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The largest overhead cost of any company is its salary bill. The cost is influenced by, amongst others, market trends and demands, staff retention policies, benefit options and employee requirements.
Budgeting for annual salaries is always the most time consuming part of any budget process. The anomalies and possible variances are always tricky and very difficult to cater for. Budgeting for new staff is easy, but the cost implications of the staff are more difficult.
A solution needed to be found in order to alleviate these variables and also make the remuneration process a more manageable one.
Over the past few years, about 60% of South African companies have moved their salary structures from the traditional ‘Basic earnings plus benefits’ to a Cost To Company basis. The main reason for this move was that the projected monthly salary spend of a company kept fluctuating because of changes in employee benefits. It became very difficult for companies to budget annual salary bills and salary bands were also very difficult to manage.
Often, different employees with the same designations would be costing the company different amounts, not based on skills or levels of experience, but based on benefits enjoyed, e.g. higher medical aid costs, vehicle allowances etc.
In order to ensure that all staff are remunerated on an equal basis while the company has better control over a fixed overhead expense, the Cost to Company structure provided the necessary solution.
Main advantages of this structure
The main advantages of this structure include:
- Fixed salary costs for the company – irrespective of any changes in benefits.
- Staff start to ‘manage’ their benefit options.
- The companies budgeting process is easier and can be managed better.
- Salary bands / levels are better maintained and are more equitable for all staff.
- There are significant potential savings for the company when restructuring the traditional way to CTC.
- Tax benefits for the staff depending on the benefits offered by the company.
Moving the company to this new structure is a seamless and smooth process.
Article written by Andrew Morton, Managing Consultant at The HR Hub, (011) 475 8915.