Ending an employment relationship in Indonesia takes careful planning. The country’s labor law gives employees significant protections, and getting the process wrong can result in costly disputes or court proceedings. This guide covers everything you need to know as an employer: the legal rules, the notice and severance obligations, and how the type of contract you’ve used affects your exposure.
Legal framework
Indonesia’s employment rules sit within Law No. 13 of 2003 (the Manpower Law), which has since been amended by the Job Creation Law (Law No. 11 of 2020, commonly called the Omnibus Law) and implemented through Government Regulation No. 35 of 2021. Together, these form the practical rulebook for termination.
A few principles define the overall system. Indonesia doesn’t permit at-will dismissal. You need a valid, legally recognized reason to end an employment contract, and the employee must receive procedural protections before you can proceed. When a termination is disputed, the first step is bipartite negotiation between employer and employee. If that fails, the matter moves to the Industrial Relations Court.
Probation periods
Probation is only available for indefinite-term employment contracts (PKWTT). The maximum probation period is three months. You can’t extend it or restart it.
If you’re using a fixed-term contract (PKWT), probation isn’t permitted at all. The employee is covered by the full terms of the contract from day one.
Notice periods
The notice period you must give depends on where the employee is in their tenure. During probation, you’re required to give seven working days’ notice. After probation ends, the notice period increases to 14 working days.
Payment in lieu of notice is permitted. If you need to end the relationship immediately, you can pay the employee for the notice period rather than having them work through it.
Severance pay (uang pesangon)
Severance pay, known as Uang Pesangon (UP), is the central financial obligation in most Indonesian terminations. The amount depends on the employee’s length of service and the reason for termination.
The calculation table
UP is calculated on gross monthly salary, including any fixed allowances. The base entitlements by years of service are:
| Years of service | Months of salary |
|---|---|
| Less than 1 year | 1 month |
| 1 to 2 years | 2 months |
| 2 to 3 years | 3 months |
| 3 to 4 years | 4 months |
| 4 to 5 years | 5 months |
| 5 to 6 years | 6 months |
| 6 to 7 years | 7 months |
| 7 to 8 years | 8 months |
| 8 or more years | 9 months (maximum) |
The termination reason multiplier
The figures above are base amounts. Under Government Regulation No. 35 of 2021, the actual payment you owe depends on why the termination is happening. For terminations driven by efficiency or business restructuring initiated by the employer, the UP multiplier is 1x, meaning you pay the full table amounts above. Other termination reasons carry different multipliers. You’ll need to confirm the correct multiplier for your specific situation before calculating what’s owed, as applying the wrong one creates legal exposure.
Service recognition pay (upmk)
In addition to severance pay, employees with three or more years of service are entitled to service recognition pay, called Uang Penghargaan Masa Kerja (UPMK). This is a separate entitlement paid on top of UP. The amounts are:
| Years of service | Months of salary |
|---|---|
| 3 to 6 years | 2 months |
| 6 to 9 years | 3 months |
| 9 to 12 years | 4 months |
| 12 to 15 years | 5 months |
| 15 to 18 years | 6 months |
| 18 to 21 years | 7 months |
| 21 to 24 years | 8 months |
| 24 or more years | 10 months |
Compensation for rights (uph)
Uang Penggantian Hak (UPH) covers entitlements the employee has accrued but not yet received. This includes the cash value of any unused annual leave, repatriation costs where applicable (for example, if the employee relocated for the role), and any other entitlements agreed in the employment contract or company regulations. UPH is payable on top of UP and UPMK and isn’t optional. You need to account for it when calculating the total termination package.
Fixed-term contracts (pkwt)
The rules for fixed-term contracts differ from those for indefinite-term employment, and there are two scenarios to understand.
If you terminate a PKWT before the agreed contract end date, you owe the employee a payment equivalent to the salary for the remaining contract term. This is a significant exposure if you’re ending the contract early.
When a PKWT reaches its natural end, a different rule applies. The employee is entitled to a compensation payment equal to 10% of their total gross earnings over the entire contract term, provided they’ve completed at least one month of service. This isn’t optional at contract end; it’s a statutory entitlement regardless of whether you renew.
PKWT contracts can run for a maximum of five years in total, including any extensions.
Managing terminations in indonesia through an Employer of Record
If you’re employing people in Indonesia without a local legal entity, you’ll need a compliant local structure to manage terminations correctly. An Employer of Record (EOR) gives you that structure without requiring you to set up your own Indonesian company.
What is an employer of record (EOR)? In practical terms, the EOR is the legal employer on record in Indonesia. It holds the employment contract, processes payroll, and is responsible for ensuring the termination process meets local law. When you need to end a role, the EOR handles the notice periods, calculates UP, UPMK, and UPH correctly, applies the right multiplier for your termination reason, and manages the bipartite process if the employee raises a dispute.
Reviewing your options for EOR services is worth doing before you hire, not after a problem has already developed.
Book a demo to see how RemotePass handles compliant terminations in Indonesia.
Frequently asked questions
Can you terminate an indonesian employee without severance?
In most cases, no. Severance pay is a statutory requirement under Indonesian law whenever an indefinite-term employee is terminated, regardless of the reason. The amount varies based on length of service and the specific termination reason, but zero severance is only possible in a narrow set of circumstances, such as termination for serious misconduct following the correct legal process.
What happens if you don’t follow the correct termination process?
If you skip the required steps, including giving proper notice, completing bipartite negotiation where required, and paying the correct entitlements, the employee can take the matter to the Industrial Relations Court. Courts can order you to reinstate the employee or pay additional compensation. Getting the process wrong is expensive, which is why following the procedure precisely matters.
How long does the termination process typically take?
It depends on whether the employee disputes the termination. If both parties agree, the process can move relatively quickly once notice is given and all payments are made. If the employee challenges the termination and bipartite negotiation fails, the dispute moves to mediation and then potentially to the Industrial Relations Court, which can extend the process significantly.
Does the reason for termination affect how much you owe?
Yes, directly. Government Regulation No. 35 of 2021 sets different multipliers for the severance pay calculation depending on the termination reason. For employer-initiated terminations due to efficiency or restructuring, the multiplier is 1x. Other reasons, including resignation, mutual agreement, or retirement, carry different multipliers. The total payout can vary substantially depending on the reason you record, so it’s important to document the reason accurately and match it to the correct multiplier.
