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 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.
It has to result in an overall reduction in the existing strength of employees. The vacancy caused by voluntary retirement is not to be filled up. The retiring employee shall not be employed in another company or concern belonging to the same management.
The amount receivable on account of voluntary retirement of the employee does not exceed the amount equivalent to three months' salary for each completed year of service, or salary at the time of retirement multiplied by the balance months of service left before the date of retirement on superannuation of the employee. It is the last salary drawn which is to form the basis for computing the amount of payment.
Often, a VRS is also known as a ‘Golden Handshake’. The government has shown its support for VRS by exempting income tax on the money received by an employee as VRS compensation based on a ceiling limit of Rs 5 lakhs, as per Section 10(10B) of the Income Tax Act.
# Procedure involved with Voluntary Retirement Schemes –
The employer issues a circular communicating his decision to offer voluntary retirement scheme – mentioning therein;
a. Detailed reasons for downsizing
b. Eligibility i.e. who are eligible to apply for voluntary retirement
c. The age limit and the minimum service period of employees who can apply (Employees who is 40 and above and those who have completed minimum 10 years of service in the establishment.)
d. The benefits that are offered.
(It should be noted that employees who offer to retire voluntarily are entitled as per law to the benefits of Provident Fund,’ Gratuity and salary for balance of privilege leave up to the date of their retirement, besides the voluntary retirement benefits.)
e. The right of an employer to accept or reject any application for voluntary retirement.
f. The date up to which the scheme is open and applications are received for consideration by the employer.
g. The circular may indicate income tax incidence on any voluntary retirement benefits which are in excess of Rs. 5 lakhs, which is maximum tax free benefit under such schemes.
h. It should also indicate that those employees who opt for voluntary retirement and accept the benefits under such scheme shall not be eligible in future for employment in the establishment.
# Steps to be taken for Introducing and implementing Voluntary Retirement Scheme –
-If the company is a public sector undertaking, prior approval of the government should be obtained.
-Departments/employees to whom VRS is to be offered must be identified (Target group of employees -age above 40 years and employees with more than 10 years’ service in the company).
-If there is a union of employees in the establishment, they should be informed the reasons for introducing VRS, the target group and the benefits to be offered to those who opt for the scheme.
-Terms of V R S and benefits to be offered are to be mentioned in the circular or communication to employees and the period during which the scheme is to be kept open must be decided upon.
-Counseling employees is an essential part of implementing the scheme. The counseling should include what the retiring employee can do in future i.e. rehabilitation, how to manage the funds received under the scheme.
-After receipt of applications for accepting VRS, the applications are scrutinized and decisions are made as to whose applications are to be accepted and those which are not to be accepted.
-For those whose application are to be accepted a worksheet is prepared showing the benefits each will receive including other dues like Provident Fund, gratuity and earned leave wages for the balance un-availed earned leave, and tax incidence, should the V R S amount exceeds Rs. 5 lakhs.
Please refer the attachment to know more Information on VRS.
Regards,
Amit
From India, Delhi
138VRS 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.
It has to result in an overall reduction in the existing strength of employees. The vacancy caused by voluntary retirement is not to be filled up. The retiring employee shall not be employed in another company or concern belonging to the same management.
The amount receivable on account of voluntary retirement of the employee does not exceed the amount equivalent to three months' salary for each completed year of service, or salary at the time of retirement multiplied by the balance months of service left before the date of retirement on superannuation of the employee. It is the last salary drawn which is to form the basis for computing the amount of payment.
Often, a VRS is also known as a ‘Golden Handshake’. The government has shown its support for VRS by exempting income tax on the money received by an employee as VRS compensation based on a ceiling limit of Rs 5 lakhs, as per Section 10(10B) of the Income Tax Act.
# Procedure involved with Voluntary Retirement Schemes –
The employer issues a circular communicating his decision to offer voluntary retirement scheme – mentioning therein;
a. Detailed reasons for downsizing
b. Eligibility i.e. who are eligible to apply for voluntary retirement
c. The age limit and the minimum service period of employees who can apply (Employees who is 40 and above and those who have completed minimum 10 years of service in the establishment.)
d. The benefits that are offered.
(It should be noted that employees who offer to retire voluntarily are entitled as per law to the benefits of Provident Fund,’ Gratuity and salary for balance of privilege leave up to the date of their retirement, besides the voluntary retirement benefits.)
e. The right of an employer to accept or reject any application for voluntary retirement.
f. The date up to which the scheme is open and applications are received for consideration by the employer.
g. The circular may indicate income tax incidence on any voluntary retirement benefits which are in excess of Rs. 5 lakhs, which is maximum tax free benefit under such schemes.
h. It should also indicate that those employees who opt for voluntary retirement and accept the benefits under such scheme shall not be eligible in future for employment in the establishment.
# Steps to be taken for Introducing and implementing Voluntary Retirement Scheme –
-If the company is a public sector undertaking, prior approval of the government should be obtained.
-Departments/employees to whom VRS is to be offered must be identified (Target group of employees -age above 40 years and employees with more than 10 years’ service in the company).
-If there is a union of employees in the establishment, they should be informed the reasons for introducing VRS, the target group and the benefits to be offered to those who opt for the scheme.
-Terms of V R S and benefits to be offered are to be mentioned in the circular or communication to employees and the period during which the scheme is to be kept open must be decided upon.
-Counseling employees is an essential part of implementing the scheme. The counseling should include what the retiring employee can do in future i.e. rehabilitation, how to manage the funds received under the scheme.
-After receipt of applications for accepting VRS, the applications are scrutinized and decisions are made as to whose applications are to be accepted and those which are not to be accepted.
-For those whose application are to be accepted a worksheet is prepared showing the benefits each will receive including other dues like Provident Fund, gratuity and earned leave wages for the balance un-availed earned leave, and tax incidence, should the V R S amount exceeds Rs. 5 lakhs.
Please refer the attachment to know more Information on VRS.
Regards,
Amit
From India, Delhi
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