Voluntary retirement scheme

 Voluntary retirement scheme

Figure 1 : What is VSR?

Source: (PMY, 2023)

Companies utilize voluntary retirement schemes as a way to get rid of extra employees. This

method originated in India, where the country's labor rules forbid the direct layoff of unionized

workers. Employees who have completed 10 years of service or who are over 40 years old are

eligible for VRS. It should be applicable to all workers (by whatever name they are known),

including employees and executives of a company, an authority, or a cooperative society, with

the exception of directors of a company or a cooperative society (The economic times, 2023) . A

voluntary retirement scheme, or VRS, is a program that many businesses provide to allow

workers the option of taking a voluntary retirement before they reach the retirement age.

Retirement, as we all know, is something that occurs, as we get older, but many people look to

retire when they are much younger. The VRS, or voluntary retirement scheme, enables

employees to do just that. For businesses, reducing extra labor, saving money, and increasing

productivity are the main reasons for providing VRS to employees (Sujaini, 2023) .

How is the compensation for the voluntary retirement scheme calculated?

The voluntary retirement benefit is based on the employee's final drawn salary. For each year of

service that has been completed, the employer will award the employee a payout equal to three

months' pay, or they will double the employee's income at the time of retirement by the number

of months yet to be worked until the initial retirement date. For public-sector banks, the

compensation is determined using the lower of the two salaries for the remaining time or 45 days

of pay for each year of service (ICICI, 2023) .

Benefits of Voluntary Retirement

Figure 2 : Benefits of VSR (ithought,2020).

The following section lists a few of the benefits of VSR:

•  If the employee gets retirement under the VRS, they will get the benefit of the VL encashment, Providential Fund, the benefit of transfer, and Gratuity,

•  It is a humane technique, which is used to decrease the manpower legally,
•  In this intense competition world, it is important for the company to manage the staff, for the   growth purpose, and the save money prospecting.
•  After retirement, an employee will get the benefit of some of the compensation of some of the amount, which is tax-free.
• An employee who takes VRS also gets some facilities like rehabilitation, counseling services, etc. (Yojana, 2023) .

Voluntary retirement rules

Companies and employees should mind the following voluntary retirement rules before offering

and opting for the scheme:

•  VRS is voluntary. Meaning, there has to be a mutual agreement between the employer

           and the employee stating that the latter would voluntarily terminate their services on

           receiving a compensation from the former.

•  Since the primary objective of Voluntary Retirement Scheme is to reduce the strength of

           employees in an organization, the vacancy created thereby is not to be fulfilled. In other

           words, employees retrenched by way of VRS should not be employed in any other

           company belonging to the same management.

•  VRS is applicable to employees aged over 40 yrs. or those who have served the company

             for 10 yrs. The scheme applies to all employees including workers and executives but not

              the directors of a company/co-operative society.

• Public sector companies are required to take prior approval of the government before

           they offer Voluntary Retirement Scheme to their employees (Mishra, 2023) .

Conclusion

Typically, employees make plans for their retirement during their employment. After all, a

successful retirement requires both a lifestyle plan and a sizable nest money. A voluntary

retirement, on the other hand, is a type of retirement that may appear to fall into the hands of

employees. Typically, a corporation may provide this type of retirement in order to downsize its

personnel without engaging in layoffs or another downsizing event. By doing so, it enables

employees to transition into retirement at a younger age and aids the corporation in right sizing

its organization to better match employee skills with corporate objectives.

References

ICICI, 2023. ICICI. [Online]

Available at: https://www.iciciprulife.com/retirement-pension-plans/voluntary-retirement.html

[Accessed 19 April 2023].

Mishra, A., 2023. E blog. [Online]

Available at: https://www.tickertape.in/blog/voluntary-retirement-scheme-vrs/

[Accessed 19 April 2023].

PMY, 2023. PMY. [Online]

Available at: https://pmmodiyojana.in/voluntary-retirement-scheme/

[Accessed 19 April 2023].

Sujaini, 2023. Cleartax. [Online]

Available at: https://cleartax.in/g/terms/voluntary-retirement-

scheme#:~:text=VRS%20means%20Voluntary%20Retirement%20Scheme,operational%20costs%20durin

g%20tough%20times.

[Accessed 19 April 2023].

The economic times, 2023. The economic times. [Online]

Available at: https://economictimes.indiatimes.com/definition/voluntary-retirement-scheme

[Accessed 19 April 2023].

Yojana, M., 2023. PM. [Online]

Available at: https://pmmodiyojanaye.in/voluntary-retirement-scheme/

[Accessed 19 April 2023].

Figure 1: What is VSR? 1

Figure 2: Benefits of VSR 2

Thank you and appreciate your comments.

D.M Nilushi Thushantha Dayarathna

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