CTC and Bond in Jobs: Some Pros and Cons

[A] Introduction:  I have come across two burning issues, as far as the recruitment and selection are concerned in India. There are a lot of opinions (misconceptions) and strong emotions associated with the areas or practices like CTC, take home salary, bond in the jobs, regarding the morality and legality of the same. In this blog post, I will try to create an awareness regarding these practices, and hopefully, will empower the reader to arrive at his/her own conclusion.

[B] What is CTC?:  CTC stands for Cost to the Company. It includes all the direct and indirect expenditures, that a company incurs on a particular employee. For example, basic salary, various allowances etc. Here is one example from Wikipedia:

In other simple words, it is the total amount that an employer spends on an employee. Ideally, it includes everything, something as small as, the bill of a cup of tea, that an employee will receive, while traveling as a part of the job. 

Some companies also include the performance based pay as a part of CTC. In this scenario, the CTC may also include amount, that will be paid, only if you meet certain performance standards. It may artificially increase the amount of CTC. 

I had attended a pre-placement-talk (PPT) by TCS years back. The talent acquisition officer of TCS clearly mentioned how some companies inflate the CTC. These companies add components like "home loans". But then, very rarely it happens that a fresher buys a house! So, the CTC is a controversial area and a potential candidate must use his knowledge and wisdom to look at the break up of CTC and the candidate has every right to seek the clarity on "on hand" or "take home" salary.

So, it is quite normal to hear that an employee with a 24 lakh CTC's take home salary is hardly 1.00 lakh per month. 

Here is one statement that reflects the same, "I fell for a similar trap while joining an IT MNC recently (from another which was equally good at inflating its VP compoment). It’s been only 3 months now since I joined this company and the worst part is that the take home I get now is almost same as that I was getting in my earlier company (though on paper the CTC is having 35% hike over the previous company CTC)" (Taken from: 5 tricks played by Employers to fool you with high CTC Salary (jagoinvestor.com))

[C] Employment Bonds: The employment bond is a contract between an employee and an employer, that may have clauses related to the minimum tenure that an employee must complete before resigning or not being allowed to join a competitor after leaving the job. Primarily, as long as this type of contract is not a void contract as per the Indian Contracts Act, this contract is fully enforceable. Of course, the employer can seek the recovery of the amount, spent on the employee's training, if the employee leaves, before that amount is recovered through the contribution of the employee. 

You can please refer to Are employment bonds legal in India or not? - iPleaders to learn about the legality of such contracts, one incidence that I came across is where a company forcefully took away the original documents of the employee into its custody. The company would say that these documents will be returned after one or two years of service of the employee. Such a practice is not only immoral, but equally illegal. 

It is advised hereby that employee should seek a legal opinion, before signing such a bond, if he/she feels that the contract is one sided or has provisions that are unreasonable. It is the only way to save one's self from getting caught into an unreasonable employment contract.

It may also be noted that all the employment bonds are not always illegal and the courts have taken the side of employer, if their arguments were found to be legally valid. But for all the practical purposes, a potential employee should not join a job if he or she is not ready to sign a reasonable employment bond. If breached, it may lead to long legal battles and damage to the one's reputation in the labour market. It is better to do due home work before signing such a bond. And once signed, one should try and fulfil the requirements of such a bond before moving on.

[D] Conclusion: The effort of this post was to create awareness, refer to all stake holders' views, and empower the reader to have an informed decision regarding the practices like employment bond and CTC.