Everything you need to know about the types of employee separation. Separation is a situation where the service contract of an employee with his employer comes to an end.

In other words, employer and employee part with each other. An employee may move out of the organization for a variety of reasons like retirement, resignation, better prospects elsewhere etc. Employer may terminate the services of employees.

Separation happens on many grounds such as lay-off, resignation, dismissal or discharge, retrenchment, voluntary retirement schemes, transfer, and attrition.

According to Crabb (1912), employee separation has been a focus of behavioural research for nearly eight decades. Employee separation can be defined as the ceasing of membership of an employee from the organization.


The service agreement between the employer and employee terminates. The rate of employee separation is measured by turnover index.

The various types of employee separation are:-

1. Lay-Off 2. Resignation 3. Dismissal or Discharge 4. Retrenchment 5. Voluntary Retirement Schemes 6. Transfer 7. Involuntary Separation 8. Death.

Different Types of Employee Separation: Lay-Off, Resignation, Dismissal, Retrenchment, Voluntary Retirement Schemes & Transfer

Types of Employee Separation – 6 Main Types: Lay-Off, Resignation, Dismissal, Retrenchment, Voluntary Retirement Schemes and Transfer

Separation happens on many grounds such as lay-off, resignation, dismissal or discharge, retrenchment, voluntary retirement schemes, transfer, and attrition.


We will now discuss these concepts:

Type # 1. Lay-Off:

A lay-off cannot be avoided in certain situations. A lay-off is a temporary separation of an employee from his/her employer at the instance of the latter, without any preju­dice to the former. Lay-off is initiated as the failure, refusal, or inability of an employer to continue employ­ment of a worker whose name is in the rolls but who has not been retrenched.

Lay-off may occur as a result of the occurrence of the following:

a. Major breakdown of machinery


b. Shortage of coal, power, or raw material

c. Accumulation/accrual of stock, thus increasing the inventory of finished items

One of the major stress triggers for human resource professionals is bearing the bad news of layoffs. In addition, losing a trusted colleague all of a sudden, is a major shock and one’s reaction is quite similar to losing a loved one. Some companies arrange for re-engagement of their laid-off employees through outplacement agencies.

Type # 2. Resignation:

Resignation or early retirement refers to termination based on the employee s discretion to discontinue employment. Generally, an employee resigns on securing better employment elsewhere. Sometimes, female employees may have to resign after marriage, if the company does not have a branch in the city where she has to move to. The administration of separation caused by resignation is simple, as this is initiated by the employee.

Type # 3. Dismissal or Discharge:


Dismissal or discharge is a drastic step initiated by the employer; this step should be taken after care­ful analysis and thought. A dismissal needs to be supported by sufficient reasons and documentary evidences. Initially, departmental enquiry is instituted by engaging an inquiry officer and a presenting officer. The role of the inquiry officer is similar to the judge, and the role of the presenting officer is similar to that of a prosecution officer.

The accused may opt for a defender. Some of the reasons for a departmental inquiry are excessive absenteeism, serious misconduct, fake statement of qualification at the time of entry, theft of company property, etc. Based on the findings, the delinquent employee can be dismissed. A worker or even a union leader can be dismissed if he uses filthy language or creates a scene that stops regular production.

Type # 4. Retrenchment:

Retrenchment refers to an employer giving a termination to a workman for any reason whatsoever, otherwise than a punishment inflicted by way of disciplinary action.

It is important to remember that it does not include the following:


a. Voluntary retirement of the workman

b. Retirement of the workman on reaching the age of superannuation

c. Termination of the service of the workman as a result of non-renewal of the contract of employment between the employer and the workman

d. Termination of the service of a workman on the ground of continued ill-health.


Retrenchment also results in the separation of an employee from his/her employer. It differs from lay-off and dismissal. In case of lay-off, the employee continues to be in the pay-role of the organization and is assured of being called back after the expiry period of lay-off. However, in case of retrenchment, an employee is sent for good, and his/her connections with the organization completely end.

