Employee Separation Meaning, Benefits, Types

Meaning of Employee Separation

Employee Separation involves ending the employment relationship of an employee with an organisation. The termination of an employee’s employment relationship with a company is known as employee separation. It is simply known as “Termination of employment.” It is also known as employee turnover. An employee’s employment is terminated when an employee even after getting the notice is not able to improve his/her performance or when an employee behaves in an unethical manner or is involved in any type of misconduct. Employees are separated from their job due to some reasons such as lay-off, resignation and dismissal. In sick industries and loss-making business ventures, separations are generally seen. When the market demands are not adequate then it leads to a decrease in activities of production, thereby leading to the separation of employment both the parties (employer and employee) feel the pain of separation. Therefore, separation should be managed carefully.

Benefits of Employee Separation 

Benefits of employee separation to the organisation include the following points: 

1) Minimises Cost of Labour: By separating the employees, a business organisation can reduce its cost of labour. However, the cost of layoffs is considerable, but the money which is saved by separating the employees from an organisation can be used for layoffs in order to compensate for the expenses occurring from layoffs.

2) Helps in Replacing Low Performers: It is very important for an organisation to identify the poor performers of an organisation and thereafter that helping them by providing training or by engaging them in skill development to make their performance satisfactory. But, if the feedback is still negative even after providing training, then it is better to terminate the poor performer and replace him with a skilled employee. Hence, the benefit of separating a poor performer is to create job opportunities for fresh and skilled employees. 

3) Promotes Innovation: Advancement opportunities are created for high-performing individuals from separation. As the employees are promoted within an organisation, entry-level jobs are created thereby giving an opportunity to the new employees to enter the organisation. These new employees may include fresh graduates who may become a source of innovation to an organisation as they have knowledge about the latest research and technologies or are expert engineers or experienced managers from different renowned research laboratories.

4) Facilitates Workforce Diversity: Another benefit of separation is to create job prospects for employees from different cultural and gender compositions. The benefit of employing a diverse workforce in an organisation is to extract the advantages of workforce diversity.

Types of Employee Separation

There may be voluntary or involuntary reasons for the separation of the employees, which are as follows:

Types of Separation

  1. Voluntary
  2. Resignation 
  3. Retirement
  4. Separation
  5. Involuntary
  6. Lay-Off
  7. Dismissal or Discharge 
  8. Retrenchment
  9. Voluntary Retirement Scheme
  10. Rightsizing/Downsizing

1) Voluntary Separation: When an employee decides to end up his relationship with the organisation, it is called voluntary separation. Employees that resign from a company voluntarily do so for their own reasons, not as a result of a decision made by the organisation. The separation can be reduced by providing fair wages, offering benefits, and strengthening the bonds between the employee and the company. (e.g., the change in family dynamics or size or relocation of a spouse). 

Resignation and Retirement are the two types of voluntary separation.

2) Involuntary Separation: When the employer asks the employee to leave the organisation, it is called involuntary separation. In such a case, the employee feels that he has been treated unfairly and he looks for legal protection to tackle it.


Resignation is a particular situation when an employee makes the decision of leaving his job or being forced by the organisation to quit his job. In case of voluntary resignation, the employee decides to quit or leave his job on his own. On the other hand, resignation is involuntary when the employer asks the employee to leave his job through the disciplinary procedure.

Although in the case of disciplinary action, the domestic enquiry process should be followed instead of for the employee to resign from the job. The main reason for this is that if the domestic enquiry process is not followed then the employee can seek union help or can approach the court and claim that resignation was obtained from him. If the organisation is facing a high frequency of resignations, then it must conduct exit interviews in order to know the actual causes of such frequent resignations.

Reasons for Resignation 

The basic reasons for resignation are as follows:

1) Dissatisfaction: Employees resign from the job due to dissatisfaction with the job. The dissatisfaction is due to the nature of work, compensation, benefits, discrimination, welfare facilities, working hours, work environment, etc.

