Business Standard
You are here » Home » Voluntary Retirement Scheme


VRS stands for voluntary retirement scheme, whereby an employee is offered to voluntarily retire from services before the retirement date. The scheme allows companies to reduce the strength of employees. It can be implemented by both the public and private sectors. VRS is also known as 'Golden Handshake'
How does VRS work
VRS applies to employees who have completed 10 years of service or are above the age of 40 years. It applies to workers, executives of companies and/or to an authority of a co-operative society (except company/co-operative society directors). As per the rules, voluntary retirement scheme should result in an overall reduction in the existing strength of employees and the vacancy cannot be filled up. PSUs have to obtain prior approval of the government before offering voluntary retirement. Firms can frame different schemes, however, they must conform to the guidelines under section 2BA of the Income-Tax Rules. One of the pertinent rules clearly states that retiring employee must not be employed in another firm belonging to the same management.
How did voluntary retirement scheme come about in India?
Indian labour laws do not allow direct retrenchment of employees under a union.
According to the Industrial Disputes Act, 1947, employers cannot reduce excess staff by retrenchment. In fact, any plans of retrenchment and reduction of staff and workforce are subjected to strong opposition by trade unions. So, VRS was introduced as an alternative legal solution to solve this problem. The voluntary retirement scheme was not vehemently opposed by the Unions, because it is 'voluntary' in nature and not compulsory.
When can a firm opt for voluntary retirement scheme (VRS)?
Private and public sector firms can opt for VRS under the following circumstances:
Recession in business
Intense competition
Joint-ventures with foreign collaborations
Takeovers and mergers
Obsolescence of product/technology
What are the benefits of VRS?
Right-sizing man power has become an important management strategy today due to intense competition. VRS is regarded as the most humane technique that firms can use to reduce staff.
The employee who opts for VRS is entitled to get:
— 45 days salary 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.
— Employee gets provident fund (PF) and gratuity dues.
— Compensation received at the time of VRS is tax-free up to the prescribed amount on fulfilling certain conditions.
— Companies also offer benefit packages to the employees who opt for VRS. For example, the scheme may also include counselling session for the employee's future; advice on managing funds received under VRS; firms may offer rehabilitation facilities to staff, etc.
Instances of VRS opted by employees
In 2019, state-run telecom operator BSNL announced VRS for its employees after the decision to merge other PSU telco MTNL. As per media reports, over 92,000 BSNL, MTNL staffers opted for VRS.