In this article we will discuss about the various forms of employee separation.
Learn about: 1. Natural Separations 2. Employee-Initiated Separations 3. Employer-Initiated Separations 4. Downsizing 5. Layoff 6. Retrenchment 7. Suspension 8. Dismissal 9. Exit Interviews 10. Retirement 11. Superannuation 12. Resignation.
Also learn about:- 1. Retirement 2. Employee Death 3. Company Closure 4. Employee Resignations 5. Voluntary Retirements 6. Discharge/ Dismissal 7. Layoff 8. Retrenchment 9. Long Leave of Absence 10. Exit Interview Process.
This will further help you to learn about:
A: Employee separations may be categorized into three categories, mainly – 1. Natural Separations 2. Employee-Initiated Separations 3. Employer-Initiated Separations.
B: Employee Separations take several forms, some of which are as follows – 1. Long Leave of Absence 2. Resignations 3. Retirement 4. Death.
C: Three main types of employee separations are – 1. Downsizing, Layoff, and Retrenchment 2. Suspension of an Employee 3. Dismissal of an Employee.
D: Separation of employees may be in the following forms – 1. Retirement or Superannuation of Employees 2. Resignation by Employees.
E: Employee separation may occur in the following forms – 1. Resignation 2. Retirement 3. Retrenchment 4. Discharge 5. Dismissal 6. Downsizing.
Learn about the Meaning, Forms and Process of Employee Separation
Forms of Employee Separations – Natural, Employee-Initiated and Employer-Initiated Separations
Employee Separations mean termination of employment by either of the parties or both the parties viz., employee and employer. Separation may be natural, voluntary and mandatory.
Natural separations take place naturally without any special initiations by the employees or by the company. Natural separations include: employee retirements, employee deaths and company closure.
The agreement between the employee and employer at the time of employment specifies the age of retirement of the employee from service of the company based on the provisions of the labour laws in force of the land or the policies of the company. Age of retirement is varied from organization to organization. It is 62 years in case of central government universities, 60 years in case of universities of a number of universities, 58 years in case of a number of state government universities in India.
It is 58 years in case of national employees working in government organizations in Papua New Guinea. Employees separate naturally from the organization as a regular employee when they naturally retire. Employees after retirement are eligible to get various retirement benefits like pension, provident fund and gratuity.
Re-Employment after Retirement:
Some organizations re-employ the retired employees on contract basis due to shortage of experienced and skilled manpower.
II. Employee Death:
Employees naturally separate from the organization when they die.
III. Company Closure:
Some companies are closed due to various reasons like poor financial position, adverse business conditions, out-dated technology like companies producing manual type writing machines, carbon papers, pagers, computer floppies and the like. Employees working in such companies separate from companies.
Closure and Legal Provisions:
Courts of law have recognised the employer’s fundamental right to close the operations subject to payment of compensation to the affected workers. A closure is only legal, if it is due to unavoidable circumstances beyond the control of the employer.
Employees voluntary separate or voluntary quit the job for various reasons like dissatisfaction over current job, getting better job in terms of salary and status in other organizations, start of business on their own, continuous ill-health, family reasons, contentment over career in terms of earning or job status and the like.
The expanding business opportunities across the globe created a number of new jobs in software and other high technology industries during 1997-2000. Consequently, the employees working in various organisations resigned their jobs in order to join new organisations.
Voluntary separations are of two types viz.-
(i) Employee Resignations and
(ii) Voluntary Retirement:
(i) Employee Resignations:
Employees tender their resignation, due to various reasons as specified in the voluntary separations, when alternative arrangements like retirement are not available as retirement enables employee to receive different kinds of facilities like pension/ provident funds, and gratuity. Thus employees tender resignations when the perceived benefits from the new job or alternative careers would be more than the probable loss of retirement benefits and salary from the current job.
(ii) Voluntary Retirements:
Some organizations provide an opportunity of ‘voluntary retirement’ to employees, which carry proportionate/ pro-rata amount of retirement benefits. Employees, who completed specified length of service, are normally eligible to opt for voluntary retirement. Organisations provide this facility to enable employees to separate from the organization with retirement facilities, when the employees face health problems or have better career opportunities or organization face the problem of over-staffing.
Most of the public sector organizations in different countries including India announced voluntary retirement facilities to employees, when they realized the problem of over-staffing consequent upon competition and globalization in 1991. The economic policy of 1991 provided for the voluntary retirement facility to employees based on their exit policy.
Voluntary Exit Policy and Practice:
The new economic policy of 1991 brought significant changes in industrial and business sectors. One of the important aspects of the new economic policy is the Exit policy.
Exit policy refers to the policy and action programme of retrenching the surplus human resources resulting from restructuring, modernising, reducing the activities, closure of a part or total unit, adopting new technology or new methods of operations, redesigning and re-allotting the jobs in an industrial or business organisation.
Government’s Policy before 1991 and Its Consequences:
Government specified its policy regarding employment before 1991, in various Industrial polices. One of the objectives of government in establishing and developing public sector was to create or generate employment opportunities. The government aimed at solving the unemployment problem by encouraging the small, tiny and cottage industries.
