With ever-increasing competition, sometimes companies are forced to cut down their expenses. The company can do this by reducing its employee strength, in order to meet the needs of the company. It can happen that the company's revenue is good but the expenditure, cash resource being low, concessions etc are taking a toll on the company's overall growth. Here, the most humane way to provide overall reduction of existing strength of employees instead of lay-off is the voluntary retirement scheme. 

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According to the Industrial Dispute Acts 1947, there is a restriction on the employers of any organisation to reduce its expenditure by means like retrenchment or closure of the establishment. Moreover, both these procedures involve several legal procedures chained one after the other. Hence, the VRS was the alternative solution, in which the company requests the employees of a particular age, generally those who have served for over 10 years or are above the age of 40, to retire from the company voluntarily. This scheme was introduced in both private and public sector organisations. However, public sectors organisations have to take a prior approval of the government before executing the VRS scheme.

A firm can opt for VRS in the following circumstances:

1. Recession in the business

2. Downsizing is the only resort to tackle the ever increasing competition.

3. Joint ventures with foreign organisations

4. Takeovers and mergers

5. Products and technology have gone in an obsolete state

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The employees who apply for the VRS are entitled to payment for each year of his or her service in the company. Apart from this, the employees also benefit from provident fund and gratuity dues. Moreover, under the section 10 (10C) of the Income Tax Act, 1961 the compensation received at the time of voluntary retirement, is exempted of Tax.

Companies are given the choice to frame the VRS according to the class of employees, as long as it conforms with the guidelines of rule 2BA of the Income-tax Rules. The guidelines mention that:

 

1. VRS is applicable to individuals who have completed 10 years or are of 40 years in age.

2. Applies to all employees, including workers and executives. Directors are not included.

3. This scheme is to reduces overall existing employee strength.

4. Vacancy by the employee is not to be filled nor the retiring employee can be offered a job elsewhere.

5. Amount receivable on account of VRS, 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 his retirement on superannuation.

6. The employee has not availed any benefit from a prior VRS.

The VRS scheme may also include providing counselling to employees about their future;managing of funds received under the scheme; offering rehabilitation facilities to them, etc.

Recently, state-owned telecom operator Bharat Sanchar Nigam Ltd (BSNL) announced its VRS by reducing the retirement age to 58 years from 60 years. The company suffered losses of  Rs 7993 crore, and hence came to this conclusion to improve its status.