This is the age of fast-trackers. People jump jobs before they can say ‘Jack Robinson’. But, in their haste to jump jobs, they forget to take into account their actual take home salaries.
It’s the take home salary, not so much the gross package, that one should go byMUMBAI: This is the age of fast-trackers. People jump jobs before they can say ‘Jack Robinson’. But, in their haste to jump jobs, they forget to take into account their actual take home salaries.
These days, companies declare salaries in cost to company (CTC) terms. But, what you see isn’t always what you get.
CTC is essentially the entire lot of expenses a company will incur on an employee. This includes the basic salary and a host of other entries, such as allowances, perquisites, annual performance bonuses, interest subsidy, statutory deductions like the company’s contribution to the provident fund, premium towards mediclaim and gratuity, etc.
Chances are, the CTC quoted by a company is a lot more than the actual salary. To put it another way, the annual CTC, divided by the number of months in a year, is rarely equal to the monthly take home.
So, if a company is offering you a CTC of Rs 6 lakh per year, it doesn’t mean that you will be taking home Rs 50,000 per month.
A neat trick, usually employed by the banks to bloat CTC packages is ‘interest subsidy’. The way it works is very simple — those on the bank’s rolls can get loans at exceptionally low rates of interest. But, does it work in the employee’s interest? Perhaps not.
Let us take the case of an employee who has a CTC package of Rs 6 lakh and is entitled for a loan of Rs 12.5 lakh, at an interest rate of 2.5%. If he decides to take the entire loan of Rs 12.5 lakh, his interest outflow in the first year will be Rs 31,250 (2.5% of Rs 12.5 lakh). The bank assumes that if the same loan would have been taken at the market rate, an interest of 10% would have to be paid.
This would involve an interest payment of Rs 1,25,000 (10% of Rs 12.5 lakh) in the first year. The difference between this and the actual interest that needs to be paid worked out to Rs 93,750 (Rs 1,25,000 - Rs 31,250). This difference, called the interest subsidy, is added to the salary.
Now, how does it benefit someone who doesn’t a loan that big? And even if he does avail of it, the interest subsidy of Rs 93,750 is anyway a part of his salary, so he is effectively paying the market rate of interest.
Why add it to the salary in the first place?
Further, most companies these days give out performance bonuses. Typically, while calculating CTC packages, companies assume up to 80% of performance bonus as a part of CTC. So, if the maximum bonus that can be earned is Rs 3 lakh in a particular year, chances are the company will put Rs 2.4 lakh (80% of the CTC) as a part of the CTC.
Whether the company will actually give out such a bonus will depend on both, the employee’s performance during the year and the company’s inclination to make a payout. For many companies, particularly in IT, this would also depend on the company’s performance in a given year. This means, even if the employee works his gut out during the year, the bonus might still elude him.
Clearly, the better measure of differentiating between your existing and prospective employers is the take home salary. It’s money you can bet on.
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