Further government used to appreciate the large-scale private sector industry, if it was employment-oriented. The huge size and ever growing population and unemployment problem was the reason for formulating such a policy by the government.
Consequent upon the implementation of the Government policies regarding employment and other practices of the industries resulted in the surplus human resources and disguised unemployment in industrial units in India. This problem is predominant in public sector compared to that of private sector.
Extent of Surplus:
The surplus of human resources is of two dimensions viz., (i) surplus of human resources even with the existing level of technology, and (ii) surplus of human resource, if the technology is upgraded.
Indian industrial units employ more number of workers compared to that of the foreign organisations with similar nature and level of technology.
Aditya Birla group, for example, employs two workers in Indonesia, three workers in Philippines and Thailand, and seven workers in India to do the same work i.e., processing 100 kilo grams of yam. The cost of labour to process 100 kg., of yarn for the company was Rs. 50 in Indonesia, whereas it was Rs. 700 in case of India.
Use of outdated technology allows the surplus manpower to continue. If the textile industry adopts latest technology, 15 millions in the industry would be out of the job. Around 2.4 million workers working in sick industrial units are found to be surplus. It is estimated that 1.8 million of the 10 million employees in central government including departmentally run undertakings is found to be excess.
Pramod Verma’s estimates reveal that the surplus manpower with the existing technology would be 13 to 18 lakh people and with the advanced technology would be 15 lakh people. As far as State Road Transport Undertakings is concerned, 50% employees is surplus.
(i) Surplus human resource results in high labour cost. Increased labour cost leads to high production cost and high price of the product or service.
(ii) Surplus human resource, high cost of labour and high cost of production reduces the organisations competitive ability.
(iii) Surplus labour and thereby disguised unemployment reduces employee efficiency and labour productivity.
(iv) Surplus labour creates organisational politics.
(v) Surplus human resource poses threat for technological up-gradation. But, technological up-gradation is an essential factor in market economies.
(vi) Surplus labour may lead to industrial unrest and poor industrial relations.
Despite of the consequences, retrenchment is a difficult task in India.
One of the techniques of trimming the workforce is Voluntary Retirement Scheme (VRS). This is generous, tax-free severance payment to persuade the employees to voluntarily retire from the company. The scheme has its origin during early 1990s in U.S.A. This scheme is also known as ‘Golden Handshake’ as it is the golden route to retrenchment. The voluntary retirement scheme is the most humane technique for downsizing the workforce.
The voluntary retirement scheme was announced by the government to cover the public sector employees. The scheme was later introduced in private sector industries covering L & T, M & M, and TELCO etc.
Benefits under this Scheme:
The minimum benefits under this scheme include- The employee opts for voluntary retirement entitles for 45 days emoluments for each completed year of service or monthly emoluments at the time of retirement multiplied by the remaining months of service before normal date of retirement whichever is less. In addition to these emoluments, the employee will get his Provident fund and gratuity dues. The VRS originally granted tax-exemption for amounts up to Rs. 5 lakhs received by a public sector employee as his severance pay-package.
Eligibility for VRS:
The eligibility criterion for VRS varies from one company to the other. In case of public sector units, employees who have attained 40 years of age or completed 10 years of service are eligible for voluntary retirement under the scheme.
(i) It offers the best and humane route to retrenching excess workforce.
(ii) Lucrative settlement prevents resentment.
(iii) Voluntary nature precludes the need for enforcement.
(iv) It allows specific divisions to be down sized.
(v) It allows for lowering the overall wage bills and enables for increase in salaries.
Demerits of VRS:
Demerits of VRS include:
The best employees of the company may accept the deal and leave the company.
(i) It creates a sense of fear and uncertainty among those employees who stay with the company.
(ii) Severance costs may outpace productivity gains.
(iii) Trade unions and individual workers may protest the operation of the scheme and these protests may disrupt operations.
(iv) Operation of the scheme may create a bad reputation for the company.
(i) The organisations may make use of the following measures to reduce the limitations of the scheme.
(ii) The management should involve the trade unions in the process of decision-making, formulating the rules and regulations of the scheme and in implementing the scheme.
(iii) Increase the benefits to make the severance package more attractive.
(iv) Motivate the managers through counseling.
National renewal fund was established to help the workers affected by industrial restructuring, modernisation or closure of the unit. The objectives of the National.
Renewal Fund are:
(i) To provide assistance to firms to cover the cost of retraining and redeployment of employees arising as a result of modernisation and technological up-gradation of existing capacities and from industrial restructuring.
(ii) To provide funds for compensation to employees affected by restructuring or closure of industrial units, both in the public and private sectors.
(iii) To provide funds for employment generation schemes in the organised and un-organised sectors in order to provide social safety net for labour.
The NRF is administered by the Department of Industrial Development. The NRF was proposed to have a corpus of Rs 2,000 crores which would be contributed from budgetary support (Rs 200 crores from the 1991-92 budget, Rs 1,000 crores from the disinvestment of the shares held by the government in public sector units and Rs 800 crores from the World Bank).
