Voluntary Retirement Scheme (VRS) in India
12th April 2020 4 min read
Voluntary retirement scheme is a method used by companies to reduce surplus staff. Businesses call VRS the 'golden handshake', trade unions call it 'voluntary retrenchment scheme', and for the government, it is 'unstated exit policy' which means its a way to leave and not pre defined. This mode has come about in India as labour laws do not permit direct retrenchment of unionized employees.
Voluntary Retirement concept originated in the foreign nations. It was brought to India by Multinationals and foreign banks. City Bank of America implemented the scheme in 1977, 1981, 1993 and followed by the British Standard Chartered Bank. Indian Railways announced it in 1977, followed by ONGC, Bharat Goldmine Ltd, Batliboi, Cadbury India, Premier Automobile etc.
In 1988 when BHEL a public sector enterprise announced VRS it was met with a luke warm response as it was not that attractive. Again VRS returned to the scenario in 1991, when many organisations came up with the problem of over staffing leading to diminishing profits. VRS was a way to bounce back into the competitive world.
The existing labour laws in India prevent employers from terminating the services of the employees easily. According to Section 25(O) of Industrial Disputes Act, 1947, employers are required to take prior permission of the appropriate government for retrenchment of workers where the number of employees is 100 or more. Such permission is rarely granted in India due to socio-political considerations. Organizations have responded to this difficulty through Voluntary Retirement Schemes (VRS). Later we saw many public sector banks, Bajaj, Hindustan Unilever Ltd, TISCO etc opt for VRS packages.
Who can take VRS?Though the eligibility criteria for VRS varies from company to company, but usually, employees who have attained 40 years of age or completed 10 years of service are eligible for voluntary retirement after a 3 month notice. The scheme applies to all employees including workers and executives, except the directors of a company. The retiring employee shall not be employed in another company or concern belonging to the same management.
WHY VRS?There are several reasons for organizations to introduce VRS. The most common among them are to:
Why does one opt for VRS?There are many resons why a person in the middle age would opt for a VRS. It could be :-
Benefits of taking VRS?The employee who applies for VRS is entitled to receive the dues like :-
Apart from the legal dues, the scheme provides payment for the past service rendered and future service left in the organization the amount of compensation defers from organization to organization as per the schemes declared by such organizations.
What are the tax exemptions?Section 10(10C) of the Income-tax Act, 1961 gives the recipient of VRS a tax exemption on his compensation up to 5 lakhs once in his lifetime.
However Employees opting for voluntary retirement scheme with a 'Golden Handshake' cannot claim parity with the other staff, who completed full tenure of service. Such staff can't demand more benefits in terms of revision of pay-scale, the Supreme Court has announced.
Is there any negative outcome of VRS?
Does VRS really benefit a company?
Steps to ensure that VRS is really a successful event
The success of VRS depends on its ability to attract larger number of targeted employees to accept the scheme at the least cost to the organization and its least negative influence on retained manpower(Zamutto and Cameron, 1985).
The study by Sunil Kumar Maheshwari & Vilas Kulkarni shows that if VRS is to be successful, it has to be adequately planned. The organizations should be clear in their objectives of offering VRS and they should explicitly mention these objectives in their schemes. They should make the scheme as transparent as possible and be open for any communication and clarifications to make the employees develop trust. They should keep the scheme open for appropriate time so that the organizations as well as the employees get enough time to take this crucial decision. The organizations should carefully target persons for VRS. They should be careful that the crucial manpower required for running the organization is not allowed to go out. The compensation criteria for VRS should be decided according to the targeted population.(Implementation of VRS in India by Sunil Kumar Maheshwari & Vilas Kulkarni)
Downloads1. Voluntary Retirement Scheme (VRS) vide OM No. 2(36)/86- BPE(WC) dated 5th October, 1988.
2. Scheme of Voluntary Retirement for Central Government Employees
3. Handbook on Voluntary Retirement India