs.
The labour codes require that basic pay, dearness allowance and retaining allowance make up at least half of total pay for statutory purposes. A structure with a small basic and large allowances now pays PF and gratuity on a larger base.
An example
A monthly salary structure:
| Component | Monthly |
|---|---|
| Basic pay and dearness allowance | ₹30,000 |
| HRA | ₹15,000 |
| Special allowance | ₹12,000 |
| Gross salary | ₹57,000 |
| Employer PF, 12% of ₹30,000 | ₹3,600 |
| Gratuity provision, 4.81% of ₹30,000 | ₹1,443 |
| CTC | ₹62,043, or about ₹7,44,516 a year |
The employee’s take-home pay is ₹57,000 less their own PF of ₹3,600, professional tax where it applies, and TDS. ESI does not apply because wages are above ₹21,000.
Common mistakes
- Quoting CTC to a candidate as if it were take-home pay.
- Leaving basic pay below half of total pay after 21-11-2025.
- Forgetting the employer’s ESI and PF costs when budgeting a raise.
Questions about CTC
What is the difference between CTC, gross salary and take-home pay?
CTC is everything the employer spends on the employee. Gross salary is CTC minus the employer's contributions and benefits, such as employer PF, ESI and gratuity. Take-home pay is gross salary minus the employee's deductions, such as employee PF, ESI, professional tax and TDS.
How do the labour codes affect CTC?
Since 21-11-2025, wages for PF, gratuity and other statutory purposes must be at least half of total pay. Where allowances are more than 50%, the excess counts as wages, which raises PF and gratuity within the same CTC and can lower take-home pay.
Is gratuity part of CTC?
Many employers include a gratuity provision, often about 4.81% of basic pay (15 days' wages for every 26 working days, spread over 12 months), in the CTC they quote. It is paid only when the employee becomes eligible.
Is employer PF part of CTC?
Usually yes. The employer's 12% share is part of the cost of the employee, so it is included in CTC but not in gross salary.
Updated .