Voluntary Retirement Scheme |
There are many instances in which companies feel the need to reduce the number of employees. For this, the company takes various measures. One of these measures is the Voluntary Retirement Scheme. Through this article, we will share all the important information related to this scheme like what is Voluntary Retirement Scheme, its purpose, benefits, features, need, process, etc. If you want to know each and every detail related to voluntary retirement then read this article carefully till the end.
What is Voluntary Retirement Scheme
Under this scheme, the employee is offered to voluntarily retire from his services by the company before the date of retirement. A voluntary retirement scheme is adopted to reduce the number of employees. Employees, officers of companies, authorities of cooperative societies, etc. can take voluntary retirement.
Both public and private sector companies can offer voluntary retirement plans. This scheme is also known as Golden Handshake. The number of employees is reduced through voluntary retirement so that the company can reduce the overall cost of the firm. There are many rules and regulations under voluntary retirement. One of the most basic rules is that the employee who is retiring should not apply to any other firm belonging to the same industry.
Voluntary Retirement Scheme Objective
The voluntary Retirement Scheme’s main objective is to reduce the number of employees in such a company that is not able to pay the employees due to financial problems. The company can reduce the cost by giving voluntary retirement. Under this scheme, many benefits are also provided to the employees like rehabilitation facilities to the employees, advice on money management, etc. which will automatically improve their income.
Voluntary Retirement Direct Retrenchment
Indian labor laws do not allow companies to directly lay off their employees and if they do so, it is strongly opposed by the trade unions. Sometimes a company is in a position of not being able to pay the employees due to financial issues. A voluntary Retirement Scheme has been introduced to deal with the situation of excess staff. The scheme is not opposed by the labor unions as the employees take voluntary retirement.
Situations in which Voluntary Retirement Scheme is adopted
- Obsolescence of the Product or Technology.
- Acquisition and Merger.
- Joint venture with Foreign Collaboration.
- Recession in Business.
- Intense Competition.
Voluntary Retirement Scheme Benefits And Features
- Under the scheme, employees are offered voluntary retirement from services.
- It should be noted that voluntary retirement is not a type of forced retirement. It is completely in the hands of the employees to leave the job or to continue in the job.
- The strength is reduced through the voluntary retirement of employees to reduce the cost of the firm.
- It is to be noted that the Voluntary Retirement Scheme is applicable only to those employees who have completed 10 years of service or are above 40 years of age.
- A person taking voluntary retirement is not allowed to apply to any other firm belonging to the same industry.
- Amount due at the time of retirement provident fund and gratuity will be provided to the employees.
- Retiring employees are also offered compensation that is tax-free up to a certain amount.
- The person taking voluntary retirement is offered various benefits by the company like rehabilitation facilities, counseling, etc.
- This scheme is offered by both public and private sector companies.
- This scheme is also known as Golden Handshake.
Benefits Provided To Employees Who Opts For Voluntary Retirement Scheme
- An employee shall be paid 45 days’ pay for each completed year of service or the monthly emoluments at the time of retirement multiplied by the remaining months of service prior to the normal date of service, whichever is less.
- The employee will also get provident funds and gratuity dues.
- The compensation received at the time of voluntary retirement is exempt from tax up to a specified amount.
- Companies also provide benefits packages to employees who opt for voluntary retirement.
Compensation For Voluntary Retirement Scheme
- Compensation under the Voluntary Retirement Scheme is calculated on the last drawn pay of the employee.
- The payment to be made by the company is equal to 3 months’ salary of the employee for each completed year of service or the employee’s salary at the time of retirement multiplied by the remaining months of service before the original date of retirement.
- In the case of Public Sector Banks, the compensation is calculated on the basis of 45 days’ wages for each year of service or the wages for the remaining period, whichever is less.
Voluntary Retirement Scheme Eligibility Criteria
- The age of the applicant should be at least 40 years.
- The applicant should be working with the company for at least 10 years.
- Only the employees of the company will be able to take advantage of this scheme. The only exceptions are directors of companies or a cooperative society.
