Question 1: An employee has been working with Company X for the last 25 years. He has put in a lot of effort for the growth of the company and himself. Why should such an employee resign and accept VRS Benefits?
Answer: It must first be understood that VRS is not anti-employee and is a mutually beneficial system. The Scheme is introduced for a variety of reasons; be it an economic downturn, a drastic drop in sales, technology and skills becoming obsolete etc. for which a reduction in manpower becomes essential for the economic survival of the Company. Further, the benefits offered under VRS are usually very attractive, with the employees receiving a lump sum amount over and above their retirement benefits. Hence, often employees express their desire to undertake the benefits of such Schemes as it also helps them to cope with their problems arising from age, health, personal problems and financial difficulties etc. Therefore, it is a mutually beneficial arrangement wherein the leaving employee is well compensated and the Company gets to keep its costs under control.
Question 2: How does one determine what amount paid to an employee in pursuance of VRS would be adequate for him?
Answer: As to what is an adequate amount, is a subjective question. Wouldn’t all of us would be happier with a little extra? However, each Company has its own policy about the financial benefits it offers by way of VRS. The amount is arrived upon depending upon the wages offered by the Company, legal dues receivable by the employees, financial position of the Company at that point of time and the credit available to the Company to arrange for funds to implement the scheme. Also, the amount offered by a Company is usually, if not better, commensurate with the packages offered by other Companies and is made attractive enough to do justice to every individual. Each Company, thus, has its own methods of estimating and offering VRS benefits. The Packages offered by a Company will have to be seen in totality and not in isolation.
Question 3: If an employee is over 50 years old and has a take home salary of Rs. 25,000/-, would it be prudent for him to resign?
Answer: A VRS Scheme is totally voluntary, there is no coercion involved at all and if an employee wishes to resign under a scheme, he is assured to receive financial benefits. Now, when an employee is over 50, it is certainly more difficult for him to work than it was when he was younger. Yet, if such an employee is healthy and is willing to continue working and perform, the Company should have no problem in continuing with his employment. However, if such an employee’s health does not permit him to continue working, he should consider the VRS option. In today’s frenzied work-life, one’s health gets compromised for a variety of reasons; shooting blood pressure, heart problems, stress induced problems, strokes etc. have been commonplace among the working population. Therefore, one should consider his health, financial needs, commitment towards his family etc. and then opt for VRS. VRS assures additional money to the employee which can help getting financial liabilities out of the way, helping children settle, marriage etc. and can also be invested for a better future.
Question 4: An employee is over 50 years old and hopes for his son’s employment in the same Company. After his resignation, the chances of employment of his son in the Company may become remote. Why should he accept VRS?
Answer: As per provisions of the Income Tax Act and Income Tax Rules, vacancies created pursuant to VRS cannot be filled up. Therefore, chances of employment in a Company after VRS has been implemented are remote. Therefore, as a whole, it is advisable to consider taking up VRS, as, with the amount received by way of VRS, the employee can provide support to his son till he gets a job by himself. After all, a bird in the hand is worth two in the bush.
Question 5: Can an Employee opting for VRS claim tax deduction on the VRS compensation paid to him?
Answer: Yes, an employee can claim tax deduction on the entire amount received by way of VRS which does not exceed Rs. 5 lakh. Any amount in excess of Rs. 5 lakh will be subject to income tax. However, to qualify for this exemption, the Company has to fulfill certain conditions including:
- The VRS should apply to all employee(s) who have completed 10 years of service of 40 years of age, including workers and executives.
- The VRS should result in overall reduction in the existing strength of the employees.
- The Vacancy pursuant to the VRS should not be filled up nor the retiring employee be employed in another Company or concern belonging to the same management.
- The VRS compensation should not exceed three months salary for each completed year of service or salary at the time of retirement multiplied by the remaining months of service before the date of retirement subject to a maximum amount of Rs. 5 lakh for each employee.
Question 6: In determining VRS amounts, do employers take into account an employee’s medical expenses?
Answer: Yes, Companies consider every contingency, including an employee’s medical expenses while designing benefits under VRS.
Question 7: If an employee takes VRS and sits at home wouldn’t all the money he receives by way of VRS get spent or go to waste?
Answer: One can invest the amount received in various financial schemes and investment plans. LIC comes out with such schemes very often. If an employee has taken a loan, he can use the amount received to clear the said loan and thereby enjoy peace of mind.
Question 8: Will a VRS add into the workload of the other workers who are not opting for VRS?
Answer: It may. However, a Company may sign agreement/s with the employees to reshuffle and readjust their duties to ease out the work load. For example; workers employed in areas such as Housekeeping, Canteen and such other departments may be redeployed to manufacturing, packaging departments etc. In many areas the manufacturing operations may also be substituted by machines.