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The Indonesian government enacted Law Number 11 of 2020 on Job Creation (“Omnibus Law”) with the main objective of encouraging investments, accelerating economic transformation, synchronizing policies between the central and regional governments, making doing business easier and resolving overlapping regulations.  The Omnibus Law has amended several articles of Law Number 13 of 2003 on Manpower (“Law 13/2003”).

To follow up on the Omnibus Law, the government also issued Government Regulation Number 35 of 2021 on Fixed-Time Employment Agreements, Outsourcing, Work and Rest Times and Terminations of Employment (“GR35/2021”).

Some of the aspects of Law 13/2003 amended under the Omnibus Law and further regulated under GR35/2021 are the reasons for terminating employment and the calculation of the severance package employees are entitled to under the specific conditions that allow termination of employment.

I.       The Reasons for Terminating Employment 

The reasons for which employment may be terminated under Article 154A of Law 13/2003 and Article 36 of GR35/2021 are the following:

1. the company is conducting a merger, amalgamation, acquisition or spin-off and the employee is not willing to continue his/her employment or the new employer is not willing to accept the employee;
   
2. the company is taking efficiency measures to be followed the closing down of the company or not to be followed by the closing down of the company because the company has been suffering losses;
   
3. the company is being closed down because it has suffered losses continuously for two years;
   
4. the company is closing down due to force majeure;
   
5. the company is undergoing a delay of debt payments;
   
6. the company has been declared bankrupt;
   
7. the employee has submitted a petition to terminate his/her employment by the employer has:
   • oppressed, rudely offended or threatened the employee;
   • persuaded or instructed the employer to engage in an activity which violates the law;
   • not paid the employee’s wage at the determined time for three or more consecutive months, although the employer has paid the wage on time thereafter;
   • not fulfilled its obligations as greed with the employee;
   • instructed the employee to perform work outside that agreed to; or
   • made the employee perform work that threatens the life, safety, health and decency of the employee and is not covered by the employment agreement;
     
8. under a ruling of an industrial dispute settlement institution (the Industrial Relations Court) the employer has not committed the offence described in 7 above in the petition submitted by the employee to terminate his/her employment;
   
9. the employee voluntarily resigns subject to the following requirements:
   • the employee submits a written resignation application at least 30 days before the resignation date;
   • the employee is not under a commitment to work (ikatan dinas); and
   • the employee continues to perform his/her obligations until the resignation date;
     
10. the employee is absent for five or more consecutive working days without providing any written information or valid evidence of the cause and has been duly summoned twice by the employer in writing;
    
11. the employee has violated the employment agreement, Company Regulations or Collective Labor Agreement and has been served a first, second and third warning in succession, each valid for up to six months, unless stated otherwise in the employment agreement, Company Regulations or Collective Labor Agreement;
    
12. the employee has not performed any work for six months because he/she has been detained by the authorities for allegedly committing a crime;
    
13. the employee is suffering from a prolonged illness or has become disabled due to an occupational accident and cannot perform work after more than 12 months;
    
14. the employee has reached retirement age; or
    
15. the employee has died.

In addition, the employment agreement, Company Regulations or Collective Labor Agreement may provide other reasons for terminating employment.  Under Article 52 (2) of GR35/2021, an employee can be terminated for committing an offence which is defined as an urgent reason under the employment agreement, Company Regulations or Collective Labor Agreement.

According to the elucidation of Article 52 (2), urgent reasons include, for example, the employee having:

1. committed fraud, stolen or the company’s goods or embezzled the company’s funds;
   
2. provided false or forged information that has caused the company to suffer a loss;
   
3. been drunk, caught drinking intoxicating beverages, using or distributing narcotics, psychotropic substances or other addictive substances in the work place;
   
4. behaved indecently or gambled in the work place;
   
5. assaulted, abused, threatened or intimidated co-workers or the employer in the work place;
   
6. persuaded co-workers or the employer to engage in activities which violate the law;
   
7. neglectfully or intentionally destroyed or allowed the company’s property to be placed in danger which has caused the company to suffer a loss;
   
8. neglectfully or intentionally allowed a co-worker or placed the employee in danger in the work place;
   
9. disseminated or disclosed company secrets which are supposed to be kept confidential except for the official state purposes; or
   
10. committed any other offence in the company premises for which the sentence is five or more years in prison.

II.      The Calculation of the Severance Package

The Omnibus law does not change the articles of Law 13/2003 on severance pay and term of service recognition payments.  However, an element of the compensation (uang penggantian hak) due has been removed under the Omnibus Law, that is the compensation for housing, medicines and medical care valued at 15% of the severance pay and term of service recognition payment for those who are eligible.

Severance Pay

The amount of severance pay that the employer must pay under Article 156 (2) of Law 13/2003 and Article 40 (2) of GR35/2021 is the following:

The Term of Service Recognition Payment

The amount of the term of service recognition payment that the employer must pay under Article 156 (3) of Law 13/2003 and Article 40 (3) GR35/2021 is the following:

Compensation

The amount of compensation (uang penggantian hak) to be paid under Article 156 (4) of Law 13/2003 and Article 40 (4) of GR35/2021 comprises compensation for:

• untaken and annual leave not forfeited;

• the cost of returning the employee and his/her immediate family to the where he/she was hired (if applicable);

• other items specified in the employment agreement, Company Regulations or Collective Labor Agreement.

The amount of the salary on which the severance pay and term of service recognition payment are based is the basic salary plus fixed allowances provided to the employee and his/her immediate family.  

III.     The Calculation of the Severance Package upon the Termination of Employment

Unlike Law 13/2003 when enacted, GR35/2021, which is an implementing regulation of the Omnibus Law and Law 13/2003, provides several calculations of the severance pay, term of service recognition payment, and compensation.  

The amount of severance pay, the term of service recognition payment, compensation or separation pay due depending on the reason for terminating employment is provided in the table below.

If the employee is detained by the authorities for allegedly committing a crime^[1], the employer is not required to pay his/her wages, but must provide assistance to his/her dependents, for up to six months as of the first day of his/her detention by the authorities.  The minimum amount of assistance is the following:

As explained in a separate article, the procedure for terminating employment required under the regulations must be followed as well as the procedures for the settlement of industrial relations disputes.

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This article is intended as a brief and general description of the reasons for terminating employment and the calculation of the severance package due in Indonesia under the prevailing regulations and may not be used as a legal advice or to replace a legal advice on a specific case.  The regulations referred to in this article may have become no longer current.  We will be pleased to provide legal advice on matters related to this article, and to provide our legal services and assistance regarding other legal issues.  For more information, please contact us at yusfa@perdanalaw.com.

April 2022