Employment Relationship Termination Compensation based on Job Creation Law

Employment Relationship Termination Compensation based on Job Creation Law

Applicable Legislation: 

  1. Law Number 11 of 2020 on Job Creation (“Job Creation Law”).
  2. Law Number 13 of 2003 on Manpower as amended by Job Creation Law (“Manpower Law”).
  3. Government Regulation Number 35 of 2021 on Definite Period Employment Agreement, Outsourcing, Working Time and Resting Time,  and Employment Relationship Termination (“GR”).

Fact(s) and Caveat(s):

  1. The Manpower Law was amended by the Job Creation Law, effective on 2 November 2020 (Article 186 of Job Creation Law).  

  2. The employment relationship termination provisions under the Manpower Law were entirely amended by the Job Creation Law.

  3. The employment relationship termination compensation formulas are no longer exist in the Manpower Law. They will be regulated under the GR (Article 154A(3) of Manpower Law).

  4. The GR is the implementation of Article 154A(3) of Manpower Law. The GR was passed by the Indonesian Government on 2 February 2021

  5. Under the previous Manpower Law which was not yet amended, there are Two Major Causes of an Employment Relationship Termination, accompanied by their respective compensation formulas: 
     
    1. Without Cause (Not Caused by the Worker/Employee’s Negligence or Mistake) = minimum 2 x Severance Pay, 1 x Service Reward Pay, Replacement Right Pay and Separation Pay (as applicable).

    2. With Cause (Caused by the Worker/Employee’s Negligence or Mistake) = less than 2 x Severance Pay, 1 x Service Reward Pay, Replacement Right Pay and Separation Pay (as applicable).

  6. The current Manpower Law (post Job Creation Law) amends the previous norms, which appear reducing the previous formulas.

  7. The reasons for employment relationship termination are codified into Article 154(A) of Manpower Law, with their formulas further implemented in the GR.

  8. The compensation components follow Article 156 of the Manpower Law. This document refers to employees of indefinite employment period.

    1. Severance Pay (Article 156(2) of Manpower Law)

      Employment Period (Year)

      Amount of Severance Payment (Monthly Wage)

      Less than 1

      1 time

      1 or more, but less than 2

      2 times

      2 or more, but less than 3

      3 times

      3 or more, but less than 4

      4 times

      4 or more, but less than 5

      5 times

      5 or more, but less than 6

      6 times

      6 or more, but less than 7

      7 times

      7 or more, but less than 8

      8 times

      8 or more

      9 times

       
    2. Service Reward Pay (Article 156(3) of Manpower Law)

      Employment Period (Year)

      Amount of Severance Payment (Monthly Wage)

      3 or more, but less than 6

      2 times

      6 or more, but less than 9

      3 times

      9 or more, but less than 12

      4 times

      12 or more, but less than 15

      5 times

      15 or more, but less than 18

      6 times

      18 or more, but less than 21

      7 times

      21 or more, but less than 24

      8 times

      24 or more

      10 times

        
    3. Replacement Right Pay (Article 156(4) of Manpower Law
      1. Untaken annual leave and not yet expired.
      2. Repatriation expense to point of hire origin.
      3. Other items as stipulated under the employment agreement, company regulation or collective labour agreement.

No.

Reasons for Employment Relationship Termination under Manpower Law

Implementing Provision under GR

Formula Amount under GR within the umbrella of the Manpower Law

   1.

Article 154A(1) letter a

Company conducts merger, consolidation, acquisition or de-merger of company and Employee is not willing to resume the employment relationship or Company is not willing to accept Employee.

Article 41

Company may conduct an employment relationship termination against Employee due to Company conducts merger, consolidation or de-merger of Company and Employee is not willing to resume the employment relationship or Company is not willing to accept Employee.

  • 1 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 42(1)

Company may conduct an employment relationship termination due to the acquisition of Company.

  • 1 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 42(2)

If there is an acquisition of Company which causes the change of working requirement and Employee is not willing to resume the employment relationship, Company may conduct an employment relationship termination.