2) Domestic Problems: Employees resign due to problems in their personal lives which include weddings, pregnancy, family responsibilities, transfer, etc. 

3) Personal Situations: Problems related to health, conveyance, cash gain, injury, early retirement, etc. Some of the personal situations due to which an employee resigns from his job.

4) Promotional Gains: A person may resign from his job due to a lack of growth opportunities in the organisation or if he finds a more attractive job offer in some other organisation.


Temporary termination of an employee from his job for a certain period of time is known as lay-off. After the fixed time duration, employees can rejoin work by being called by the employer. Section 2 of the Industrial Disputes Act, of 1947, defines “lay-off as the failure, refusal or inability of an employer to give employment to a worker whose name is present on the rolls but who has not been retrenched”.

Reasons for Lay-Off 

The lay-off may be because of the following given reasons:

1) Decreased sales.

2) Scarcity of raw materials.

3) Technological advancements

4) Production delay

5) Excessive gods accumulation in godown 

6) Machinery breakdown

Factors Determining Lay-Off

On the basis of the following factors the policy of lay-off must be decided:

1) Lay-off policy should be sold to employees at the time of their employment in the organisation so that they are aware of the terms and conditions of the lay-off.

2) If the employer is going to lay off its employees for a long duration of time, then employees must be notified earlier.

3) During lay-off, employees must be sold so that the employer will make his best effort to recall them. 

4) Employers should help employees in their re-deployment.

Dismissal or Discharge 

Dismissal is a punishment given to an employee, in which the service given to him is terminated due to serious misconduct. This ultimate punishment is given by the employer to his employee to correct his indisciplined behaviour. Dismissal is a permanent separation and a dismissed person is not able to get a job somewhere as it carries a stigma.

Both dismissal and discharge result in the termination of the employee’s service. Due to this reason, both the terms dismissal and discharge are used without any discrimination by employees and employers and even sometimes by the Labour Courts. However, there is a difference between dismissal and discharge and it should be understood clearly.

Reasons for Dismissal

The following given reasons lead to the dismissal of an employee:

1) Poor Performance: When an employee constantly fails to perform the given duties and responsibilities or he fails to achieve the standards which are prescribed in the job then it can be said that the performance of the employee is poor. Some of the reasons for poor performance are frequent absenteeism from the job, slowness, putting less effort to meet the normal job requirements, or showing a negative attitude towards the organisation, superiors or colleagues.

2) Indiscipline: When an employee wilfully violates the rules of the employer which may include stealing, unethical behaviour and misbehaviour with colleagues, then the employee is said to be involved in misconduct.

3) Lack of Qualification: When an employee is unable to do the assigned work even though he/she is active and attentive, then it denotes that the employee is having lack of qualification. Therefore, it is important to train and develop such employees. my work out at al den

4) Changed Job Requirements: Due to the changing nature of the job, it could be possible that employees are not able to perform their job.

When an organisation reduces its work, then it often dismisses its employees. Although the employees may be skilled and hardworking, therefore, the firm should make an effort to transfer and train those employees.

5) Insubordination: Insubordination means indiscipline which sometimes forms the basis for the dismissal of employees; however it may be difficult to prove insubordination. Some grounds for dismissal are stealing, unpunctuality, and poor work quality.

Irrespective of where and when they occur, insubordinate acts include:

i) Violating organisational policies, procedures, rules, and regulations.net mel

ii) Disrespect to the boss’ like disobedience of order or refusal to obey the order, particularly in front of others.

iii) Not following a proper channel of filing complaints and grievance redressal.

iv) Arguing with a boss or criticising the boss publicly.

v) Showing feelings of disrespect, using abusive comments and displaying these feelings during working on the job.


Retrenchment can be defined as the termination of service due to surplus labour. According to Industrial Disputes Act, “Retrenchment is the termination by the employer of the service of a workman for any reason whatsoever, other than as a punishment, but does not include voluntary retirement, retirement and termination on the grounds of ill health”. As per the latest amendment, non-renewal of the contract is not to be considered as retrenchment. Thus, it can be concluded that every retrenchment is a termination of services but all service terminations cannot be called retrenchment.

