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Indonesia’s Omnibus Law has made significant changes to the country’s employment laws, most notably on employee termination.

Prior to the changes in the Omnibus Law, employers had no right to unilaterally terminate employment in any circumstance, unless the termination was agreed upon by both parties through negotiations. The employer would then be able to obtain an approval for the termination from the labor courts and the employee was entitled to up to six months’ salary.

[tips title="Important Tip"]Under the latest changes, the employer can now notify the employee in writing, setting out the reasons for termination, and the termination payments and entitlements at least 14 business days before the date of termination.[/tips]

If the employee has no objection to the termination, then the employer can notify the Ministry of Manpower of this notice. If, however, the employee objects to the termination, they must provide, in writing, the reasons for this within seven business days from receiving the termination notice.

Termination payments

Terminated employees are entitled to termination payments and the amount varies depending on the length of employment of the employee.

Termination payments are comprised of severance payments, long service pay, and compensation of rights. There is another component called separation pay, but this must be stipulated in the employment agreement.

Compensation pay refers to compensation for any untaken annual leaves and other costs incurred such as for relocation.

Long service pay refers to a type of compensation given to employees based on the number of years they have worked at the company. An employee who has had their contract terminated may be eligible for the long service pay in addition to the severance pay.

Service Payment in Indonesia

Completed years of service

Service payment

More than 3 years but less than 6

2 months wage

More than 6 years but less than 9

3 months wage

More than 9 years but less than 12

4 months wage

More than 12 years but less than 15

5 months wage

More than 15 years but less than 18

6 months wage

More than 18 years but less than 21

7 months wage

More than 21 years but less than 24

8 months wage

More than 24 years

10 months wage

Severance Payment in Indonesia

Completed years of service

Severance payment

Less than 1 year

1 month wage

More than 1 year but less than 2

2 months wage

More than 2 years but less than 3

3 months wage

More than 3 years but less than 4

4 months wage

More than 4 years but less than 5

5 months wage

More than 5 years but less than 6

6 months wage

More than 6 years but less than 7

7 months wage

More than 7 years but less than 8

8 months wage

More than 8 years

9 months

The new law does provide changes on calculating the amount of termination payment for certain cases such as mergers and acquisition of the company or the closure of the company due to mounting losses.

Termination Payment Formula

Reason for termination

Severance payment

(as accordance to the previous tables)

Long service payment

(as accordance to the previous tables)

Compensation of rights

(as accordance to the previous tables)

Separation pay

Long-term illness or disability resulting in the worker unable to work for 12 moths

2x

1x

1x

No

Employee death

Retirement

1.75x

1x

1x

No

  • Merger, consolidation, separation of company and which the employee is not willing to continue with their employment or the employer will no longer accept the employee;
  • Employer carries out efficiency to prevent losses;
  • Acquisitions;
  • Employee’s self-termination due to violations committed by the employer; and
  • Employer is involved in debt payment proceedings without suffering losses

1x

1x

1x

No

Force majeure but does not result in the company closing down

0.75x

1x

1x

No

  • Acquisition resulting in changes of employment for the employee;
  • Efficiency due to employer’s losses;
  • Closure of the company due to force majeure;
  • Company bankruptcy;
  • Employee’s violation of the employment agreement (after being served warning letters); and
  • Employer is involved in debt payment proceedings as a result of its losses

0.5x

1x

1x

No

  • Court decision finds the employee’s allegations against the employer not proven;
  • Employee’s voluntary termination;
  • Employee’s absence without permission for five continuous working days; and
  • Employee being found guilty of a violation that creates losses for the company
   

Yes

Yes

Employee unable to work for six months due to detention by the authorities, and creates losses for the company

   

Yes

No

Employee unable to work for six months due to detention by the authorities, but does not create losses for the company

 

1x

Yes

No

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