Retrenchment differs from dismissal, too. It means the discharge of surplus labour or staff in the continuing industry, and the removal of dead weight of uneconomic surplus. An employee can be retrenched even if a company operates at a level of profits. As per Industrial Disputes Act, 1947, employers must fulfil conditions precedent to retrenchment. Dismissal, on the other hand, refers to separation on account of gross misconduct.

A retrenched employee can approach the court of law for justice. If an employee is retrenched illegally and the employer cannot produce supporting documents to the court, the employee becomes eligible for reinstatement with back wage.

The verdicts of Rajasthan High Court and Uttarakhand High Court on retrenchment are provided along with the case numbers.


Type # 5. Voluntary Retirement Schemes:

Companies launch voluntary retirement schemes (VRS), which can be exercised optionally or manda­torily. Over the last few decades, companies have gotten into the practice of cutting surplus manpower. VRS, unlike retrenchment, is a noble or righteous scheme, and is alternatively known as the ‘golden hand shake’ plan.

VRS is actually a painless and time-saving method of trimming employee strength. The collective bargaining fora cannot object to this mode, as the scheme is attractive and voluntary. Employees who opt for this scheme get handsome compensation. In other words, management pays a hefty amount to attract employees to opt for this scheme rather than retaining surplus manpower, resulting in recurring expenditure. Voluntary retirement schemes are also termed ‘separation incentive program’ for employees.

Type # 6. Transfer:

In companies, employees are transferred from one department to another of the same unit, or from one unit to another unit. Though transfers are usually ordered without any change in the job responsibilities or remuneration, sometimes they may also involve a change in the job role. In the latter case, they are often accompanied by a change in the place of the job. In some cases, the senior employees working in multinational companies are even transferred to serve in units in other countries.

A transfer is different from a promotion which involves a significant change in responsibility, status, and income. Transfers are regular and frequent organizational phenomena. In banks and in government organizations such as ordnance factories, transfers in gazetted ranks are frequent.

Some of the common reasons behind transfers are listed as follows:


a. Frequent disputes between an employee and the controlling manager

b. Frequent complaints about one employee by his/her colleagues

c. A change expressed by an employee with regard to his/her interest or capabilities to perform other tasks

d. Declining productivity of an employee over a period of time; may be due to monotony of the assignments

e. Work environment not suiting an employee’s health following some ailment

f. Family-related issues such as marriage (of a women employee), continued sickness of parents.


In case of shortage of manpower in one department, due to explosion of demands from the customers, the management tries to deal with the situation by working extra time or multiple shifts. Furthermore, if any department has surplus manpower, the management neutralizes the same by way of inter-departmental transfers.

People are transferred from one department having surplus resources to another department where the demand is more. In order to avoid industrial disputes, there are certain principles behind transfers that must be followed.

Types of Employee Separation – How Employees can be Separated from HR Payroll in Any Company?

An employee is separated from the company when he/she is dismissed, suspended from job, retrenched or when he/she tenders resignation.

Separation means cessation of service with the organization for one or other reason.

The employee may be separated from HR payroll due to:

I. Resignation


II. Discharge and dismissal

III. Suspension and retrenchment

IV. Lay off

I. Resignation:

Resignation may be put in voluntary by the employees on the ground of health, better opportunities elsewhere or maladjustment with the company policy and officers or for reasons of marriage. A discharge involves permanent separation of an employee from the pay roll for violation of company rules or for inadequate reasons. Proper procedure of discharge must be conducted and it should not be an impulsive act. There has to be a written warning for the same along with discharge letter at the time of discharge. Adequate provision should exist for review of discharged employee’s case.

II. Dismissal:

Dismissal which is referred to informally as firing or sacking is the termination of employment by an employer against the will of the employee. Though such a decision can be made by an employer for a variety of reasons, ranging from an economic downturn to performance-related problems on the part of the employee, being fired has a strong stigma.

To be dismissed, as opposed to quitting voluntarily, is often perceived as being the employee’s fault. Finding new employment may often be difficult after being fired, particularly if there is a history of being fired from previous jobs, if the reason for firing is for some serious infraction, or the employee did not hold the job very long. Job seekers often do not mention jobs that they were fired from on their resumes.


