2. Voluntary Retirement Scheme
• VRS is a scheme whereby the employee is
offered to voluntarily retire from his services
before his retirement date.
• Method used by companies to reduce surplus
staff.
• Introduced in both the public and private
sectors
• Public sector undertakings have to obtain prior
approval of the government before offering and
implementing the VRS
3. When can VRS be adopted
• Due to recession in the business.
• Due to intense competition, the establishment becomes
unviable unless downsizing is resorted to.
• Due to joint-ventures with foreign collaborations.
• Due to takeovers and mergers.
• Due to obsolescence of Product/Technology.
4. Guidelines
• It applies to an employee of the company who has completed ten years of
service or completed 40 years of age
• It applies to all employees (by whatever name called), including workers
and executives of the company excepting Directors of the company
• The scheme of voluntary retirement has been drawn to result in overall
reduction in the existing strength of the employees of the company
• The vacancy caused by voluntary retirement is not to be filled up, nor the
retiring employee is to be employed in another company or concern
belonging to the same management
• The employee has not availed in the past the benefit of any other voluntary
retirement scheme.
5. Implementation of VRS
• Transparent and proactive communication by senior
managers
• Management must actively explore all other alternatives to
manpower reduction
• Arrangement of funds for VRS.
6. Demerits of VRS
• VRS may create fear, a sense of uncertainty among
employees.
• Severance costs are’ heavy and outweigh the possible gains.
• Trade unions generally protest the operation of such
schemes
• Some of the good, capable and competent employees may
also apply for separation
7. Challenges
• The effect of downsizing on the work of the establishment is to be
considered
• Ensuring that all concerned employees and managers participate in
the decision
• Transparency should be seen and used in choice of persons to be
retired.
• Motivating employees who will stay with the company, removing
their apprehensions and fears, if any.
• Providing professional assistance to employees who agree to accept
VRS
8. 1. Calculation of compensation would be on the basis
of completed years of service :
Basic + DA
Rs. 7000 + Rs. 2500 = Rs. 9500
Rs. 9500 / 26 days = Rs. 365.38 (one day’s salary)
Completed 32 years service.
32 Yrs. X 35 days X Rs. 365.38 = Rs. 4,09,225.60
NOTE: (I) For computation of one day’s salary 26 days a monthis
taken.
9. Remaining 3 years service:
3 years X 25 day X Rs. 365.38 = Rs. 27,403.50
Total amount payable:
Rs. 4,09,225.60 + Rs. 27,403.50 = Rs. 4,36,629.10
Amount to be paid shall be restricted to: 3 X 12 = 36
months
Total amount to be paid as VRS compensation:
36 X Rs. 9500 = Rs. 3,42,000/-
NOTE: The payable amount would have to be restricted
to Rs. 3,42,000/-.
* 36 = 3 year remaining