  • 0.5 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   2.

Article 154A(1) letter b

Company conducts an efficiency followed by the closure of Company or not followed by the closure of Company.

Article 43(1)

Company may conduct an employment relationship termination against Employee due to Company conducts an efficiency which is caused by Company suffering a loss.

  • 0.5 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 43(2)

Company may conduct an employment relationship termination against Employee due to Company conducts an efficiency to prevent an occurrence of a loss.

  • 1 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   3.
Article 154A(1) letter c
Company closure caused by Company suffering consecutive losses for 2 years.

Article 44(1)

Company may conduct an employment relationship termination due to the closure of Company caused by Company suffering consecutive losses for 2 years or suffering losses not consecutively for 2 years.

  • 0.5 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 44(2)

Company may conduct an employment relationship termination against Employee due to the closure of Company not caused by Company suffering a loss.

  • 1 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   4.

Article 154A(1) letter d

Company closure caused by force majeure.


Article 45(1)

Company may conduct an employment relationship termination against Employee due to the closure of Company caused by force majeure.

  • 0.5 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 45(2)

Company may conduct an employment relationship termination against Employee due to force majeure which does not cause the closure of Company.

  • 0.75 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   5.

Article 154A(1) letter e

Company in the condition of debt payment obligation suspension.


Article 46(1)

Company may conduct an employment relationship termination against Employee due to Company in the condition of debt payment obligation suspension caused by Company suffering a loss.

  • 0.5 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 46(2)

Company may conduct an employment relationship termination against Employee due to Company in the condition of debt payment obligation suspension not caused by Company suffering a loss.

  • 1 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   6.

Article 154A(1) letter e

Company is bankrupt.

Article 47

Employment relationship termination due to Companyis bankrupt.

  • 0.5 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   7.

Article 154A(1) letter g

The existence of an application of employment relationship termination submitted by Employee due to Company committing the following act:

  1. Maltreats, gravely insults or threatens Employee;
  2. Persuades and or instructs Employee to commit an act which contravenes the legislation;
  3. Does not punctually pay the wage within the stipulated period for 3 months consecutively or more, although Company pays it punctually afterward;
  4. Does not carry out the promised obligation to Employee;
  5. Instructs Employee to carry out a work outside of what was agreed upon; or
  6. Give a work which endangers the life, safety, health and decency of Employee whilst such work is not stipulated under the employment agreement.

Article 48

Company may conduct an employment relationship termination against Employee due to the application of employment relationship termination submitted by Employee due to reasons in Article 154A(1) letter g of Manpower Law.


  • 1 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   8.

Article 154A(1) letter h

The existence of a ruling of the industrial relationship dispute settlement institution that states Company does not carry out the act as submitted by Employee in Article 154(A)1 letter g of Manpower Law, and Company decides to conduct an employment relationship termination.


Article 49

Company may conduct an employment relationship termination due to the existence of a ruling of the industrial relationship dispute settlement institution that states Company does not carry out the act as submitted by Employee.

  • Replacement Right Pay.
  • Separation Pay as regulated under the employment agreement, company regulation or collective labour agreement.
   9.

Article 154A(1) letter i

Employee resigns on his/her own will and must fulfill the following requirement:

  1. Submits the application of resignation in writing at the latest 30 days before the date of resignation;
  2. Is not within a commitment relationship; and
  3. Remains carrying out his/her obligation until the date of resignation.

Article 50

Employee resigns on his/her own will and satisfies the requirement under Article 154A(1) letter i of Manpower Law.

  • Replacement Right Pay.
  • Separation Pay as regulated under the employment agreement, company regulation or collective labour agreement.
   10.

Article 154A(1) letter j

Employee is absent without notice (mangkir) for 5 working days or more consecutively without a valid written statement accompanied by a valid proof and had been summoned by Company 2 times properly and in writing.


