May 7, 2016

In-Hand Salary - What the HR and Recruitment Folks Don't Want You to Fully Understand?

An earlier blog post CTC Break-up - What HR and Recruitment Folks Don't Want You to Fully Understand  dwelt upon the CTC break-up and provided details of its various components.

HR and recruitment folks are true followers of the below quote by Prof. Aaron Levenstein:

“Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.”

For an HR and recruitment guy this would actually mean the below:

“CTC break-up is like bikini. What it reveals is suggestive, but what it conceals is vital.”

The vital information that CTC conceals is the "In-Hand Salary" or the "Take Home Salary" - the money which actually lands in you salary account on the last day of the month.

And as they say the rest is history and soon forgotten for ever!

So let's analyze an example of CTC salary break-up to understand how to figure out the In-hand Salary hidden beneath the details.

Use the following google sheet to understand this better.

Calculation of In-Hand Salary from CTC Salary

Suppose you are currently in a company C.

You can play with the numbers in "Yellow Cells" to see how various components are calculated and to figure out what the In-hand Salary, Deferred Cash Benfits and Net Cash-flow would be under various scenarios at company C.
  • On Paper - the assured that is promised to you in your salary letter
  • Actual/Adjusted - the actual/adjusted that goes/will go into your salary account (including the actual incentive/bonus, once declared)
  • Projected - the assumed that you expect from the upcoming performance appraisal.
The paper CTC includes incentive/bonus but the calcuations for "On Paper" and "Projected" ignores this component. "Actual/Adjusted" would consider this component though.

The key to a good understanding of CTC salary and In-hand Salary is to categorize the various components into the following heads:
  • Taxables - these are fully taxed. Basic salary is the most fundamental component of this and "Flexible/Special" column is generally used to match the paper CTC figure
  • Tax-frees - these are not taxed with certain restrictions. They may be clubbed with "Flexible/Special" but for the purpose of the above sheet consider only that part of "Flexible/Special" that is completely tax-free
  • Deductibles - these are part of CTC but is actually used by the Employer either due to certain statutory and legal need (PF) or to save tax (NPS). Some of these like gratuity, insurance don't even show up on the pay slip
  • Uncertains - these are part of CTC but are paid subject to certain conditions and may be recovered by the employer in certain  situations. They are, as the term also indicates, uncertain in some sense. These are fully taxable though.
  • Exemptions - these are useful to claim tax benefits. Along with the tax-frees, these help bring down how much you pay as income tax and hence help increase the In-hand Salary.
  • Deductions - these are shown on the payslip but you don't get it. They result in lowering the In-hand Salary. PF (Employee Contribution) falls under this head. Also, NPS (Employer Contribution) falls under this head.
Using the above you can easily calculate the monthly In-Hand Salary.

You can also calculate the Net Cash-flow, which includes deferred cash benefits in the form of PF and NPS. You may not get the deferred benefits every month but you would eventually get it, with some returns on it as an incing on the cake!

The google sheet does all the above calculations for you to get all the above figures instantly once you have entered the values in the "Yellow Cells".

In another blog post How to Evaluate a Job Offer? one key point that was touched upon under the reasons to quit was was this: Decent hike over your current salary - consider both In-Hand Salary and Net Cash-flow (never go by the CTC Salary!)

Suppose you are currently in a company C and you get an offer from another company O. How do you compare them on the above point?

You can use the google sheet to do this comparison easily. Put the required CTC Salary details under Company O - both under "On Paper" and "Actual/Adjusted", as required. All figures will appear automatically.

You can compare the hike ratio for both In-Hand Salary and Net Cash-flow from this sheet easily. Remember to compare both as you will eventually get all of it!

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