A dismissal may also be viewed as the termination of services of an employee by the way of punishment for some misconduct or for some unauthorized and prolonged absence from duty.

Alternatives for Dismissal:

Employers have several methods of countering some of the potential threats posed by dismissal such as the employee turning violent or attacking the person responsible for dismissal.

i. Forced resignation – It allows the employee to resign as if by choice, thereby freeing the employer of the burden of a firing.

ii. Termination by mutual agreement – The employer and employee make a joint decision to end employment. Though it may be debatable if the termination was truly mutual, the employer offers the employee a “softened firing” in order to reduce backlash.

iii. Severance package – The employee is offered some extended pay or benefits and a glowing reference in exchange for departure. In turn, the ex-employee agrees not to sue, file for unemployment, or take any other action that would hurt the employer.


iv. Demotion – The employee is moved to a lower position, their hours or pay are cut, or the working environment is made increasingly unattractive in hopes of getting the employee to depart voluntarily. In some cases, the employee is officially kept as an employee, but offered little or no work.

v. Change of Role – The employer may modify the employee’s duties so the employee doesn’t feel dishonored by the changes, but no longer performs the duties with which they were struggling.

vi. Unpaid Leave – To avoid being fired as a cost-cutting measure, an employee may agree to take time off without pay, either spread out over a long period (e.g., taking off one day a week without pay over a year), or concentrated (e.g., taking off one month without pay)

III. Suspension:

Suspension – A suspension is when an employee remains employed but is asked to not attend the place of work, or engage in any work at all.

There are two main types of suspension:

i. Suspension for medical or health and safety reasons; and

ii. Suspension as part of a disciplinary procedure (investigation).

i. Suspension for Medical or Health and Safety Reasons:

Employee may be suspended if the job is posing a risk to health or safety. For example, if employee developing an allergic reaction to chemicals exposed to, while working.

In these situations, employer can offer an alternative job that reduces the risk, even if this is not stated in the contract. If this alternative job is reasonable, employee cannot choose to be suspended instead.

Length of suspension-employee can be suspended for medical or health and safety reasons for up to 26 weeks on full pay as long as employee has been employed for at least one month.

ii. Suspension as Part of a Disciplinary Procedure (Investigation):

Employee may be suspended on full pay if allegations of misconduct have been made and are being investigated. Suspension on full pay is not a punishment, but part of the investigation process in a disciplinary procedure for many employers, employer should give a clear reason for the suspension and explain what other options have been explored instead of suspension. If employee is suspended because of allegations he/she is entitled to know what the allegations are.

Length of suspension – employer needs to do what they can to resolve the issue swiftly and keep the suspension to a minimum.

Pay during suspension – Unless there is a clause in employment contract that talks about suspension with half pay or without pay, employee should receive full pay while being suspended.

However the employer may prevent employee from speaking to fellow employees and clients/customers of the business. This is lawful unless the employee can show that it interferes with his/her ability to answer any allegations that have been made against him/her.

IV. Retrenchment:

Permanent termination for economic reasons of the organization is known as retrenchment. In the Industries Disputes ACT 1947, defines retrenchment as termination by the employer of the services of workmen for any reason. A three months’ notice in writing needs to be given to the employee and wages in lieu of such notice.

Different Types of Retrenchment Strategies:

i. Turnaround Strategies:

Turnaround strategy means backing out, withdrawing or retreating from a decision wrongly taken earlier in order to reverse the process of decline.

There are certain conditions or indicators which point out that a turnaround is needed if the organization has to survive.

These danger signs are as follows:

a. Persistent negative cash flow

b. Continuous losses

c. Declining market share

d. Deterioration in physical facilities

e. Over-manpower, high turnover of employees, and low morale

f. Uncompetitive products or services

g. Mismanagement.

ii. Divestment Strategies:

Divestment strategy involves the sale or liquidation of a portion of business, or a major division, profit centre etc. Divestment is usually a restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful or it was ignored.