Article 51

Company may conduct an employment relationship termination against Employee due to Employee is absent without notice (mangkir) for 5 working days or more consecutively without a valid written statement accompanied by a valid proof and had been summoned by Company 2 times properly and in writing.

  • Replacement Right Pay.
  • Separation Pay as regulated under the employment agreement, company regulation or collective labour agreement.
   11.

Article 154A(1) letter k

Employee commits a violation on the provision as regulated under the employment agreement, company regulation or collective labour agreement and previously had been given a 1st, 2nd and 3rd reprimand letter consecutively each with a validity period of 6 months, unless stipulated otherwise in the employment agreement, company regulation or collective labour agreement.


Article 52(1)

Company may conduct an employment relationship termination against Employee due to Employee commits a violation on the provision as regulated under the employment agreement, company regulation or collective labour agreement and previously had been given a 1st, 2nd and 3rd reprimand letter consecutively.

  • 0.5 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 52(2)

Company may conduct an employment relationship termination against Employee due to Employee committing a violation which is urgent in nature as regulated under the employment agreement, company regulation or collective labour agreement.

  • Replacement Right Pay.
  • Separation Pay as regulated under the employment agreement, company regulation or collective labour agreement.
   12.

Article 154A(1) letter l

Employee is unable to carry out the work for 6 months due to being detained by the authority because of allegedly perpetrating a criminal act.

Article 54(1)

Company may conduct an employment relationship termination due to Employee is unable to carry out the work for 6 months due to being detained by the authority because of allegedly perpetrating a criminal act which causes a Company loss.

  • Replacement Right Pay.

Article 54(2)

Company may conduct an employment relationship termination against Employee due to Employee is unable to carry out the work for 6 months due to being detained by the authority because of allegedly perpetrating a criminal act which does not cause a Company loss.

  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 54(3)

If the court rules the criminal case before the expiration of 6 months period and Employee is ruled guilty and causes aa Company loss, then Company may conduct an employment relationship termination.

  • Replacement Right Pay.
  • Separation Pay as regulated under the employment agreement, company regulation or collective labour agreement.

Article 54(4)

If the court rules the criminal case before the expiration of 6 months period and Employee is ruled guilty and does not cause a Company loss, then Company may conduct an employment relationship termination.

  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   13.

Article 154A(1) letter m

Employee experiences a prolonged sickness or disability due to a work accident and is unable to carry out the work after passing 12 months period.

Article 55(1)

Company may conduct an employment relationship termination against Employee due to Employee experiences a prolonged sickness or disability due to a work accident and is unable to carry out the work after passing 12 months period.


  • 2 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.

Article 55(2)

Employee may submit an employment relationship termination against Company due to Employee experiences a prolonged sickness or disability due to a work accident and is unable to carry out the work after passing 12 months period.


  • 2 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   14.

Article 154A(1) letter n

Employee enters retirement age.


Article 56

Company may conduct an employment relationship termination against Employee due to Employee enters retirement age.

  • 1.75 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.
   15.

Article 154A(1) letter o

Employee passes away.


Article 57

An employment relationship termination due to Employee passes away then to Employee’s heir is given an employment relationship termination compensation.

  • 2 x Severance Pay.
  • 1 x Service Reward Pay.
  • Replacement Right Pay.


Please note that the information contained in this document should be only used as a general guideline with respect to the subject hereof and may not contain legal advice for your specific cases. The information herein should not be used or relied upon in regard to any particular facts or circumstances without seeking legal advice from us. We will not be liable nor be responsible for any consequences, damages or other similar forms which may be suffered by any party who had used or relied upon this document.

If you require further information on the new regulation, please do not hesitate to contact:

Nurjadin Sumono Mulyadi & Partners

Contact information:

Ilya Sumono

Partner

ilya.sumono@nurjadinet.com


Mulyadi

Partner

mulyadi@nurjadinet.com


Ruben Soeratman 

Senior Associate

ruben.soeratman@nurjadinet.com


Haikal Hanifah 

Associate

haikal.hanifah@nurjadinet.com