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An Overview of The Legal Requirements to Terminating Employment in Indonesia

Guide to Terminating or Retrenching Employees in Indonesia In Indonesia, the terminating or retrenching of employees is regulated by the Indonesian Labour Law. It is also regulated by Law No. 2 of 2004 on the Settlement of Industrial Relations Disputes.

Generally, employees must be given a notice period of 30-days prior to the contract’s termination. For the termination of employees, employers need to refer to the Indonesian Law No. 13 of 2003 regarding Labour Employment. Termination procedures must be carried out per the Labour Law and Law No. 2 of 2004 regarding Industrial Relations Dispute Settlement.


Types of Termination

Two types of termination or retrenchment can take place in Indonesia:

  • Termination without cause
  • Termination with cause

Termination without cause means the employee is terminated for reasons that are not related to them. This includes company bankruptcy, mergers, or other external factors that affect the company. Termination with cause happens when the employee is dismissed due to their work conduct. This means they could be in violation of their contract or be guilty of grave misconduct.

If the employee cannot work for more than six months because of a legal proceeding against them, they can be terminated too. If the employee is absent for more than five consecutive working days with no notice or evidence to support their absence, they can be terminated too.


Severance Payments

For the terminating or retrenchment process in Indonesia, severance payments are based on two factors:

  • Definite term employee
  • Indefinite term employee

If the employee is considered a definite term employee, they are not eligible for severance payments. The employer will be obliged to pay for the salary until the end of the employment agreement period.

If the employee is considered an indefinite term employee, severance payments include the following:

  • Long service pay
  • Rights compensation
  • Severance pay


Rights Compensation

Employees are entitled to the following compensation:

  • Travel expenses
  • Annual leave not used
  • Medical and housing costs (15% of the total severance payments)

Guide to Terminating or Retrenching Employees in Indonesia