Voluntary retirement scheme

VRS scheme meaning, Guidelines, Implementation, Demerits, Challenges & Calculation.

1. Voluntary Retirement Scheme Subject :- Human Recourse Management

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. 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 month is 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