As the name suggests a voluntary retirement scheme is an option given by an organization to its current employees to take early retirement before the actual date of retirement. Unlike a compulsory layoff, this scheme is optional to employees, and decision about whether they want to continue with the employment or ready to take early retirement is their choice. Also, those who decide to exercise this option will get a one-time lump sum payment, called Voluntary Retirement Compensation.
There are various reasons associated with the offering of a Voluntary retirement scheme by an entity. Among all other reasons, the primary reasons are 1. Cost-cutting measures used by an organization 2. Recession in the economy 3. A merger of an entity with other entities. In India currently, the economy is facing a constant decline and also due to pandemic the businesses are not fully operational, some auto manufacturing companies, telecom companies, and airlines have started this scheme as a cost-cutting measures
As there is no rule about computing voluntary retirement compensation in India. But the business organization is used to calculate, considering the past employment period and the remaining service period.
a. The Scheme applies to an employee who has completed 10 years of service or attained 40 years of age. (Please note that this condition does not apply to the employee of public sector company)
b. The scheme applies to all employees except directors of a company.
c. The only reason for framing the scheme is to reduce the overall strength of employees.
d. The vacancy created by voluntary retirement is not to be filled up.
e. The retiring employee shall not be employed with any company belonging to the same management.
f. 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 his retirement on superannuation.
Few points to consider:
1. Salary includes basic pay and dearness allowance (include DA if it forms part of retirement benefits), all other allowances and perquisites shall be ignored.
2. Exemption of Rs. 5 lakhs are one-time exemption, meaning thereby an employee can receive compensation on voluntary retirement from the different employers during his employment but the exemption can be claimed only once in a lifetime.
Conclusion: As already said above, this scheme is optional, so the employees should carefully decide whether to continue the employment or opt-out of the scheme. Some factors which may help an individual take decision are the availability of job opportunities, age of the employee, time left in actual retirement and investment plans.