No, Indonesia labor law does not recognize “at-will” termination. Employers must have a legally recognized reason and follow due process, including bipartite, tripartite, and possible industrial relation court process.
Termination of employment in Indonesia is a critical issue governed by comprehensive labor laws aimed at protecting both employers and employees. In recent years, understanding the legal framework surrounding employment termination in Indonesia has become essential for businesses operating in Indonesia, especially in the context of compliance, industrial relations, and risk mitigation.
This article explores the types of employment termination under Indonesian law, the rights afforded to employees, and the challenges faced in implementing these regulations. It also provides insights to help employers and HR professionals make informed decisions aligned with national labor standards.
The primary legislation governing termination of employment in Indonesia includes:
These regulations aim to balance the interests of employees and employers, while ensuring fairness in the process of ending employment relationships.
Indonesian labor law recognizes various types of employment termination, each with distinct legal implications and compensation entitlements. Below are the key categories:
In cases where a company undergoes a merger, consolidation, or acquisition, employment may be terminated if the employee is unwilling to continue employment under the new ownership or corporate structure. It is also applied vice versa for the employer.
Employers may carry out termination due to efficiency efforts aimed at reducing costs and preventing financial losses or if the company experienced losses in 2 consecutive years. This typical situation called efficiency because the company still operates.
If the company permanently shuts down, whether due to internal decisions or external factors, or due to experienced losses in 2 consecutive years.
If a company is placed under suspension of debt payment (Penundaan Kewajiban Pembayaran Utang – PKPU), termination may take place with full compensation, provided that the employer complies with labor court approval and procedural fairness.
In the event of a bankruptcy declared by a commercial court, employment may be terminated with severance pay and other entitlements. The amount is subject to verification by the bankruptcy trustee (Kurator), and claims are paid according to bankruptcy law priorities but the formula of compensation principally follows the applicable labor law.
Employees have the right to unilaterally terminate their employment if the employer commits serious violations, such as unpaid wages for three consecutive months, abusive behavior, or instructing the employee to commit an unlawful act. Employees are entitled to full compensation in such cases.
Employees may voluntarily resign by giving written notice at least 30 calendar days in advance. Resigning employees are generally not entitled to severance or long service pay, but may receive separation pay if stipulated in the employment contract or company policy, along with compensation of rights (e.g., unused leave).
An employee who is absent for five consecutive working days or more without written explanation and supporting evidence, the employment will automatically be terminated.
An employee who is violating those agreement/regulation and company already give a lesson with warning letter but the employee still repeats the violation event until the third warning letter has issued, so the Employer can terminate the employment. Also, Serious violations, including theft, fraud, assault, or gross negligence, may justify immediate termination.
If an employee is medically unable to work for more than 12 consecutive months, the employer and employee may lawfully terminate the employment relationship. Compensation includes severance pay, long service pay, and compensation of rights, based on medical records and proper procedures.
An employee alleged or convicted a criminal act so the employee unable to continue working, then the Employer can terminate the employment and the compensation is differ based on the situation.
An employee who reached pension age will automatically the employment come to an end and the employee has a right to get certain amount of compensation.
For fixed-term employment agreements (Perjanjian Kerja Waktu Tertentu/PKWT), the contract ends automatically upon the agreed expiration date. No severance or long service pay is owed, but the employee is entitled to a compensation of one month’s wage per year of service, calculated proportionally (as per PP No. 35/2021).
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Employees terminated under Indonesian law are entitled to several types of compensation, which vary depending on the reason for termination. Furthermore, there is a range formula based on how long the employees works, the range formula is as follow:
A fundamental right calculated based on the employee’s years of service, the range is from one to nine months of wages.
| Year of Services | Amount of Compensation |
| Less than 1 year | 1 month of salary |
| 1 year or more but less than 2 years | 2 months of salary |
| 2 years or more but less than 3 years | 3 months of salary |
| 3 years or more but less than 4 years | 4 months of salary |
| 4 years or more but less than 5 years | 5 months of salary |
| 5 years or more but less than 6 years | 6 months of salary |
| 6 years or more but less than 7 years | 7 months of salary |
| 7 years or more but less than 8 years | 8 months of salary |
| 8 years or more | 9 months of salary |
Granted to employees who have worked for more than three years, with increasing values based on tenure.
| Year of Services | Amount of Compensation |
| 3 years or more but less than 6 years | 2 months of salary |
| 6 years or more but less than 9 years | 3 months of salary |
| 9 years or more but less than 12 years | 4 months of salary |
| 12 years or more but less than 15 years | 5 months of salary |
| 15 years or more but less than 18 years | 6 months of salary |
| 18 years or more but less than 21 years | 7 months of salary |
| 21 years or more but less than 24 years | 8 months of salary |
| 24 years or more | 10 months of salary |
Includes benefits such as unused annual leave and other entitlements stipulated in the employment agreement, company regulation, or collective labor agreement.