There are two parts in the NRF. The first part is the Employment Generation Fund. This fund provides resources to approved employment schemes in the organised and unorganised sectors. The second part is the National Renewal Grant Fund. This fund provides funds to meet the compensation and training expenditures of retrenched workers.
Reducing the excess manpower in an organisation is not an easy task. There are a number of challenges of this task.
(i) Establish the compulsion of manpower reduction.
(ii) Manage downsizing without disrupting the organisation.
(iii) Ensure that employees participate in the decision to down size
(iv) Match of focus of manpower reduction to corporate strategy
(v) Ensure a transparent system for choosing people to be eased out
(vi) Manage the psychological and social fallout on exiting employees.
(vii) Maintain contract and relationships with former employees.
(viii) Prevent the company from being branded anti-people.
(ix) Motivate the employees who will stay with the organisation.
(x) Develop a post-downsizing manpower deployment plan.
People who contribute significantly to the organisational goals are the organisation’s assets. These assets are turned into liabilities due to obsolescence of their skills, knowledge and abilities consequent upon the technological up-gradation or change in the organisational requirements.
Added to this, intensifying competition and recession in business create the need for eliminating the non-performing employees or the liabilities. Mergers, joint ventures, takeovers also cause reduction of excess manpower. After identifying the excess manpower, prepare for the reduction by identifying the departments with high wage bills and low productivity. Then, initiate the process of reduction of the manpower.
Employers also initiate separations due to performance and in-disciplinary issues, inability of employer to provide continuous employment due to supply-chain management problems in the entire business process. Thus, employer- imitated separations include discharges, lay-off and retrenchment.
I. Discharge/ Dismissal:
The reasons for dismissal or discharge are due to the employee’s inability to follow organizational rules and regulations of employment. Thus employers inmate the employee separations when the employees fail to follow organizational rules and regulations of employment. These reasons include, but not limited to poor performance, continuous absenteeism without proper approval, misbehavior, misconduct, theft of company’s property and illegal acts.
Organisation separates the employees temporarily due to its inability to provide employment in view of supply-chain management problems like lack of/ inadequate raw materials, other kinds of inputs, power, working capital, breakdown of machinery, decline in sales and other any temporary problems.
Employers pay lay-off compensation to employees during lay-off period as employees are laid off due to the employer-centered reasons. The amount of lay-off compensation to be paid as per the Section-25 of Industrial Disputes Act. 1947 is half of the normal wages. According to the Industrial Disputes Act, 1947, industrial units employing more than 100 employees require prior permission from the government for layoffs, retrenchment and closures.
Employers have to make the basis for lay-off clear like seniority or merit/ performance. Junior employees are laid-off first and the senior employees are laid off at the end, if the organizations follow the seniority as the basis for lay-off. Senior employees are called back to work first and the junior employees are called back to work at the last, when the business operations are restored.
Similarly, if the organizations follow merit as the basis for lay off employees with least performance appraisal scores are laid off first and highest performance appraisal scorers are laid off at the end. Employees with highest performance appraisal scores are called back first and the least appraisal scorers are called back at the end, when the business operations are restored.
Retrenchment is separation of employees relatively on permanent basis by employers due to the latter’s inability to provide employment. Thus organizations retrench employees due to adaption of modern manufacturing technology, adaption of robotics in business operations, adaption of information technology, shifting of manufacturing locations to less-manufacturing cost centres, economic recession and adverse business conditions relevant to a particular company.
However, some companies recover and turn-around from adverse business conditions, recessionary impacts and boost-up the business growth. Companies in such cases of recovery and turn-around can reemploy the qualified retrenched employees.
Manufacturing Technology and Retrenchment:
Sophisticated equipment and automated manufacturing technology perform a number of functions hither to perform by manual labour in the past. As such automated and modern technology eliminated a number of manual and lower level jobs. Consequently, companies adapted automated technology found surplus staff in production department and plan for retrenchment of staff.
In addition, automated technology requires highly skilled employees, who would replace a large number of employees with traditional skills. Thus, modern manufacturing technology resulted in employees with traditional skills.
Robotics and Retrenchment:
Robotics is an important technology of modern manufacturing in most of the companies. Most of the factories have been using robots on an increased scale. Robots have already started replacing menial and repetitive jobs. Therefore, companies adapting robots started retrenching employees.
Information technology performs a number of jobs like processing data and information, communication, clerical jobs and a number of office maintenance jobs. In addition, information technology helps in fast performance of a number of jobs in accounting, finance, human resource and marketing. Thus, information technology enhances performance and productivity.
In other words, less number of people can do more work with the help of information technology. Consequently most of the offices that adapted information technology found surplus number of employees and resorted to retrenchment.
Globalisation and Retrenchment in Advanced Countries:
Globalisation and consequent competition brought paradigm shifts in location of business operations from high manufacturing cost destinations to low manufacturing cost locations. Consequently, most of the multinational companies shifted their manufacturing and some other business locations from advanced economies like USA, UK and France to India, China and Brazil. This in turn resulted in loss of jobs in MNCs’ locations of advanced countries. MNCs found surplus staff in their locations in advanced economies and hence retrenched them.
