Exploring Voluntary Retirement Schemes: How to Implement and Manage VRS in a Company?

Hi all,

As a case study, a private limited company with 150 employees in Tamil Nadu wants to introduce a Voluntary Retirement Scheme. Our queries are:

1. Is there a 'model' VRS scheme draft?
2. What are the safeguards/permissions we should take before the introduction of the scheme?
3. How do we ensure that the 'target' group employees take the scheme?
4. How do we ensure some employees do not take the VRS/Can we reject VRS offer of some and accept others?
5. What are the legal payments i.e. Gratuity/PF, etc.?
6. What is an 'ideal' VRS compensation formula?

Thanks,
Leges

Hi,

The VRS compensation has some exemptions from the Income Tax Act. Hence, before the introduction of VRS, exemption from the Appropriate Authority under the Income Tax Act is required for claiming IT relief.

We can identify employees with poor medical history, poor efficiency, attendance, poor antecedents (misconducts, attitude, etc.) and persuade them to opt for VRS. We have to do some groundwork for this. For example, issuing show cause notices for their absence, misconduct, etc. We can informally communicate to the target employees that if they fail to make use of this VRS opportunity, they may be terminated after complying with procedures like show cause notices, domestic enquiry, etc.

Similarly, accepting the VR of employees is the prerogative of the employer, and only if the application of an employee is accepted by the management, can he avail the VRS benefits. There are apex court judgments favoring the employer. Hence, you need not have any apprehension about retaining the talent.

Other than the VRS compensation, employees are also entitled to other retirement benefits such as settlement of gratuity, PF, EPS (Employees' Pension), etc. When discharging employees under VRS, all these statutory payments have to be settled fully and finally. Only then will the employer-employee relation cease to exist.

The VRS compensation is again the prerogative of the management. But your scheme should be attractive to tempt the target employees to leave. You can have two components:

a) Amount for the put-up service

b) Amount for the left-out service

If the average age of the employees is high, you have to keep the maximum amount in put-up service, and if the average age is less, you have to keep the maximum sum in the left-out service.

Please revert to me for any clarifications.

Thanks & Regards,

Kalyan R

Manager - Personnel

Sundaram-Clayton Ltd

Brakes Division

Chennai - 600 058.

Mobile: 9840942232

Thank you for your detailed reply. I seek more details regarding devising a suitable formula for VRS compensation. I understand that average age will play a crucial part; however, even for calculating either 'left service' or 'put in service,' what multiplier should be adopted to ensure success? Can we amend the compensation/scheme at a later date in case it fails to draw a response?

Regards

Thank you, Mr. Satish.

With regard to Mr. Leges' queries on the suitable formula for calculating VR Compensation, here is a sample:

For the employees who are less than 53 years of age (superannuation - 58 years):

VR Compensation:
a) Comp for past service: Total Salary X No. of completed years of service X 1.90
b) Total Salary X No. of completed years of service X 0.60
Total VR Compensation: a + b

For the employees who are more than 53 years of age (superannuation - 58 years):
VR Compensation = Total Salary X No. of left out months X 0.90.

As you have to exhibit the VR formula while announcing the VR Scheme, you cannot amend the VR compensation/formula often. Hence, I would suggest you work out the compensation for all the target employees after arriving at the formula to analyze the effects. Then, if required, you can modify the formula before announcing the VR Scheme.

Thanks & Regards,
Kalyan R

Thank you, Mr. Kalyan. The entire process has been superbly explained by you. I also request all to kindly recommend a good HR expert/lawyer who can assist with the VRS process, i.e., right from drafting of the scheme, identifying the target group, suggesting a formula for implementation. I await your recommendations.

Thanking you,

Regards

Dear Mr. Leges,

You can contact Mr. Deenadayalan at 9448193270, who may help you in this regard.

Thanks & Regards,

Kalyan R
Manager - Personnel
Sundaram-Clayton Ltd
Brakes Division
Chennai - 600 058.

Mobile: 9840942232

I learned that no 'Private Ltd. Co' in India has launched a VRS. Is this true? Is there any legal bar?