Cost-to-Company (CTC) Structure, commonly known as Total Guaranteed Package, can be defined as, all traditional compulsory and add-on benefits which are added to basic salary, or where appropriate converted to a cash value and added to basic salary. Employees are then at liberty to structure a portion of their guaranteed package from a selection of benefits and/or cash allowances. In a CTC structure there are typical minimum core compulsory benefit selections for medical and retirement.
A CTC structure with flexibility benefits has the following advantages for the company –
- Proper management of employment costs. All guaranteed remuneration elements (cash and benefits) are included in the CTC and therefore all guaranteed employment costs are fixed and known, with no hidden extras, thus the employer is better able to control and manage the remuneration costs in a simplified manner
- Attraction and retention mechanism. The employer is better positioned to attract and retain high quality staff within budgetary limitations and allows for cost saving when employee offers are made during the recruitment process;
- Internal equity achievement. Where a CTC approach is applied, the employer is better equipped to ensure internal equity around guaranteed remuneration thus making future management and legal reporting a seamless process. The approach also enables the harmonisation between employee remuneration, ensuring compliance to Section 6(4) of the amended Employment Equity Act (EEA) 55 of 1998;
- Accurate market benchmarking.The CTC enables a simple and accurate benchmark as it provides a common value across organisations and industries against which to benchmark, as opposed to the basic cash component which will fluctuate in a CTC environment due to employee personal selections;
- Ease of administration. The majority of the South African employers have transitioned to a CTC approach (at least at certain levels within the organisation) providing a very high level of comfort that most (if not all) the payroll systems used in South Africa can accommodate a CTC remuneration approach;
- Continued social responsibility. Providing a remuneration approach with maximum flexibility on benefits does not mean employees may opt out of participation of critical items. The employer ensures social responsibility by setting certain minimum benefits that the employee is obliged to participate in;
- King III and good governance. The CTC remuneration approach is fully compliant with King III on employee remuneration and good governance principles;
- Fully tax compliant and tax optimal. In the event of a tax audit, both the employee (taxpayer) and the employer have peace of mind that all taxable elements of remuneration have been accurately taxed and recorded, resulting in no unforeseen liabilities; and
- Drive desired business performance. The CTC approach enables an employer to easily design a reward mix which aims at shaping certain employee behaviour which in return will drive the desired business performance and ultimately achieve the business goals.
Advantages of a CTC approach for employees are as follows:
- Greater flexibility. Where flexible benefits form part of the CTC offering, it provides a structure where employees are able to make personal selections to align remuneration to personal financial requirements that suit their personal life stage. These selections being within legal parameters and meeting the employer’s set minimum benefits and good governance requirements; and
- Employee value proposition. CTC provides employees the complete picture of guaranteed remuneration (cash and benefits) so that they know and understand their true worth, enabling a better appreciation of the employee value proposition.
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