Economic Recession and Retrenchment:
The economic recession that began in December 2007 and still continuing even in 2011 resulted in decline in business activity of a number of countries. The impact of economic recession is severe in case of advanced countries like USA, UK and Italy. In fact, the world trade in terms of exports and imports declined during 2007 and 2011 due to economic recession.
Thus the economic recession resulted in decline in demand for products and services, output, marketing activities, loss of jobs and loss of income. Companies reduced their business operations consequent upon reduction in sales due to economic recession. Reduction in business operations forced the companies to reduce employees through retrenchment.
Retrenchment, consequent upon recession affected all kinds of employees like young and old, inexperienced and experienced and unskilled and skilled employees. Though it is said that the recession officially ended in June 2009, unemployment didn’t peak until 2010, after which it declined slightly.
Adverse Business Conditions and Retrenchment:
Adverse business conditions like decline in demand for the product or service following shifts in customer preferences, tastes and fashions, redundancy of the product owing to technology shifts, competitors’ strategies, poor financial management, mismanagement, inability of the human resources to be innovative and change ahead of the environmental shifts.
Legal Provisions Governing Retrenchment and Compensation:
Under the Industrial Disputes Act, 1947, a company has the right to retrench employees for any reason whatsoever- other than disciplinary reasons. Retrenchment procedures are governed by the Last in First out (LIFO) method. Section 25-G of the Industrial Disputes Act, 1947 states that, an employer should only retrench employees who have been most recently hired.
According to Section 25(f) of Industrial Disputes Act, 1947, companies have to pay retrenchment compensation to retrenched employees equivalent to 15 days average pay for every completed year of continuous service.
According to the Industrial Disputes Act, 1947, industrial units employing more than 100 employees require prior permission from the government for layoffs, retrenchment and closures. 23 public sector units retrenched 264 employees in 2007 in India due to closure of the industrial units.
A separation is a decision that the individual and the organization should part (Davis). The separation could be at the instance of the employer or the employee.
Separations take several forms, some of which are as follows:
i. Long Leave of Absence:
Employees may apply for long leave from work on various grounds such as health, education, family, or work-related matters.
Employees may decide voluntarily to separate from the organization on grounds of health, marriage, better career prospects in other organizations, etc.
Retirement is a termination of ‘services, which is termed as compulsory retirement, and normally employees retire between 58 and 60. The voluntary retirement scheme (VRS) is another retirement scheme, which has been introduced in various public and private sectors with a view to offload surplus staff and cutting down labour costs.
In such instances, the management is also organizing counselling sessions to reduce anxiety in the minds of the employees about premature retirement and also offers financial advice to allow them to invest in a sound manner.
Separation in organization may also occur due to sudden death of an employee while in service. Some organizations offer employment to the spouse, child, or dependent of the deceased employee on compassionate grounds.
The above practices are commonly practised in almost all organizations. These are initiated by the employee—except retirement, which is as per the company policy—and not by the company. Layoff and retrenchment are the moves initiated by the employer.
In some cases, downsizing is undertaken to reduce labour costs and streamline organizational operations. In other cases, downsizing results from mergers and acquisitions, in which the resulting company is plagued with redundant functions. Often, organizations often fail to realize the cost benefits they hoped to receive from downsizing because they must replace functions, either by hiring consultants or by training the existing employees.
Moreover, productivity gains are short-lived; in fact, they are more a reflection of the reduction in operating expenses than of increase in output. Finally, motivation and morale are damaged, which can have indirect effects upon both the productivity and the economy of the organization.
Indeed downsizing can have devastating effects upon individual employees, both those who have lost their jobs and those who have not. Specifically, employees losing their jobs face many emotional problems. Their initial response may be one of shock, anger, or relief.
Eventually, they need to confront the task of being reemployed without succumbing to frustration and self- doubt. The organization can help them avoid such emotions by preparing them for transition to a new job, a new organization, or a new career.
Even those employees who do not lose their jobs as a result of downsizing may face serious psychological consequences. Indeed, an analysis of the feelings of those who survive downsizing shows that they also feel anger, anxiety, cynicism, resentment against the upper management, and resignation mixed with some hope.
There are also tangible consequences in the workplace that survivors must deal with. Many a time, organizations abolish staff positions that they need to devise a new ‘leaner’ strategy and vision, and thus benefits of downsizing are never realized. Also, the energies and stress levels of survivors are stretched, given that the survivors are now expected to accomplish the additional work of those who have been released from the organization.
It should be noted that there are some instances of positive individual outcomes as a result of downsizing. Due to the relief from surviving the downsizing, and the heightened awareness of performance that downsizing brings, individual efforts after downsizing may actually increase. The degree to which overall outcomes are positive or negative, however, depends upon organizational measures taken to execute the downsizing efforts.
