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Cost to Company (CTC) Meaning for Net Salary

What does cost to company (CTC) mean?

The abbreviation CTC is often seen next to  the stated salary package (remuneration) for the job opening being advertised. It stands for cost-to-company and simply means that this is the total amount that an employer is prepared to pay for the employee and includes all benefits. Those that are new to the job market can find this quite misleading and be surprised to find that their net salary is significantly less than the initial remuneration advertised. However, it is a way of the employer stating that this is the only amount available in the budget for the employee and all associated benefits. Some deductions are mandatory while others are optional and many companies are flexible with the way the final package is structured provided that it does not exceed the CTC amount stated at the outset.

Cost To Company Minus Deductions

When seeking a job, you need to be fully aware that the cost-to-company salary package advertised is not the amount of money that you will come home with. Mandatory deductions include pension, unemployment insurance and of course, you then have to pay taxes. This is not negotiable. Optional deductions may include medical aid and car/travel allowance. In some companies, a travel allowance is mandatory if it is necessary for you to travel as part of your job. Many companies allow their employees to change the amounts allocated to the optional deductions but do not be fooled, you may not come home with significantly more money by cutting back on your medical aid or travel expenses. Tax will consume a portion of this money.

Many of the deductions are not paid in full by you. For example, your employer contributes to your pension, UIF and frequently even to your medical aid. Therefore the CTC rate includes all the employer’s contributions as well. This is because the employer has to set out a budget for the employing a new person. The budget must include all costs that the company will bear by having you work for them. This allows companies to adequately plan the payroll budget without surprise costs. While you employer is required to contribute to certain benefits and may opt to do so in other cases, taxation is between the employee and SARS (South African Revenue Service). Employers only deduct the tax (PAYE ~ Pay As You Earn) and pay it to SARS on your behalf.

What does the CTC include?

The cost-to-company remuneration rate includes all costs associated with your employment. This means your gross salary plus the employers contributions. Your net salary is derived after your portion of the deductions are removed from your gross salary. It is therefore imperative to discuss your salary package at the outset. Clearly identify what your gross salary is – the salary before your deductions and tax. Then identify what your net salary is – the amount of money you will come home with at the end of the month. Once you have a clear understanding of your net salary and whether it is feasible for your cost of living, only then can you truly decide about the feasibility of the taking up the job.