Retrenchment is different from dismissal. Because of one’s own fault, an employee is dismissed but on the other hand, retrenchment is forced on both the employees and the employer. In retrenchment, the termination of services of many employees takes place but in dismissal generally, the termination of service of only one or two employees takes place.

Reasons for Retrenchment

Reasons for retrenchment are as follows:

1) Poor Performance: When an organisation, due to its poor performance, is going through a phase of loss in terms of profits and it is not in a condition to sustain its position in the market, then it needs to close down such business units which are in a continuous state of low performance.

2) Threat to Survival: Due to some unexpected problems in the product market, the survival of the firm is threatened. There may be pressure on the management from the shareholders and employees to improve the performance by all means even if it requires cutting down its operations.

3) Re-Deployment of Resources: When higher returns can be achieved by some alternate employment opportunities, then there may be a closing down of some existing business units or segments so that their resources can be put to better use for increasing profits and advancements in business.

4) Lack of Resources: To utilise big financial resources in order to create and maintain a stable position in the market.

5) To Attain Improved Management Efficiency: In order to simplify the range of activities of the enterprise it may be necessary to reduce some of the present operations to ensure working efficiency at a higher level.

Problems of Retrenchment

Various problems related to retrenchment are as follows:

1) Due to retrenchment, unemployment increases thereby forming the way for crimes in society through the activities like robbery, kidnapping, stealing, etc. increases.

2) The work output quality is impacted since the remaining employees are overloaded with work and experienced persons are replaced with new and fresh talents.

3) Retrenchment is not a good option to fight against corruption as it is done fairly thereby removing innocent people and leaving the corrupt ones on the job.

4) Retrenchment harms the self-respect of the workers as investment and gains are given more importance than the workers of the firm.

5) Those persons who have the authority to retrench people, sometimes unfairly retrench them due to their personal problems and disputes. This is very common in schools where teachers on the payroll are retrenched by the head teachers due to personal issues.

6) Many times, retrenched employees get so stressed that they indulge in the bad habits of drug addiction and alcoholism. This way, the productive people of the nation are turned into unproductive ones.

7) Retrenched people are not able to contribute to society as before, i.e., when they were employed. Therefore, they are not given that much respect in society and this results in a drastic change in their social life.

8) Retrenchment results in unemployment, due to which the retrenched worker is not able to fulfil his family’s basic needs like bread, garments, etc. This leads to the emergence of domestic problems such as divorce which disturbs the family and social life of the worker.

VRS (Voluntary Retirement Scheme)

VRS can be defined as a method used to reduce the current workforce of the company. In this method, an employee is persuaded to willingly retire from the organisation. It is also called the “Golden Handshake”. Commonly, employees who have reached the age of 40 are eligible for voluntary retirement.

However, the eligibility criterion for voluntary retirement schemes is different in different organisations. Except for the Directors of the company, this scheme is applicable to all employees including executives and employees.

Reasons for VRS

The reasons for VRS are as follows:

1) For Organisation: Under the following given circumstances, an organisation may choose a voluntary retirement scheme: 

1) Business recession,

ii) High market competition,

iii) Technological changes, the process of production, new product line, innovation,

iv) Re-alignment of business,

v) Joint ventures with foreign collaborations,

vi) Mergers and acquisitions,

vii) Business re-engineering process, and

viii) Product/technology obsolescence.

