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VRS: Approaches to deal with the workforce Redundancy

Voluntary Retirement Scheme (VRS) is the most common method which is used by organizations to reduce excess manpower. It helps the employer not only to compete and survive in this current business scenario but also improve his/her performance. This scheme also becomes the prominent means of downsizing of employees. VRS is also known by the names such as Voluntary Separation Scheme, Golden Handshake and Early Separation Scheme.

Though the criteria of eligibility of VRS may differ from organization to organization it is given only to those employees who have either served 10 years of working or attained 40 years of age. Thus, the employees who opt for this scheme are permitted to get 45 days of benefits for each completed year of working or monthly benefits during retirement time which is multiplied with service months that are left before the date of working whichever is less.

Effects of VRS:

  1. It results in reduction in the strength of employees.
  2. The vacancy as a result of VRS is not to be filled.
  3. The retiring employees are not to be employed by the same management.

Compensation for VRS:

  1. Not exceeding to three months’ salary for each completed year of service
  2. Salary last drawn at the time of retirement*remaining months of service before retirement on superannuation.

Merits:

  1. Companies go for VRS to cut costs. Tenured workers are likely to draw higher salary than young workers for the same position.
  2. VRS is a lesser painful alternative to mass firings. It avoids involuntary layoffs.
  3. Companies can work efficiently as technology replaces excess labour.
  4. Avoids labour unrest.
  5. Production cost reduces with a reduction in labour cost.

Demerits:

  1. VRS creates fear and uncertainty among employees
  2. Sometimes the VRS benefits weigh more than possible gains
  3. Trade unions against VRS may cause disturbance in normal operations

When an employer decides to offer VRS, he has to issues a circular communicating the same which mentions:

  1. Reasons for downsizing
  2. Eligibility criteria to apply for voluntary retirement
  3. Benefits offered in turn
  4. Employer’s right to accept or reject any application for VRS
  5. Dates open to receive application for VRS
  6. Income tax incidence on VRS benefits in excess of Rs. 5 Lakhs

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