EXIT POLICY

Voluntary Retirement scheme :

It is now a common method used to
dispense off the excess manpower and improve
the performance of the organization. It is a
generous, tax-free severance payment to
persuade the employees to voluntarily retire
from the company.
Role of Industrial Disputes Act-1947.

Circumstances in which organizations may

adopt VRS :
Due to recession in business.
Due to intense competition.
Due to joint ventures with foreign

collaborations.
Due to takeovers & mergers.
use of technology.
Business Re-engineering process.

Eligibility criteria for VRS:

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.

Benefits :
The employee who opts for voluntary retirement
is entitled to get 45 (forty five) days emoluments 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.
Along with these benefits, the employees also get
their provident fund and gratuity dues.
Compensation received at the time of voluntary
retirement is exempt from tax under section 10 (10C)
of the Income Tax Act, 1961 up to the prescribed
amount upon fulfilling certain stipulated conditions.
However, the retiring employee should not be
employed in another company or concern belonging
to the same management.

Requirements for implementing VRS :

It applies to an employee of the company who has

completed ten years of service or completed 40

years of age.
It applies to all employees (by whatever name

called), including workers and executives of the

company excepting Directors of the company
The scheme of voluntary retirement has been drawn

to result in overall reduction in the existing strength

of the employees of the company

 The vacancy caused by voluntary retirement is not

to be filled up, nor the retiring employee is to be

employed in another company or concern
belonging to the same management
The amount receivable on account of voluntary
retirement of the employees, does not exceed the
amount equivalent to one and one-half months

salary for each completed year of service or

monthly emoluments at the time of retirement
multiplied by the balance months of service left
before the date of his retirement on
superannuation. In any case, the amount should
not exceed rupees five lakhs in case of each
employee.

 The employee has not availed in the past the

benefit of any other voluntary retirement scheme.

Effects of excess manpower:

Results in high a labour cost which increases

the production cost.

It reduces the competitive ability of the
enterprise.
It reduces employee efficiency &
productivity.
Pose threat for technology up gradation
which is essential in the competitive market.
Result in poor industrial relations and unrest
amongst labour.

Procedure For VRS :

(1) If the company is public sector undertaking obtain approval of

the gov.
(2) Identify departments/employees to whom VRS is to be offered.
(3) If there is a union of employees in the establishment involve the

union by
communicating to them the reasons,
the target group and the benefits to be offered to those who opt
for the scheme.
(4) Decide the duration of the scheme.
(5) Motivate the managers through counseling.

(6) Counseling employees.

(7) Receiving applications, & deciding whose
application will be accepted.
(8) For those whose application are to be
accepted prepare a worksheet showing
the benefits each will receive .
(9) Employee leaves the organization.

Challenges in implementing VRS:

The reasons and need to introduce V R S should be discussed

with all management staff including top

management.

Ensure all concerned employees and managers participate in

the decision making to down size.

The downsizing plan should match with the Strategic plans

of the company.

Transparency should be seen and used in choice of persons

to be retired.

 Be prepared to manage the after effects of the down

sizing .

Motivate employees who will stay with the

company, remove their fears, if any.

Provide professional assistance to employees who

agree to accept the plan.

( their post retirement, activities and
financial management including, out placement.)

The VRS should be made attractive and no pressures

should be used to ease out people.

Merits & demerits of VRS :

MERITS:
It offers to the employee an attractive financial
compensation.
Voluntary nature of the schemes precludes the

need for enforcement.

It allows flexibility and can be applied only to
certain divisions, departments where there is
excess manpower.
It allows overall savings in the employee costs thus
lowering the overall costs.

 There is no legal obstacle in implementing VRS

DEMERITS:
To certain extent it creates fear, a sense of
uncertainty among employees.
Sometimes the severance costs are heavy and
outweigh the possible gains.
Trade unions generally protest the operation of
such schemes and may cause disturbance in
normal operations.

 Some of the good, capable and competent

employees may also apply for separation which
may cause embarrassment to the

managements.