A layoff is usually initiated by the employer because of inadequacies in organizational functioning such as breakdown of machinery or shortage of power, raw materials, production delays, etc. A layoff can be temporary or permanent. It may be temporary if the layoff is because of the business cycle or seasonal factors as is common in mines, sugar industry, etc.
In such layoffs, the employee has the opportunity of coming back to employment after a certain period. At times, factors such as downsizing, merger, and acquisition may also be responsible for layoff. Such a layoff often turns out to be a permanent one. When a layoff becomes permanent, it is called retrenchment.
Retrenchment is generally on account of surplus staff, poor demand for products, economic slowdown, etc. It is obligatory on the part of the employer to pay compensation to employees who are retrenched. While laying off, the first-in-last-out principle is generally followed.
Suspension means prohibiting an employee from attending work and performing normal duties assigned to him or her. It is a measure of punishment for an employee for a specific period. When an employee faces certain charges of misconduct or misdemeanor, an enquiry is made into it, and if the charges are serious, it might lead to suspension of the employee till he or she is either convicted or acquitted of the charges.
Dismissal of an employee results in termination of services and is a punitive measure for proven misconduct. The reasons for dismissal may be carelessness, insubordination, violation of rules, dishonesty, inefficiency, aggressive behaviour, unauthorized absence for a long time, etc.
It is a serious measure that impairs the earning potential and the public image of the employee. It is usually used as a last resort; until all the necessary evidence is gathered, this step is avoided. The employee also is given an opportunity to defend his or her innocence before dismissal.
Exit Interview Process:
When employees leave, organizations often conduct exit interviews in order to assess the reasons for the employee’s decision to part and to prevent it if necessary. Usually, this is conducted face-to-face by the HR Manager. Through this interview, the organization attempts to uncover the reasons of the employee’s departure.
The content and methodology of the exit interview varies from company to company. The aspects that are usually discussed in an exit interview are- reasons for leaving, satisfaction with the job, perception of the management, opportunities for advancement, adequacy of pay, training and performance appraisal.
In one sense, this information allows organizations to assess how well their retention strategies are working and update benefits and other programmes. The employees may also feel that their opinions are being valued by the organization. There are instances where the exit interview has been conducted by an external consulting firm.
Assuring confidentiality by using such measures is likely to produce more candid responses. One study showed that employees are not truthful in exit interviews because of fear that they would be blamed and that their responses will not be held confidential. Some organizations do not conduct exit interviews. However, most organizations keep a record of the rate of turnover.
Separation involves cessation of services of personnel from an organization. Since the employment relationship between an organization and its employees is a contractual one, cessation of employee services is governed by the contract.
Separation of employees may be in the following forms:
1. Retirement or superannuation of employees.
2. Resignation by employees.
Retirement of an employee involves cessation of service of the employee permanently after expiry of the specified period or earlier. Generally, employees retire at the age of retirement. However, retirement may be earlier also.
There may be three such situations. First, an employee may retire pre-maturely due to ill health or any other genuine reason. Second, the employee, who has been appointed for a specific period, retires after expiry of that period. Third, the employee may retire earlier by accepting voluntary retirement scheme.
Superannuation involves retiring of an employee at attaining retirement age. In this case, the employee is entitled to get full retirement benefits. Because of this phenomenon of benefits, generally, employees opt for retiring after reaching the retirement age.
An employee may resign from the organization at any time. However, his resignation is enforceable as per terms of employment contract. Generally, the employee who tenders his resignation is required to serve the organization for a specified period which may vary from one month to three months.
This period is known as notice period. Many organizations provide facility to the employees to pay the organization amount of salary likely to be drawn by the employees during the notice period.
These forms are suspension, dismissal, discharge, layoff, retrenchment, and voluntary retirement scheme.
Suspension of an employee involves prohibiting the employee from performing the usual duties assigned to him. An employee may be suspended for misconduct. Misconduct of the employee is enquired by an enquiry committee. During the suspension period, which cannot be more than three months (as per Supreme Court ruling), the suspended employee is entitled for subsistence allowance at the rate of 50 per cent of his basic salary and allowances applicable for this amount of salary.
Further, the suspended employee is entitled to claim to and fro fare from his place of residence to enquiry venue to present his viewpoints before the enquiry committee. If the final order in enquiry is in favour of the suspended employee, he is entitled to for full salary from the date of suspension. If the charges of misconduct are quite serious, the employee may be dismissed.
Dismissal is a permanent separation of an employee from the organization for violation of organizational rules as provided in the Standing Orders of the organization. Such violation may be in the form of dishonesty, drunkenness, carelessness, insubordination, or any other form of behaviour which is dysfunctional to the organization.
For such a behaviour, either the employee concerned may be advised to resign on his own, as is done by many organizations in the case of managerial personnel, or to dismiss the employee for such behaviour. Dismissal is the punishment to the employee for violation of organizational rules.
Discharge of an employee is a normal termination of employment agreement due to any reason like completion of employment period (in case of a person employed for a specific period), poor performance during probation period, etc. Discharge is not a punishment for misconduct as is the case with dismissal.
