Voluntary Retirement Scheme (VRS)

Presented by:

M Naveen Reddy

• VRS is one of the strategies introduced in the early 1980s in central public

sector undertakings (PSUs).

• It varies from company to company.

• VRS is a scheme whereby the employees are offered to voluntarily retire

from their services before to their retirement date.

• There shall be No Recruitment against vacancies arising out of VRS

WHAT IS VRS?

• The VRS candidates must have worked for the organization for minimum of 10

years and also the age of the worker must be minimum of 40 years.

• Employees not complying with these conditions still can apply for the early

separation but it would not be counted as the VRS legally. Thus these employees

won't be able to avail the benefit of tax exemption.

TECHNICALITIES

T H E G O L D E N H A N D S H A K E

• The most human technique to retrench the employees in the

company today is the voluntary retirement scheme.

• It is the golden handshake for the employees and the only option

today for the companies to downsize their headcount.

• The scheme which is formally permitted by the Department of Public

Enterprises

• As the name suggests the VRS is strictly voluntary i.e. one can

neither compel the workers to accept it nor apply it selectively to

certain individuals.

• One can however choose the levels, units and age groups among

whom one wants to offer VRS.

• The company can always accept or reject the application for the VRS.

• But usually this is not done in practical circumstances as it sends

wrong signals to the employees

Contd…

REASONS FOR PROPOSING VRS

• Recession in business• Downsizing• Realignment of business – due to market

conditions• Joint – Ventures with foreign collaborations• Takeovers and mergers• Business re – engineering process

Merits of VRS

• There is no legal obstacle in implementing VRS – as predominantly encountered in retrenchment under the labour laws• It offers employee an attractive financial

compensation than what is permitted under retrenchment under the law• It allows flexibility and can be applied to certain

divisions, departments where there is excess manpower• It allows overall savings in the employee costs thus

lowering the overall costs

• Uncertainty among the employees• Sometimes the severance costs are heavy • Trade Unions generally protests the operation

of such schemes and may cause disturbance in normal operations• Some of the good capable and competent

employees may also apply for separation.

DEMERITS OF VRS

CALCULATION OF VRS• Basic + DA = Rs 7000 + Rs 2500 = Rs 9500

Rs 9500 / 26 days = Rs 365.38 (one day salary)

Completed 32 years of service

32 years x 35days x Rs 365.38 = Rs 409225.60

Note: for computation of one day salary 26 days a month is taken

Similarly for the remaining period of service left

3 years x 25 x Rs 365.38 = Rs 27403.50

Total amount payable = Rs 409225.60 + Rs 27403.50 = Rs 436629.10

Amount to be paid shall be restricted to : 3 x 12 months = 36 months

Total amount to be paid as VRS compensation : 36 months x Rs 9500 = Rs 342000

Note: The payable amount would have to be restricted to Rs 3,42,000

THANK ‘U’