A divestment strategy may be adopted due to the following reasons:

a. A business cannot be integrated within the company.

b. Persistent negative cash flows from a particular business create financial problems for the whole company.

c. Firm is unable to face competition.

d. Technological up gradation is required if the business is to survive which company cannot afford.

e. A better alternative may be available for investment.

iii. Liquidation Strategies:

Liquidation strategy means closing down the entire firm and selling its assets. It is considered the most extreme and the last resort because it leads to serious consequences such as loss of employment for employees, termination of opportunities where a firm could pursue any future activities, and the stigma of failure.

Liquidation strategy may be unpleasant as a strategic alternative but when a “dead business is worth more than alive”, it is a good proposition. For instance, the real estate owned by a firm may fetch it more money than the actual returns of doing business.

Liquidation strategy may be difficult as buyers for the business may be difficult to find. Moreover, the firm cannot expect adequate compensation as most assets, being unusable, are considered as scrap.

Reasons for Liquidation are:

a. Business becoming unprofitable

b. Obsolescence of product/process

c. High competition

d. Industry overcapacity

e. Failure of strategy.

Types of Employee Separation – Different Forms of Separation: Retirement, Resignations, Lay-Off, Retrenchment and Dismissal

Separation is a situation where the service contract of an employee with his employer comes to an end. In other words, employer and employee part with each other. An employee may move out of the organization for a variety of reasons like retirement, resignation, better prospects elsewhere etc.

The forms of separation are explained below:

1. Retirement:

It is of two types namely – compulsory retirement and voluntary retirement.

a. Retirement by superannuation – Where an employee retires on attaining the age prescribed for retirement, it is known as retirement by superannuation.

b. Voluntary retirement – Employees are given option to retire even before they reach superannuation. This is done to downsize the workforce as a cost cutting measure or to manage the militant trade unions. Employees are given incentive to opt for VRS. This scheme is called Golden Hand Shake.

2. Resignation:

Resignation is termination of service by an employee by serving a prior notice to the employer. It may be voluntary or involuntary. When an employee decides to quit on grounds of marriage, ill health, better prospects in another organization etc., it is voluntary. It is involuntary when the employer forces the employee to resign on grounds of indiscipline, violation of rules, misbehaviour, insubordination etc.

Some resignations may be beneficial for the organization to rectify mistakes committed in hiring the employees. An exit interview may be conducted to unearth the causes underlying his resignation. Employee’s death in harness puts an end to his service contract.

3. Lay-Off:

Lay-off implies denial of employment to the employee beyond the control of the employer. According to Industrial Dispute Act, 1947, it is defined as failure, refusal or inability of an employer on account of shortage of coal, power, raw material or accumulation of stock, breakdown of machinery or by any other reason, to give employment to workmen whose name appears on the muster roll of his industrial establishment and who has not been retrenched.

Employer and employee relation does not come to an end. It is suspended during lay-off. Lay-off is routine in seasonal industries, like sugar; mines, etc. Laid-off worker is entitled to a compensation equal to 50% of basic wage plus dearness allowance which would have been paid but for his lay-off. However worker needs to fulfill the following conditions to be entitled to get complementation.

a. He should not be a casual worker.

b. His name should figure in nominal muster roll.

c. He should have put in a minimum of one year of continuous service.

4. Retrenchment:

It means permanent termination of an employee’s service for economic reasons. Surplus labour force, poor demand for products, recession, nationalization, technical advancement, etc., drive retrenchment. However, termination of service on account of retirement, winding up of business, illness or on disciplinary grounds does not constitute retrenchment.

Retrenchment is common in plantations, agricultural service, forestry, food processing, cotton textiles and manufacture of machines, etc. An organization employing 100 or more employees has to give 3 months’ notice to the employee to be retrenched. It has to seek prior approval of the Government.

In other organizations, one month advance notice will suffice. Retrenched worker is paid 15 days wage for every completed year of service. The retrenched employees need to be given priority when there is a need for employing people in future.

