Indonesia has the most complex and costly termination framework in Southeast Asia. Government Regulation 35/2021 (implementing the Omnibus Law on Job Creation) defines severance pay, long service pay, and compensation pay for all termination scenarios. Maximum exposure reaches 32 months salary for employees with 24+ years of service. Understanding these costs is critical for workforce planning.
What Are the Severance Pay Rates Under GR 35/2021?
The severance amount above is the base. GR 35/2021 assigns multipliers (0x, 0.5x, 1x, 1.5x, or 2x) depending on the termination reason. Employer-initiated termination without cause: 2x severance. Efficiency measures: 1x severance. Company closure due to losses: 0.5x severance. Employee resignation: 0x severance. Misconduct: 0.5x severance.
What Is Long Service Pay (Uang Penghargaan Masa Kerja)?
Long service pay applies to most termination scenarios with multipliers of 0x or 1x depending on the reason. Employee-initiated resignation: 1x long service pay (if tenure qualifies). Employer-initiated termination: 1x. Misconduct: 1x. Company closure: 1x. Retirement: 1x. Long service pay is always paid at 1x (no 2x multiplier).
What Is Compensation Pay (Uang Penggantian Hak)?
Compensation pay covers three components. First, unused annual leave and long leave. Second, transportation costs for the employee and family to return to the place of recruitment. Third, housing and medical allowance equal to 15% of the total severance pay and long service pay. Compensation pay applies to all termination scenarios except employee death (which has separate provisions).
How Are Total Termination Costs Calculated?
Total cost = (Severance × multiplier) + (Long Service Pay × 1) + Compensation Pay. Example: Employee with 10 years of service earning IDR 15,000,000/month, terminated by employer without cause.
Severance: 9 months × 2x = 18 months × IDR 15,000,000 = IDR 270,000,000. Long Service Pay: 4 months × IDR 15,000,000 = IDR 60,000,000. Housing/Medical (15%): (IDR 270M + IDR 60M) × 15% = IDR 49,500,000. Unused leave: 12 days × IDR 690,000/day = IDR 8,280,000. Total: IDR 387,780,000 ($24,600). This is 25.9 months of salary.
Aniday's EOR Indonesia (Aniday EOR Indonesia) calculates all termination costs based on the specific scenario and manages the full termination process including severance payment, BPJS deregistration, and final documentation.
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Frequently Asked Questions
Can the employer negotiate lower severance than GR 35/2021?
No. GR 35/2021 sets minimum entitlements. The employer can pay more through a collective labor agreement or mutual agreement, but cannot pay less than the statutory minimum. Any agreement to accept lower severance is void. The Manpower Office (Disnaker) reviews termination settlements for compliance.
Is there a cap on total termination payments?
The maximum theoretical exposure is 32 months salary: severance (9 × 2x = 18 months) + long service pay (10 months) + compensation (15% × 28 = 4.2 months). This applies to employees with 24+ years of service terminated by the employer without cause. Practical caps are set by tenure and the applicable multiplier for each termination scenario.
How does PKWT termination differ from PKWTT?
PKWT (fixed-term) employees receive PKWT compensation (1 month per year of service) at contract end. If terminated early by the employer, the employer pays remaining contract salary. PKWTT (permanent) employees receive severance + long service pay + compensation pay per GR 35/2021. PKWTT termination is significantly more expensive than PKWT.
What is the termination process in Indonesia?
Steps: written notification to the employee, bipartite negotiation (employer and employee attempt agreement), if no agreement then mediation at the Manpower Office, if mediation fails then Industrial Relations Court adjudicates. The entire process can take 3-12 months. The employee continues to receive salary during the dispute period until a final decision.
Can an employee waive severance rights in Indonesia?
No. Severance rights under GR 35/2021 cannot be waived. Any clause in an employment contract waiving severance is void. Mutual termination agreements can specify total separation payments, but the total must meet or exceed the GR 35/2021 minimums. The Manpower Office will reject settlements below statutory thresholds.