2) For Employees: The reasons for acceptance of VRS by employees are as follows: 

i) Fear of Uncertain Future: A feeling of fear develops among the employees due to which they are compelled to adopt the VRS. Although VRS is considered to be voluntary, 62% of cases of VRS are non-voluntary. Either individually or cumulatively these fears affect the employees in an organisation, thereby forcing them to take VRS.

ii) Need for Money: Some people adopt VRS when they are in need of money in order to fulfil their requirements. Money can be required for the repayment of the loan, the marriage of a daughter, the purchase of a house, etc.

iii) Job Dissatisfaction: If the employee is not satisfied with the job then he/she may go for VRS. This job dissatisfaction may be due to clashes with the supervisor or the peer group or because the job assigned to the employee is not according to his talent and skills due to which he is not finding it interesting.

iv) Sickness or Old Age: As the employees become older, their physical efficiency decreases and therefore their productivity also declines. So, old age can also be a reason for VRS. Sickness is another reason why employees go for VRS because a sick employee is unable to do the work as he suffers from fatigue, and weakness and sooner gets tired after every activity.

v) Allurement by Management: When the management of a company offers its employee a lump sum amount in lieu of VRS then the employee accepts VRS. This handsome amount offered to employees is known as a “golden handshake”.

vi) Dream of Own Business: Some workers do not find it pleasurable to work under others and so they wish to settle their own business. Because of this desire, the workers go for VRS.

vii) Other Issues: Some other reasons for VRS are: 

a) Attachment to Hometown: Some employees are too attached to the place where they are born and brought up. So, in order to settle back into their homeland the employees go for VRS 

b) Family Pressure: Some workers, especially female workers have pressure from their families Therefore, due to the pressures of the family, they are forced to adopt VRS. 

c) Better Job Offer: If the workers get another good job opportunity from any other company, then they opt for VRS.

Benefits of VRS 

Benefits of VRS include:

1) In case of retrenchment, there are legal formalities which need to be fulfilled before the employee is retrenched. However, in VRS there are no such legal hindrances and VRS can be put into use very easily. VRS the financial benefits provided to the employee are very much attractive compared to that

2) In lieu of VRS the financial benefits provided to the employees are very much attractive as compared to that of retrenchment.

3) As VRS is voluntary, there is no pressure from the management. This prevents conflicts between employer and employee. 

4) If there is a surplus of labour in any department or division, then by implementing VRS the number of labourers can be reduced.

5) Since in VRS the number of employees declines, so the cost of those employees gets saved, thereby the overall cost for an organisation also decreases. 

6) In comparison to retrenchment where the employees are forcefully retrenched from an organisation, VRS is the most sophisticated, better and most humane method to reduce the number of employees. 

7) VRS offers profitability to employees who are adopting VRS. Therefore, VRS prevents bitterness and dissatisfaction.

Problems of VRS

VRS does have some problems as well. 

These are as follows:

1) Management might lose talented employees due to VRS because many skilled, competent and productive employees may also apply for VRS in order to get separated from the company.

2) If in a company a number of employees apply for VRS then a feeling of fear and uncertainty develops among the existing employees regarding their job security. 

3) The employee’s separation from the organisation due to VRS may cost much more as compared to the gains achieved from productivity.

4) Although VRS is a better method of separation of employees, still there might be protests by the trade unions and other members of organisations against this scheme which can hamper the working of the industry. 

5) The name and fame of the organisation may also get affected due to the VRS operations.


When there is a surplus of employees in an organisation, then the organisation plans to eliminate some of the job positions which are no longer required in the organisation. This method of removing the job positions, thereby reducing the size of the organisation is known as rightsizing/downsizing. Due to the process of rightsizing/downsizing, the employees who are not required anymore are removed from the organisation. The main purpose behind rightsizing is to enhance the efficiency of work.

Reasons for Rightsizing

It becomes necessary to implement rightsizing due to the following reasons: 

1) Employee Surplus: When the human resource planning is not appropriate or correct then there may be a surplus of labour in an organisation.

2) Technological Upgradations: It is because of technology that the ratio between the number of men to the number of machines changes. In order to improve productivity in an organisation, it is necessary to adopt new and innovative technologies. If the organisation does not downsize in order to increase productivity then it may lag behind its competitors in the race for success.

By Arya

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