5. Dismissal:

Unsatisfactory performance, unruly behaviour, perpetual absenteeism, misconduct, insubordination, theft, repeated violation of rules etc., are the causes forcing the employer to discharge the employees. This measure should be resorted to with care and caution. Before an employee is discharged, he should be given opportunity to explain his position. The reason for dismissal should be communicated to the errant.

Types of Employee Separation – 2 Types of Separation: Voluntary and Involuntary Separations

According to Crabb (1912), employee separation has been a focus of behavioural research for nearly eight decades. Employee separation can be defined as the ceasing of membership of an employee from the organization. The service agreement between the employer and employee terminates. The rate of employee separation is measured by turnover index.

Employee separations can be divided into two types such as voluntary separations and involuntary separations.

1. Voluntary Separations:

This type of separations occur when an employee decides to leave the organization for personal (family disturbances, career growth, marriage, etc.) or professional reasons(poor working conditions, conflict with boss, no opportunity for career growth, low pay and benefits, finding the current job less attractive etc.).

Voluntary separations are of various types such as:

a. Wanted voluntary separations and unwanted voluntary separations.

b. Avoidable voluntary separations and unavoidable voluntary separations.

a. Wanted Voluntary Separations and Unwanted Voluntary Separations:

Wanted separation covers those employees whom the organization let go happily, even if it means incurring replacement costs. Quits and retirements are two forms of wanted separations. An employee’s decision to quit depends upon his/her level of dissatisfaction with the current job or job environment or both, and the number of attractive alternatives available outside the organization.

The recent trend in the industries shows that employers use various types of pay incentives to encourage their employees to quit voluntarily. These are known as voluntary severance plans, or buyouts and are used to reduce the number of employees in the organizations.

The pay incentives usually amount to a lump-sum cash payment of six months to two years of salary depending on the design of the plan, employee’s period of staying in the organization and the financial position of the organization. A retirement is normally initiated by the employee. It differs from a quit in various ways.

Firstly a retirement usually occurs at the end of an employee’s career where as a quit can occur at any time of the employee’s career.

Secondly, in case of a retirement an employee receives retirement benefits in the forms of monthly pension, provident fund, gratuity, encashment of earned leave etc., where as in case of a quit an employee does not receive the above benefits.

Thirdly organizations normally plan for retirements of their employees in advance giving sufficient time to them for psychological adjustments. HR staff help employees in planning their retirement in the best effective manner. Managers plan in advance to replace retirees by grooming current employees or recruiting new ones, where as it is very difficult to plan for quits which are mostly unexpected.

Many Fortune 500 companies have adopted the method of “early retirement benefits” as an effective way to reduce the size of their workforce. State Bank of India had used “Voluntary Retirement Scheme (VRS)” or “Golden Handshake Scheme (GHS)”to reduce the size of its workforce. There is also “Compulsory Retirement (CR)” which is applicable to the government organizations.

In India the government employees retire compulsorily after attaining the age of superannuation (either 58 or 60). ln private sectors the retirement age sometimes go beyond 60 depending upon the employee’s experience, commitment and ability to give best performance.

Unwanted separation refers to loss of those employees, whom the organization would like to keep. Unwanted separation is categorized into two types such as separation of a newcomer and separation of a senior and valued employee. In the first case separation occurs within first year of employment. The organization incurs replacement costs, induction costs and training costs.

In case of separation of a senior and valued employee, organization incurs more costs. The costs of losing a senior, good performer and valued employee are much higher than the costs of losing an average performer. The costs involved are investment in the employee’s development, the loss of knowledge and experience gained, and loss of productivity.

b. Avoidable Voluntary Separations and Unavoidable Voluntary Separations:

Avoidable voluntary separation is that which the organization can avoid and stop the employees from leaving. According to some research findings around 80 percent of voluntary separations are avoidable and most of them are due to staffing mistakes.

Hence these separations can be avoided by adopting the strategies of realistic job preview, quality HRM recruiting, selection, training and development programmes. Unavoidable voluntary separations result from an employee’s decisions to get separation on which there is no control of the organization.

For example the reasons may be the employee’s spouse gets a good job in another location or the employee wants to give better education to the child in other location.