Layoff is a temporary separation of an employee by the employer in specific circumstances. Layoff is applied in the case of workers and is governed by Industrial Disputes Act, 1947. According to Section 2 (KKK), layoff means “the failure, refusal or inability of an employer, on account of shortage of coal, power or raw materials, on the accumulation of stocks, or breakdown of machinery for any reason, to give employment to a workman whose name is borne on the muster roll of his individual establishment and who has not been retrenched.”
In effecting layoff as a temporary measure of separation, there are three issues which must be addressed to satisfactorily. These are basis of layoff, basis for redeployment, and compensation.
a. Basis of Layoff:
Layoff may be effected on any basis as specified by the Act. This may be applicable to the entire production section/department/unit involving the layoff of all employees, or it may be partial involving the layoff of only some employees. In the latter case, the question arises as to who will be laid-off and who will not. It requires the determination of basis on which employees may be laid-off.
There may be two bases- seniority and merit. When the seniority is used as the basis of layoff, the process begins with junior most employees and the basis is known as last in-first out (LIFO). When the basis of merit is adopted, the process begins with the least efficient employees.
b. Basis for Redeployment:
Layoff is a temporary measure and, therefore, the question arises about the determination of the basis on which employees will be recalled after layoff is over in part. Generally, the basis which has been adopted at the time of layoff is adopted at the time of recall of the employees, that is, those who have been laid-off last will be called first.
Since the layoff is initiated by the employer, the employees must be paid compensation for the period of layoff. According to Section 25(A) of Industrial Disputes Act, layoff compensation is payable at the rate of 50 per cent of wages and dearness allowances that would have been payable to the employee had he not been so laid-off.
In order to claim the compensation, the employee has to report for attendance at the workplace from where he has been laid-off.
As against layoff which is a temporary measure of separation, retrenchment is a sort of permanent separation. Retrenchment is also governed by the provisions of Industrial Disputes Act. Section 2 of the Act defines retrenchment as “the termination of services of workmen by the employer for any reason.”
However, it does not include other methods of cessation of services such as retirement at the age of superannuation or voluntary, continued ill-health, and punishment discharge.
A worker can be retrenched after satisfying the following conditions:
I. He should be given three-month notice, or wages in lieu of the notice, indicating the reasons of retrenchment.
II. Notice has been served to the appropriate government authority and the permission of such authority has been obtained.
For retrenching workers, the same basis, as adopted in the case of layoff may be adopted. The compensation payable in the case of retrenchment is determined on the basis of 15 days average pay for every completed year of continuous service or any part thereof in excess of six months.
Voluntary retirement scheme (VRS) involves separation of employees — both managerial and operative levels — based on mutual agreement between the organization and its employees. VRS is not new to Indian corporate sector as it has been practiced in the past though the magnitude was not large enough to attract attention.
This scheme has attracted attention after the beginning of liberalization of Indian economy in 1990s. The liberalization has increased competition almost without any advance notice and has forced many organizations to have a relook at their redundant human resources which have been a source of fat wage bill without corresponding productivity.
VRS has been applied to cut the size of this fat wage bill offering one-time fat compensation to employees opting for this scheme.
Simply because of this fatness, VRS is also known as ‘Golden Hand Shake’. This one-time compensation can be theoretically proved to be a long-term profit and medium-term investment. Though this contention of profit and investment has its own merits, VRS has to be seen in a much wider perspective by analyzing various issues involved in it.
Issues Involved in VRS:
VRSs have flooded recently the Indian scene, and one reason for this situation may be the chain reaction of VRS itself. When VRS was offered initially, it looked very attractive. However, this attraction faded away soon and many VRS attempts flopped. Therefore, in order to make VRS effective, various issues involved in it must be tackled effectively.
These issues are as follows:
a. Identification of Need for VRS:
The first step in making VRS successful is to identify the need for VRS by asking questions whether there is really a need for this, whether there is really surplus manpower who cannot be utilized in near future, and what type of personnel should be affected by the scheme including those who are covered by the scheme and not covered by the scheme, those who opt for the scheme and those who do not opt for it. In the light of all these questions, the need for VRS should be analyzed.
b. Implications of VRS for the Organization:
VRS has certain serious implications for the organization. It should be treated not as panacea for all ills related to managing human resources, specially the surplus ones but should be treated as double-edged weapon which can inflict injury to the organization itself if it fails.
This failure can be of two types. First, when targeted employees do not opt for VRS whatever the reasons may be, it may affect the employee morale adversely and, to that extent, additional problems may emerge.
For example, when VRS was offered by Hindustan Unilever Limited (HUL) at a very attractive compensation level, it was not opted by most of the employees because of the perception that working in HUL was considered more attractive as compared to attractiveness attached to VRS without working in HUL. It may be mentioned here that HUL is considered as one of the most preferred employers.
Second, it is not the quantity of employees that matters, what matters more is the quality of employees. It may happen that those who are employable elsewhere opt for VRS and those who are unemployable do not opt for it. This may defeat the very basic logic of VRS.
