PRESENTED BY,

SHRADDHA DHATRAK (01) PRIYANKA GHATRAT MAYURI KOLI SNEHA MORE

WHAT IS COMPENSATION?

Compensation is the remuneration received by an employee in return for his/her contribution to the organization. It is an organized practice that involves balancing the work-employee relation by providing monetary and nonmonetary benefits to employees.

COMPENSATION

EMPLOYEE COMPENSATION

EXECUTIVE COMPENSATION

EMPLOYEE COMPENSATION
Compensation of employees (CE) is measured by the value of the remuneration in cash or in kind which an employee becomes entitled to receive from an employer in respect of work done, during the relevant accounting period - whether paid in advance, simultaneously, or in arrears of the work itself.

EXECUTIVE COMPENSATION

Executive Compensation is how top executives of business corporations are paid. This includes a basic salary, bonuses, shares, options and other company benefits.
It has become integral part of management.

Aims of Employee Compensation

Attract capable employees to the organization.

Motivate them toward superior performance. Retainment of their services over an extended period of time.

COMPENSATION INCLUDES

DIRECT PAYMENT

INDIRECT PAYMENT

salary Fringe Benefit tax Taxable To Employer

Basic + DA+ Commission etc Normal components

Applicable To companies

Allowances

Perquisites Taxable To employee

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OBJECTIVES OF COMPENSATION
Be Adequate - must work to attract and retain staff in those areas where the international organization has the greatest needs and opportunities. Be Cost Effective - should facilitate transfer of international employees in the most cost-effective manner for the firm and be easy to administer. Be Legal Compensation decisions should be consistent with federal, state and local laws and regulations.

 Be Motivating - should be sufficient to motivate employees to high performance levels and reinforce desired behaviors. Be Equitable - employees should be made to feel that compensation system is equitable, External & Internal Equity. Provide Security employees should be made to feel that their income is secure and predictable.

INTRODUCTION OF CTC Cost to Company (CTC) is a term used to describe an investment without return. Cost to Company can also be used to refer to the total cost that an organization is spending towards their employee including the Salary, Perks, Cost related to benefits, Cost related to hiring, Training, Retirals, Statutory Contributions etc.

 CTC is simply the money given to you + the money spent on you

Includes both monitory and non-monitory.

Basic + DA + Performance linked pay + Bonus + HRA + Allowances + Reimbursements + LTA + Perks + Perquisites + Social benefits (like PF, Gratuity, Superannuation) + Insurance + Medical + Reimbursements + Training costs + Meal coupons+ Transport + Club membership fees + other subsidies +.

Basics
Gross Salary: is salary before deductions Net Salary: is what you get after deductions Deductions : PF + Taxes+ Loans etc.

CTC : CTC means Cost To Company Cost to company (CTC) is the total cost that an employee is incurring in a company.

Compensation is always comprehensive!

Short Term
Your take-home pay
Pay for Performance Allowances

Medium Term
Training to improve your knowledge & skill
On-job learning Employee stock options Health insurance Medical benefits

Long-term
PF
Gratuity Superannuation

Reimbursements

Post retirement health benefits

Social security measures like benevolent funds

Judge the benefits holistically!

Components of Cost to Company (CTC) Salary

Basic Dearness Allowance (DA) Incentives or bonuses Conveyance allowance House Rent Allowance (HRA) Medical allowance Leave Travel Allowance or Concession (LTA / LTC) Vehicle Allowance Telephone / Mobile Phone Allowance Special Allowance.

Basic salary
Basic salary is a fixed component of your take-home pay for the work you do!

It is also the base of computations of other benefits like PF, Gratuity, LTA and sometimes HRA
It is taxable and best if it is be around 40% of CTC. The paradox here is higher ratio of basic salary means more tax and low ratio means impact on social benefits like PF and Gratuity etc.

Allowance
Allowances paid to the employee irrespective of the expenditure incurred under the head of allowances. Majority of the allowances are taxable and few are partially taxable Receipts are to be produced to get partial exemption on tax

Dearness Allowance
It is the allowances is paid to neutralize impact of Inflation. This is something like making cost-of-living adjustments in your salary Usually DA is linked to Consumer Price Index. So, when the prices of commodities go up your DA goes up. If they come down your DA comes down! (It is very unlikely)

House Rent Allowance

HRA is usually a major component of salary slip. Allowance given by the company towards rent for an accommodation.

Actual HRA received 50% of salary (basic + DA) if residing in a Metro, or else 40% The amount by which rent exceeds 1/10th of salary (basic + DA)

HRA and tax exemptions

You must have HRA component in your salary You must be paying rent Your spouse shouldn't be the owner of the house You are not allowed to pay rent to your spouse and get tax exemption! However, you can do claim tax exemption if you pay rent to your parents or your relatives. Amount eligible for tax exemption which ever is lowest of the following 3 conditions 1. In Metros (Delhi , Mumbai,Kolkota and Chennai) 50% of annual salary, for rest of India 40% of annual salary 2. Actual HRA Received from the company 3. The amount of rent actually paid in excess of 10% of annual salary Salary means Basic + DA + Perf. Linked bonus . (Allowances and perquisites to be removed)

Conveyance Allowance
Transport allowance is paid to meet traveling expenses from residence to office

Amount up to Rs 800 per month (Rs. 9,600 per year) is tax exempted no need to produce receipts.
City compensatory allowance Paid to compensate the costs involved in a city life! Taxable

Leave Travel Allowance

LTA is for Travel with your family (Self, Spouse and Children )to any place in India The tax implication in layman's language is simple ,Tax exempted if you provide proof of travel and expenditure else taxable Two LTAs in a block of four years is allowed for tax exemption.

Pay for Performance/Incentives

Pay for performance organizations give a part of the salary as pay for performance The periodicity of payment may differ from company to company The amount received under this head is taxable

Bonus
Bonus payment in many organization is governed by Payment of Bonus act 1965,India Usually paid once an year, mostly profit sharing with employees by the company some times as a percent of basic to all employees or may be based on employees performance and contribution

There can be many types .here are few

Profit / Gain sharing Festival bonus Joining bonus Retention bonus Employee referral bonus

Bonus is Taxable

Reimbursements or Claims
Reimbursement of certain expenses like Phone, Mobile, Internet etc.

Reimbursements are Tax free. If you are entitled to Rest. 2000 Mobile expences, and you have a bill of Rest. 1000, You will get only Rs.1,000. Remember it is an reimbursement not an allowance!

Medical Reimbursement
Medical expenditure incurred on self or dependants Amounts up to Rs.15,000 per is not Taxable subject to submission of bills Some organizations reimbursement health insurance premium paid for employee and his family. This is exempted from tax

Children Education allowance

Children Education Allowance is Paid to aid children's education. Rs 2,400 per year is tax-free.( Rs.100 Per month per child up to 2 children) Children Hostel allowance : Rs 7,200 per year is tax-free.( Rs.300 Per month per child up to 2 children)

Fringe benefits
Humanistic consideration : education, health, housing Statutory : canteens, rest sheds, crche, maternity, paternity, Security : Gratuity, PF, Pension, Medical Hazard of industrial life : ESIC, workmen compensation act, Hospitals Tax considerations : transport, interest free loans, loans at concessional rates Utilization of leisure time : holiday homes, foreign trips, guest houses Inculcating a sense of involvement : concessional lunch, subsidized picnics