A voluntary retirement scheme is a method used by companies to reduce surplus staff. This mode has come about in India as labour laws do not permit the direct retrenchment of unionized employees. VRS applies to an employee who has completed 10 years of service or is above 40 years of age. It should apply to all employees (by whatever name called), including workers and executives of a company or of an authority or of a co-operative society, excepting directors of a company or a co-operative society.
How does VRS work
- VRS applies to employees who have completed 10 years of service or are above the age of 40 years.
- It applies to workers, executives of companies and/or to an authority of a co-operative society (except company/co-operative society directors).
- As per the rules, a voluntary retirement scheme should result in an overall reduction in the existing strength of employees and the vacancy cannot be filled up. Firms can frame different schemes, however, they must conform to the guidelines under section 2BA of the Income-Tax Rules.
VRS in India
Indian labour laws do not allow direct retrenchment of employees under a union. According to the Industrial Disputes Act, 1947, employers cannot reduce excess staff by retrenchment. In fact, any plans of retrenchment and reduction of staff and workforce are subjected to strong opposition by trade unions. The voluntary retirement scheme was not vehemently opposed by the Unions, because it is ‘voluntary’ in nature and not compulsory.
Private and public sector firms can opt for VRS under the following circumstances:
- Recession in business
- Intense competition
- Joint-ventures with foreign collaborations
- Takeovers and mergers
- Obsolescence of product/technology
VRS Benefits
The employee who opts for VRS is entitled to get:
- 45 days salary for each completed year of service or monthly emoluments at the time of retirement multiplied by the remaining months of service before the normal date of service, whichever is less.
- The employee gets the provident fund (PF) and gratuity dues.
- The compensation received at the time of VRS is tax-free up to the prescribed amount on fulfilling certain conditions.
- Companies also offer benefits packages to the employees who opt for VRS.
VRS Application
In 2019, state-run telecom operator BSNL announced VRS for its employees after the decision to merge other PSU telco MTNL. As per media reports, over 92,000 BSNL, MTNL staffers opted for VRS.
VRS Calculation
VRS calculation will be done in the following way. The last drawn salary is the basis of all calculationss related to VRS. The VRS amount is limited to an amount that is equal to three months’ salary of each completed years of service. Or in another way of calculation is the salary at the time of retirement multiplied by the rest of the months of service before normal retirement.
Voluntary Retirement (20 Years Service Based):
| Post | Class-I |
| Date of Birth | 04.12.1968 |
| Date of Appointment | 31.12.1987 |
| Date of Retirement | 01.02.2011(FN) |
| Qualifying Service | 23 years & 1 day |
Details of Pay Drawn during the last ten months period preceding the Date of Retirement and Average Emoluments
| From | To | Period | Pay + GPay | Total |
| 01.04.2010 | 31.01.2011 | 10 Months | 40510 | 405100 |
| Total | 10 Months | 164000 |
| Average Emoluments | 405100/10 = 40510 | |
| Last Pay Drawn | 40510 | |
| Pension | 50% of average emoluments or Last Pay drawn whichever is beneficial. | |
| i.e 50% of 40510 = 20255 |