Sometimes granted to employees who not eligible for severance pay, especially in resignation cases, as a goodwill gesture based on company regulation or collective labor agreement.
| Causes of Termination | Severance Pay | Long Service Pay | Compensation of Rights | Separation Pay | Note |
| The amount below multiplied by the amount in the range formula above | |||||
| Company Merger, Consolidation, and Acquisition | 1 | 1 | 1 | – | |
| 0,5 | 1 | 1 | – | If work requirement changed after Acquisition | |
| Company Efficiency | 0,5 | 1 | 1 | – | Experienced losses in 2 consecutive years |
| 1 | 1 | 1 | – | Efficiency to prevent losses | |
| Company Closes | 0,5 | 1 | 1 | – | Experienced losses in 2 consecutive years |
| 1 | 1 | 1 | – | Not experienced losses | |
| 0,5 | 1 | 1 | – | Force Majeure | |
| Company Experienced Force Majeure | 0,75 | 1 | 1 | – | Company still operating |
| Company Suspension of Debt Payment | 0,5 | 1 | 1 | – | Experienced losses |
| 1 | 1 | 1 | – | Not experienced losses | |
| Company Bankrupt | 0,5 | 1 | 1 | – | |
| Employee Request due to Employer’s Wrongdoing | 1 | 1 | 1 | – | If the wrongdoing proven |
| – | – | 1 | 1 | If the wrongdoing not proven | |
| Employee’s Resignation | – | – | 1 | 1 | |
| Employee Absence Without Permission | – | – | 1 | 1 | |
| Employee Violating Employment Agreement, Company Regulation, or Collective Labor Agreement | 0,5 | 1 | 1 | – | |
| – | – | 1 | 1 | Critical violation | |
| Employee Prolonged Illness or Disability | 2 | 1 | 1 | – | |
| Employee Criminal Conviction | The benefit will depend on the situation | ||||
| Employee Pension | 1,75 | 1 | 1 | – | |
| Employee Dead | 2 | 1 | 1 | – | Will be given to the heirs |
Basically, all parties shall give the best effort to prevent employment termination in Indonesia, however if the employment termination inevitable the procedure shall follow the applicable laws. Here is the procedure:
Employers must ensure procedural compliance, including issuing termination letters, engaging in negotiation, and documenting all efforts to resolve the dispute amicably.
Companies shall follow detailed procedures before terminating employees. Failure to comply can lead to legal disputes and reinstatement orders. Bipartite negotiations, and if unresolved, proceed to mediation, conciliation, or even the Industrial Relations Court. Court proceedings can be lengthy and resource-consuming, especially if termination is not backed by clear evidence or due process.
Ambiguities in employment contracts often lead to disputes. Clear and legally compliant contracts/employment relationship are crucial.
Poorly managed terminations can damage company reputation, lower employee morale, and increase employee turnover. This is particularly critical for a corporation with strong brand value.
Although the Omnibus Law aimed to simplify labor regulations, its implementation has faced criticism and judicial review, creating uncertainty for both employers and employees.
At Kusuma & Partners, we often see that legal disputes arise not just from the grounds of termination, but from poor communication and lack of proper documentation. To minimize legal risks, we strongly advise employers to:
Our firm assists clients in preparing compliant termination letters, guiding through dispute resolution, and defending your interests in Industrial Relations Court when necessary.
Understanding the intricacies of employment termination in Indonesia is vital for maintaining legal compliance and healthy labor relations. Companies must carefully assess the grounds for termination, follow due process, and respect the rights of employees to avoid legal exposure and reputational risks. The key point to settle employment termination in Indonesia is a good communication and strong negotiation position with a clear purpose of termination itself.
Our firm specializes in Labor and Employment Law, ensuring full compliance with Indonesian regulations. We provide strategic legal guidance, manage regulatory approvals, and protect our client’s interests at every stage. With extensive experience in Labor and Employment Law, we ensure a compliance, harmonize labor relation, and efficient action.
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“DISCLAIMER: This content is intended for general informational purposes only and should not be treated as legal advice. For professional advice, please consult with us.“
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