For example, the experience with VRS in public sector enterprises shows that the maximum availment of VRS has been in those categories, which the organization would not like to lose. These include mid and lower level employees on whom the organization has spent substantial sums in training.
c. Mechanism for VRS:
Mechanism of VRS involves decisions about what is being offered and to whom it is offered. What is being offered relates to the compensation package under VRS. Most of the companies that have offered VRS, prepared compensation package based on certain number of times of the present salary of the employees.
For example, HUL offered a lumpsum payment of 2.25 times the July 1992 salary multiplied by the remaining years of service plus pension at the rate of 70 per cent of the normal pension counted up to 60 years, the company’s retirement age.
Department of Public Enterprises has prescribed three months’ salary for each completed year of service subject to a maximum of monthly salary multiplied by the number of months left for retirement. The recent VRS for public sector banks provides 45 days of salary for every year of service or salary for balance period of service, whichever is lower.
Another issue relates to the personnel who will be covered by VRS. Logically, those personnel should be covered by VRS whose services are required least. This is very contentious issue and merit versus seniority concept does not work here though VRS aims at weeding out the inefficient ones.
If the VRS is meant for the entire personnel of a particular category, e.g., all types of workers at a particular plant, it may be made open to all such workers. However, if it involves only certain category of personnel, it should be specified. For example, when U.P. State Textiles Corporation wanted to close its operations, it offered VRS to all its employees.
Steel Authority of India Limited (SAIL) prescribed the minimum age limit for different categories of personnel such as unskilled workers — 40 years, skilled workers — 43 years, junior management — 46 years, and middle management — 50 years.
d. Developing Understanding with Trade Unions:
An organization is required to sell the concept of VRS to the employees who are covered by the scheme. Many VRS plans have failed because of resistance of workers through their unions. Therefore, there is need to convince them by explaining various pros and cons and suggesting them the alternatives which they can adopt after the adoption of VRS.
It is not enough to conclude that employees have enough knowledge to decide their alternatives. Had they had enough knowledge, the problems of VRS could not have arisen. In a dying organization, perhaps, VRS may be grabbed but the same cannot be said about the flourishing organizations.
e. Rehabilitation Plan for Employees:
With growing number of employees under VRS, a rehabilitation package may be planned by the companies concerned or a pool of companies or their association. Such a package may include redeployment of such personnel elsewhere either by providing them further training or by providing them training to go for their own business.
This may be beneficial from social point of view. At the same time, it may be beneficial for the companies too. If the employees feel that they have alternative means for investing their money and earn livelihood, they will readily agree to opt for VRS.
Government of India has made attempt in this direction by starting five employee assistance centres in Mumbai, Kolkata, Ahmedabad, Kanpur, and Indore. These centres aim at providing training/retraining to displaced workers though their effectiveness is yet to be measured.
Forms of Employee Separation – Resignation, Retirement, Retrenchment, Discharge, Dismissal and Downsizing
Separation of an employee from the organisation occurs when his service agreement with the organisation comes to an end because of one reason or the other. It may occur due to resignation, retirement, death, dismissal and layoff.
This is the most common way of separation. Separation initiated by on employee is termed as resignation. In the other words, the employee writes to the employee expressing his intention to leave his job by a specified date. An employee may resign on grounds of ill health, marriage pregnancy better opportunities in other organisations, etc. Sometimes, an employee may be asked to resign as an alternative to termination on the basis of from negligence of duty or a serious change against him. It is compulsory resignation initiated by the employer.
Some resignations may enable the organisation to rectify mistakes in hiring of employees and to bring in fresh talent from outside. The human resource department should find the real causes of resignation so that appropriate actions may be taken to prevent avoidable resignations. For this purpose an exist interview should be conducted with the employee who is leaving the organisation.
Such interviews may be conducted by responsible persons from the personnel department. These interviews also serve some additional purposes, such as making certain that the employee leaving the organisation has fully handed over the charge to somebody else and that the employee understands the disposition of his various benefits programmes.
Retirement is the main cause of separations of employees from the organisation.
It may be of following kinds:
(i) Compulsory Retirement:
An employee must retire after attaining the specified age. In Central Govt., the retirement age is 60 & in state Govt., it is 58. But in case of private organisations, employees may be given extension so long as they are suitable to do the work.
(ii) Premature Retirement:
An employee may retire before attaining the specified age due to bad health physical disability, family problem etc. He gets the full benefits of settlement provided the management allows premature retirement.
(iii) Voluntary Retirement:
When an organisation wants to cut down its operations on to close forever, it may give an option to its employees with a certain minimum service for voluntary retirement in return for a lump sum payment. This type of retirement is called Golden Hand Shake.
Retirement is a significant milestone in the life of an employee. It requires a great deal of adjustment on his part. The Human resource department and the immediate superior of the retiring employee should bid farewell. All the dues and benefits of retiring employee like pension, provident fund, Death cum retirement Gratuity etc., should be paid to him before the farewell.
