How a VRS works
The company announces a scheme with an opening and closing date, eligibility conditions such as a minimum age or years of service, and a formula for the ex gratia amount, often a number of days' or months' salary for each completed year of service, capped at the salary for the remaining months to retirement. Employees apply within the window. The company reviews the applications and may reject some to retain critical skills. Accepted employees retire on a set date and receive the VRS amount along with their regular retirement dues.
What a VRS package usually includes
Tax treatment of VRS payouts comes with specific conditions, so have a tax adviser review the scheme before launch. Give every employee who opts in a written statement showing each component and the date it will be paid.
- Ex gratia amount as per the scheme formula
- Gratuity, where the employee has five years of continuous service
- Leave encashment of the earned leave balance, as per policy
- Provident fund balance, which the employee can withdraw or transfer
- Sometimes medical cover for a period, or outplacement support
VRS vs retrenchment
The difference is choice. In a VRS, the employee decides to leave and accepts the package, which is what separates it from retrenchment, where the employer ends the employment and must meet notice and compensation rules. Many companies choose a VRS because it avoids forced exits and disputes, but it carries a risk: the people keenest to accept are often those with strong outside options. Protect critical roles by reserving the right to reject applications.
See it on your own data
A 30-minute demo on a video call. We set up your departments, shifts and leave rules and show attendance, leave and payroll running for your team. Free for your first 50 employees.
Book a free demoSee pricingFrequently asked questions
Who is eligible for VRS?
Eligibility is set by each employer's scheme, not by one rule for all companies. Schemes usually require a minimum age, such as 40 or 50, or a minimum number of years of service, and may exclude certain roles or employees facing disciplinary action. Read the scheme document for the eligibility conditions, the application window and the payout formula.
Can the company reject a VRS application?
Yes. A VRS is an offer, and the employer usually reserves the right to accept or reject each application, often to retain people with critical skills. The scheme document should say this clearly and explain how decisions will be communicated. An employee whose application is rejected continues in service on the existing terms.