What does a hire really cost you?

Part of the confusion is that the same salary gets described in three different ways, and Indian companies don't all define them the same.

Cost to company (CTC)

The headline figure on an offer letter. Many Indian companies include the employer's PF contribution inside it, and some include gratuity and insurance too. Others don't. Always check what's inside a CTC before using it for a budget.

Gross salary

What the employee earns each month before their own deductions: basic, DA, HRA and other allowances. This is what the calculator asks for, and it excludes the employer's PF contribution.

Take-home pay

Gross less the employee's own PF, professional tax, income tax deducted at source and ESIC where it applies. Useful for hiring conversations, useless for budgeting.

Employer cost

Gross plus everything the company pays on top. The number that belongs in your plan and your runway.

If your offer letters quote CTC including employer PF, work out the gross from the salary structure first, then use the calculator. Otherwise you'll count the employer PF twice and the cost will look higher than it is.

India's four labour codes came into force on 21 November 2025, replacing a long list of older labour laws. For payroll costs, the change that matters most is the definition of wages. Basic pay, dearness allowance and retaining allowance must now make up at least half of total remuneration. If allowances like HRA and conveyance take up more than half, the excess is added back into wages.

Why that matters: employer PF and gratuity are both calculated on wages. For years, many startups kept basic pay at 30% or 40% of gross, partly to keep those costs down. Under the codes, a structure like that is treated as if basic were 50% for these purposes.

Gratuity changed in another way too. Fixed-term employees become eligible after one year of continuous service instead of five. If you hire on fixed-term contracts, the gratuity accrual in the calculator is no longer a cost you might never pay.

An illustrative example. A startup has ₹1.2 crore in the bank after dues and a net burn of ₹9 lakh a month, so 13.3 months of runway. It wants to hire two senior engineers at ₹1.5 lakh gross a month each, with basic at 40% of gross, PF on full wages, ₹5,000 a month each in other costs and a one-time recruitment and equipment cost of ₹1.5 lakh each.

Two engineers cost about ₹3.36 lakh a month, not the ₹3 lakh the salaries suggest. Take out the ₹3 lakh of one-time costs and add the monthly cost to burn, and runway falls from 13.3 months to about 9.5. The hires use nearly four months of runway before they contribute anything.

That doesn't mean don't hire. It means the question isn't whether the company can afford two salaries. It's whether what these two people will build, sell or fix is worth four months of runway, and whether the company can still raise or reach break-even comfortably from 9.5 months. Sometimes the answer is clearly yes. Sometimes it's yes, but one now and one in a quarter.

For roles that bring in revenue, the cost is only half the question. The other half is how long it takes for what they bring in to cover what they cost. Here's an illustrative salesperson, with invented figures.

The real monthly cost is ₹1.12 lakh and hiring cost ₹1 lakh up front. For the first four months they close nothing meaningful while they learn the product and build a pipeline. From month five, each month's new customers add ₹60,000 of monthly contribution, and those customers keep paying, so contribution stacks up month on month.

This hire pays back in month ten, which is a good hire. Change the ramp to six months and the contribution to ₹40,000 a month, both entirely plausible, and payback moves out to month fifteen. That's still possibly a good hire, but it needs fifteen months of runway to prove it, and a company with twelve can't wait to find out.

Early-stage companies often bring people on as consultants instead of employees, partly to avoid exactly the costs this calculator shows. There's no employer PF or gratuity on a genuine consultant, but the company usually deducts TDS on their fees, and the arrangement has to be genuine. Someone working fixed hours, under your direction, only for you, for years, may be treated as an employee regardless of what the contract says, and the back costs can be significant. That's a question for your lawyer or CA. For budgeting, the honest approach is to plan consultants at their fee plus any GST you can't recover, and to plan a conversion to employment if the role is permanent.

• ·Statutory bonus. Employees earning up to ₹21,000 a month may be entitled to a minimum bonus of 8.33%, calculated on a capped salary, depending on the size of the establishment.
• ·Leave encashment, where your policy allows unused leave to be paid out.
• ·Ramp time. Most roles take months to reach full productivity, and a senior hire can take longer. The cost is the same from day one.
• ·Notice period overlap, when a replacement joins before the leaver goes.
• ·Manager time spent hiring and onboarding, which is real even though it never appears as a cost line.
• ·State-specific items such as labour welfare fund contributions, which are small but not zero.
• ·Office space and travel, if the role needs them.

Professional tax is deducted from the employee's salary rather than paid on top by the employer, so it doesn't add to employer cost, though the company is responsible for deducting and depositing it.

1. 01Confirm what's inside the CTC you're quoting, and write down the gross.
2. 02Check the salary structure against the 50% wages rule with your payroll provider.
3. 03Run the real monthly cost through the calculator and add it to your plan at that figure, not at salary.
4. 04Put the one-time costs in the month they'll be paid.
5. 05Check runway after the hire against the point where you'd need to raise or cut.
6. 06Decide what the role should have delivered by month six, and write it down.