2. Involuntary Separations:

Involuntary separation is the employer initiated separation which is mainly in the form of death, permanent disability, dismissals, lay off and resignation in anticipation of dismissal.

Types of Employee Separation – Resignation, Dismissal, Death, Lay-Offs, Retrenchment and Voluntary Retirement Scheme (VRS)

The cessation of services of personnel from an organisation is called separation. Cessation of services of an employee is governed by the contract between the employee and the organisation. Separation of an employee takes place when his agreement with the organisation comes to an end and the employee leaves the organisation. It is painful for both the parties, so it should be carefully administered.

In the words of Keith Davis, “Separation is a decision that the individual and the organisation should part.”

Type # 1. Resignation:

When an employee himself initiates the separation, it is called resignation. It refers to the termination of employment at the instance of the employee. The main reason for resigning by the employee is some better opportunity available to him outside the organisation. Sometimes an employee also quits his or her job due to some personal reasons like marriage, ill health, etc. The human resource manager is responsible for investigating the real causes for the resignations.

He tries to minimise these resignations by making improvements in the organisational climate. Resignations also help the management to rectify the mistakes in hiring of employees and to bring in fresh talent from outside. For the purpose of investigating the real reasons for resignation of employees an exit interview can be conducted with the employee, who is leaving the organisation.

Such interview should be conducted after fulfilling the following requirements:

(i) Making the employee clear that the purpose of exit interview is the improvement of the organisation’s climate.

(ii) The responsible officer from the personnel department should conduct this interview.

(iii) The officer should patiently listen to the answers of the employee.

(iv) He should try to find out the real cause for resignation and it should be ensured that the leaving employee has fully handed over the charge to somebody else.

(v) Employee should be assured that the company’s ultimate interest is in his welfare.

Type # 2. Dismissal or Discharge:

It refers to the termination of the services of an employee by way of punishment for misconduct or unsatisfactory performance. In this case, the termination of employment is initiated by the employer. It is a drastic step and should be taken after careful thought. It should be supported by a sufficient cause.

The following reasons can become the reasons of dismissal for an employee:

(i) Excessive absenteeism

(ii) Serious misconduct

(iii) Theft of company’s property

(iv) Dishonesty

(v) Violation of rules

(vi) Drunkenness

(vii) Carelessness

(viii) Physical disability

(ix) Insubordination

(x) False statement of qualification at the time of employment

Before the employee is discharged from the organisation, he should be provided with the opportunity to explain his conduct and should show the reason why he should not be dismissed.

Type # 3. Death:

Sometimes, an employee may die in service. Further, if the death of the employee occurs due to occupational hazards, his family members get the compensation as per the provisions of Workmen’s Compensation Act. Some organisations also provide or offer the employment to the spouse/child/dependent of the employee who dies in service.

Type # 4. Lay-Offs:

It is a temporary separation of an employee by the employer under specific circumstances. It is a temporary removal of an employee from the pay-roll of the enterprise due to circumstances which are beyond the control of the organisation. It involves temporary removal of the people with surplus skills from the payroll.

According to Section 2 (kkk) of the Industrial Disputes Act, 1947, “Lay-off means the failure, refusal or inability of an employer on account of coal, power or raw materials or accumulation of stock, breakdown of machinery or by any other 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.”

Following are the important elements of a lay-off:

(i) Basis of Lay-Off:

Lay-off may be effected on the basis as specified by the Act. This may be applicable to the entire production section/department/unit involving the lay-off of all the employees, or it may be partial involving the lay-off of only some employees.

There are two bases for lay-off:

(a) Seniority – When seniority is taken as the base, the process begins with the junior most employees and the process is known as last in first out (LIFO).

(b) Merit – When merit is taken as the base, the process begins with the least efficient employees.

(ii) Basis for Redeployment:

As lay-off is a temporary measure, therefore, it is necessary to determine the basis on which an employee will be recalled after the lay-off is over in part. The same basis is generally adopted at the time of recalling, which was followed at the time when lay-off was adopted i.e., those who were laid off last will be called first.