The rationale of layoff is to reduce the financial burden on the organisation in the event that human resources cannot be/utilised profitably. Layoff involves temporary removal from the payroll of the people with surplus skills.
According to sec 2 (KKK) of the Industrial Disputes Act, 1947 layoff means “The failure, refusal or inability of an employer, on account of shortage of coal, power or used materials or accumulation of stocks or breakdown of machinery or by any other reason, to give employment to a workman whose name appears on the muster rolls of his industrial establishment and who has not been retrenched.” Layoff is resorted in cyclical & seasonal industries. In mines workers are laid off due to excess of inflammable gas, flood, fire and explosion.
According to sec. 25(c) of the Industrial Disputes Act, 1947, a laid off worker is entitled to compensation equal to 50 percent of the basic wages and dearness allowance that would have been payable to him had he not been laid off.
However, in order to claim this compensation, the laid off workman must satisfy the following conditions:
(a) He should not be a casual worker,
(b) His name must appear on the muster rolls of the industrial establishment,
(c) He must have completed not less than one year of continuous service and
(d) He must present himself for work at the appointed line during normal working hours at least once a day.
The right to compensation is lost if the worker refuses to accept alternative employment at a place within 5 miles of the establishment from which he has been laid off. No compensations is payable when the layoff in due to strike or slowing down of production on the part of workers in another part of the establishment. An Industrial establishment of a seasonal character or in which work is performed only intermittently or which employees less than 50 workers is not require to pay the compensation.
Retrenchment means permanent termination of an employee’s services for economic reasons in a going concern, i.e., running industrial unit. Termination of service on account of disciplinary action, or prolonged illness or retirement and superannuation or expiry of agreement or a closure of the establishment does not constitute retrenchment. Retrenchment is termination due to redundancy of workforce.
Retrenchment creates a sense of insecurity and resentment among the staff. Therefore an employee should be retrenched without humiliation and ill feeling so that he does not speak unkindly of the employer.
The Industrial Dispute Act, 1947 lays down the following conditions for retrenchment:
(i) The employee must be given one months’ notice in writing indicating the reasons for retrenchment or wages in lien of such notice.
(ii) The employee must be paid compensation equal to 30days’ wages for every completed year of service.
(iii) Notice in the prescribed manner must be served on the appropriate government authority.
(iv) In the absence of any agreement to the contrary, the worker employed last must be terminated first.
(v) Retrenched workers must be given preference in future employment.
Establishment employing 100 or more workers is required to give three months’ notice and to seek prior approval of government.
If both the employer and the employee agree to terminate the contract of service by giving the required notice (which may vary from month to 3 months) or by paying wages in lieu thereof the contract of service would be terminated in the agreed manner. It may be noted that discharge takes place for reasons which does not imply any act of misconduct. For example an employee may be discharge owing to either redundance, or infirmity etc. in accordance with his contract of service, without any fault on his part.
However in the field of industrial jurisprudence the term ‘discharge’ is used to denote removal of an employee from service by way of punishment. But no stigma is attached to the expression ‘discharge’. Hence it is not a disqualification for future employment.
Dismissal refers to terminating the service of an employee by way of punishment for misconduct or unsatisfactory performance. Unsatisfactory performance implies persistent failure of the employee to perform his job to the specified standards. An employee is dismissed on account of unsatisfactory performance when he has no potential to improve his performance.
Misconduct means willful violation of rules and regulations. It includes indiscipline, in subordination and dishonesty. Dismissal is a drastic step and should, therefore, be resorted to with great care. It should be supported by a just and sufficient cause. It should be used as a last step after all attempts to salvage the employee have failed.
Before an employee is discharged, he must be given the opportunity to explain his conduct and to show because why he should not be dismissed. The principle of natural justice should be followed, i.e., the punishment should not be out of proportion to the offence. Discharge also means termination of the services of an employee but not necessarily as a punishment.
Dismissal Procedure consists of the following steps:
(i) Conducting preliminary inquiry.
(ii) Issuing of charge-sheets.
(iii) Appointment of disciplinary authorities (inquiry)
(iv) Conducting of detailed inquiry.
(v) Passing orders of termination as dismissal.
(vi) Nearing and disposal of appeals.
Downsizing means reducing the size of the organisation. It is a restructuring process in which the organisation disposes off its non-core activities. In the content of human resource management, downsizing involves elimination of certain jobs with a view to improve work efficiency. The organisation reduces staff which is excess of its needs. As a result some of the employees get separated from the organisation.
Downsizing may become necessary due to the following reasons:
(i) An organisation might suffer from overstaffing due to faulty human resource planning. At one time steel Authority of India (SAIL) had 1,70,000 employees as against its actual requirement of 1,00,000 employees.
(ii) A change in man machine ratio may occur due to technological advances.
(iii) An organisation may start outsourcing some of its business functions. As a result, of that, people employed in these functions become surplus.
Downsizing may create a feeling of insecurity causing low morale & high stress among employees. Employees may feel that they are paying the price for mismanagement. Moreover when competent employees leave the organisation, downsizing may erode the skills base.