Voluntary Retirement or Early Retirement Schemes

Voluntary retirement is legally tenable and forms an integral part of public policy. A voluntary retirement scheme is voluntary on both sides-the employer and the employee. An early retirement scheme, on the other hand, could be something that the employer may introduce offering incentives to employees that the employer considers redundant. Identification of redundant employees that the employer considers redundant. Identification of redundant employees has to be with references to an objective criterion such as age and category of employment and not person based.

In the wake of liberalization the government has created a special fund called the national renewal fund (NRF) and earmarked nearly 90% of the fund to voluntary retire over 100000 employees from the central public sector undertakings which have not been doing well commercially. The government service rules also provide for voluntary retirement of civil servants as part of the government’s efforts to downsize.

In the public sector, the Department of Public Enterprises(DPE) has framed guidelines, which most public enterprises owned and controlled by the central government follow. The guidelines in force during the 1980s and early 1990s were:

  • VRS  was open for employees who had the right to not consider any request under VRS.
  • Terminal benefits included.
  • Balance of provided fund accumulation.
  • Leave encashment as per rules.
  • Gratuity as per Payment of Gratuity Act.
  • One/three months notice pay as applicable.
  • Ex-gratia payment equipment to 45 days emoluments for each completed year of service or monthly emolument at the time of retirement, or salary for the remaining period of service, whichever is less.
  • Travel for self or family to the place of settlement as per leave entitlement.
  • Higher exgratia could be proposed only after the approval of the BPE.

During the late 1990s, some public enterprise began to offer three months of basic and dearness allowance for every year's completed service. Some others extended membership of benefits like medical and holiday homes, to voluntary retirees till the date of normal superannuation.

In the central public sector, the steel Authority of India Limited introduced a scheme in 1999 for those with a minimum of 20years in SAIL or above 50years of age. The monthly benefit apart from the other benefits mentioned under the DPE schemes above is 100% of last drawn basic pay plus dearness allowance for those who completed 55 years of age, 99% to those above 52years and below 55 years and 80% to those at or below 52years of age. The monthly benefits are payable on a quarterly basis through cheque.

Since the financial outgo on account of VRS is spread years on a monthly basis the actual cost to the company is less than what it would have been had the company paid the entire amount in a lump sum. From the employee's point of view through the job is gone, income is protected until he or she attains the age of 60.

Employees who opt for VRS are not entitled to future increases in pay due to wage revisions or dearness allowance. They are also not eligible for re-employment. However, some schemes provided that in the case of those who avail VRS during the pendency of wage revision, the benefits of such wage revisions will accrue to the concerned persons if a clause to that effect is incorporated in the VRS. While some schemes provide for adjustment of outstanding loans against lump sum of gratuity and other payments some foreign banks waived in full or substantially the outstanding loans of those who opt for VRS.

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