(iii) Compensation:

Employees should be paid the compensation of lay-off as it is initiated by the employer. According to Section 25 (A) of Industrial Disputes Act, the compensation of lay-off is paid at the rate of 50 per cent of the wages and dearness allowances that would have been paid to the employee if he had not been laid off. For claiming the amount of compensation the employee has to report daily to the workplace from where he had been laid off.

Reasons for Lay-Off:

(i) Shortage of coal, power and raw material.

(ii) Breakdown of Machinery.

(iii) Accumulation of stocks.

Essentials of Lay-Off:

(i) There must be failure or refusal or inability of the employer to continue to employ some workers in his employment.

(ii) The emergency leading to employer’s inability must be temporary.

(iii) The workers laid off must be on the muster rolls of the establishment, on the date of lay-off.

(iv) The reasons of lay-off must be shortage of coal, raw material or power or accumulation of stocks, etc.

(v) Employer and employee relationship does not come to an end, but is merely suspended during the period of lay-off.

Type # 5. Retrenchment:

Retrenchment is another type of separation of an employee from his/her employer. As lay-off is a temporary separation, retrenchment is the permanent separation. Retrenchment is also governed by the provisions of Industrial Dispute Act. According to the Section 2 (OO) of the Act, “Retrenchment is the termination of services of workmen by the employer for any reason.”

It is the termination due to the following reasons:

(i) Replacement of labour by machines,

(ii) Closure of the department due to the continuing lack of demand.

The compensation is also provided under retrenchment as in lay-off, which is equivalent to fifteen days’ average pay for every completed year of continuous service.

Following conditions are required to be satisfied for the retrenchment:

(i) A worker should be given three months’ 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 the same has been obtained.

Type # 6. Voluntary Retirement Scheme (VRS):

When an organisation wants to cut down its operations or 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. Therefore, it is another type of separation. In the early 1980s, both the public and private sector companies were sending home surplus labour for good, not strictly by retrenchment, but by the novel scheme called VRS. Handsome compensations are paid to those workers who opt to leave Ltd.

For example, in Hindustan Lever Ltd., the VRS consisted of:

(i) A lump sum equal to 2.25 times the July 1992 salary multiplied by the remaining years of service (subsequently reduced to 15 years of service).

(ii) Pension equal to 70 per cent of the July 1992 salary, payable till the age of 60.

(iii) Prizes such as computers, trucks, houses and so forth, to be decided on the basis of a lucky draw.

A number of organisations have already reduced their workforce by VRS. These VRSs have taken different forms. In fact, the process of getting rid of excess labour started in several companies, much before the economic reforms ushered in India.

Some of the issues involved in the VRS are as follows:

(i) Identification of Need for VRS:

For making the VRS successful, it is necessary to identify the need for VRS by asking questions such as whether it is necessary or not, whether there is surplus manpower in the organisation, which type of employees will be affected by the scheme, which employees will opt for the scheme and which employee will not opt for it. The need for VRS will be analysed on the basis of all these queries.

(ii) Implications of VRS for the Organisation:

VRS has certain implications for the organisation. It is a double-edged weapon which can injure the organisation if it fails.

This failure can be of two types:

(a) When targeted employees do not opt for VRS, whatever may be the reason but it will affect the employee morale adversely and additional problems may emerge.

(b) 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 somewhere else may opt for VRS and those who are not employable anywhere, will not opt for VRS. This may defeat the very basic logic of VRS.

(iii) Mechanism for VRS:

It involves decisions about what is being offered and to whom it is offered. What is being offered is related to the compensation package under VRS. For example, HLL offered a lump sum 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. Another issue is the personnel who will be covered under VRS. Logically, those whose services are least required by the organisation.

(iv) Developing an Understanding with the Trade Unions:

Organisations are required to explain the concept of VRS to the employees who are covered under VRS and convince them. Many VRS schemes have failed due to the non-acceptance of the plan by the workers and their unions. Therefore, it is required that workers should understand the pros and cons of VRS and suggestions should be given to them for making the best use of VRS.