Navigating Employee Termination and Notice Periods in Indonesia

Indonesia's labor framework provides substantial protection for employees, requiring employers to follow strict procedures when terminating employment contracts. Valid grounds for termination must be established, and due process must be followed to avoid legal complications. Legitimate business reasons for termination include organizational restructuring, changes in ownership, mergers and acquisitions, bankruptcy, consecutive annual losses verified by certified public accountants, or permanent business closure.

Understanding Notice Period Requirements

Indonesian labor law mandates specific notice periods for employment termination. Employers must typically provide at least 14 working days' notice before termination takes effect, though individual contracts may require longer periods. During probation, a minimum of 7 working days' notice applies. Many companies adopt a 30-day notice period as best practice, often implementing garden leave where employees remain on payroll but are relieved of duties. For employees terminated due to policy violations after receiving three written warnings within six months, no notice period is required. Employees resigning voluntarily must provide 30 days' notice but are not entitled to severance pay.

Severance Pay Structure and Calculations

Indonesian law distinguishes between indefinite and fixed-term employees regarding severance entitlements. Indefinite employees receive mandatory compensation including standard severance (UP), long service pay (UPMK), compensation allowance (UPH), and separation pay (SP). Fixed-term employees receive compensation if terminated before contract expiration.

Service Years (UP)	Severance Pay	Service Years (UPMK)	Long Service Pay
Less than 1 year	1 month salary	3-6 years	2 months salary
1-2 years	2 months salary	6-9 years	3 months salary
2-3 years	3 months salary	9-12 years	4 months salary
3-4 years	4 months salary	12-15 years	5 months salary
4-5 years	5 months salary	15-18 years	6 months salary
5-6 years	6 months salary	18-21 years	7 months salary
6-7 years	7 months salary	21-24 years	8 months salary
7-8 years	8 months salary	24+ years	10 months salary
8+ years	9 months salary	24+ years	10 months salary

UPH covers unused annual leave, repatriation costs, and agreed allowances, while SP represents voluntary compensation. Exceptions to severance payment include employee misconduct with three warnings, company bankruptcy, retirement at age 55, five consecutive unauthorized absences, or employee imprisonment.

Termination Procedures and Legal Compliance

The termination process begins with bilateral discussions between employer and employee or their union. While no statutory timeframe exists for consultations, best practice suggests at least one month's notice. Mutual agreement allows for immediate termination with compensation. Without agreement, parties must seek approval from the Industrial Relations Court (IRC). Unauthorized termination entitles employees to back wages until IRC resolution.

Valid termination grounds include:

Business restructuring necessitating workforce reduction
Violation of employment agreements or company policies
Serious misconduct by employee
Employee inability to work due to legal proceedings exceeding six months
Unauthorized absences exceeding five consecutive days after multiple documentation requests

The standard termination workflow involves:

Preparation of written termination notice specifying reasons and effective date
Formal delivery of notice with proof of receipt
Termination meeting to explain decision and address concerns
Payment of statutory severance and compensation
Completion of exit formalities including asset return and final settlement

Unemployment Benefits Framework

Employees contributing to the Employment Social Security Program (BPJS Ketenagakerjaan) for at least 12 months within 24 months, or continuously for six months preceding termination, qualify for unemployment benefits. Benefits comprise 45% of final salary for the first three months and 25% for the subsequent three months, capped at IDR 5,000,000 monthly.

Navigating Indonesia's complex employment termination regulations requires expert guidance. SailGlobal provides comprehensive support to ensure compliance with local labor laws and minimize legal risks associated with workforce management.

Indonesia Employment Termination Guide: Notice Periods, Severance Pay & Legal Requirements