Employer’s Guide to Employee Voluntary Retirement Program

“Voluntary early retirement gives you a chance to pursue new areas of study. It is a great opportunity to pursue your goals and dreams while you are still young, energetic, and healthy enough to enjoy them. In addition, retirement may be your last shot at being the person you would like to be.” – Ernie Zelinski

What is voluntary retirement?

Voluntary retirement is an early retirement incentive which is offered to certain employees who meet the criteria of retirement. Commonly, the incentive is used by human resource and management to right-size their organisation.

See also: Inboarding vs. Onboarding: A Guide for Employers

In terms of mental health, voluntary retirement is perceived to be healthier than involuntary retirement. A study of Irish Adults aged 50 and over revealed that involuntary or forced retirement has a negative and statistically significant effect on mental health. In contrast, the researchers found that there is no effect on voluntary retirement.  Not to mention, a voluntary retirement program is seen to be more humane since employees who are prepared for a job loss are the ones who volunteer to terminate.

FindLaw added that there is a legal advantage of a voluntary program. For example, if employees select themselves for termination, an employer will have far less exposure to claim that the termination is discriminatory under labour law. This means that an employer will be free and protected from any fine or charge that might liable due to the termination. 

Handling voluntary retirement

Albeit the retirement program is better than forced one, the process and cost of the voluntary program, however, can be complicated and tough. Josh Hrala in Career Minds wrote that a voluntary retirement plan can impact the business bottom line at most. Let’s say your employee has been working with you for 35 years. He knows the ins and outs of the business that many employees look up on him. When such an employee signs up for voluntary retirement, his dismissal might cost a lot to the business.

To avoid such scenarios, offering voluntary retirement should come with the right plan and handled properly. Here’s how to prepare your workforce for the program.

• Understand the criteria

First and foremost, you need to know the criteria of someone who are eligible for the program. Here is the list.

Note that this is the general criteria of voluntary retirement. Each state might have developed their own specific criteria. Before making the program available, you are suggested to ask employment advisors, such as the Ministry of Manpower.

- It applies to an employee of a company who has completed ten years of service or more and has completed 40 years of age

- It applies to all employees, including workers and executives of a company excepting Directors of a company

- The scheme of voluntary retirement has been drawn to result in an overall reduction in an existing strength of employees  

- The amount receivable on account of voluntary retirement of an employee does not exceed an amount equivalent to one and one-half salary for each completed year of service.

- The employee has not availed in the past benefit of any other voluntary retirement scheme

• Analyse the cost

Voluntary retirement program is meant to reduce the cost of layoff. So, it is worth calculated how much you will save and if the incentive is worth it. You should make sure that the cost of the program would not harm company budget.

Hrala suggested looking at salaries of those who are eligible, how much it will cost to buy them out, and what benefits your company will extend to them post-retirement. Working together with the accounting team, CFO, and other upper management members is suggested.

• Talk the talk

The next stage is to communicate the program to the entire employees who are eligible for the program. Don’t just aim the older employees because it is against the law. You can email or place an announcement saying that anyone who meets the requirements can reach out to HR or roll out an attached form.

It is also advised to let employees know that their benefits can cut drastically due to early retirement. This ensures clarity and openness as everyone who is interested can come forward and ask if there are any questions.

• Time to think

For anyone who is registered for the program, give them time to read over the offer, talk with their lawyers, legal counsel, HR or whomever they with before they sign. Retirement is a big decision, especially for young employees. Therefore, this could be a crucial time when taking a big decision.

• The last step is to commence the program when everything is set. Then, let employees enjoy their hard work.

Next read: 2 Simple Ways to Manage Corporate Layoff