Introduction
Indonesia's labor law, as amended by the Omnibus Law on Job Creation (Law 11/2020) and further elaborated in Government Regulation No. 35/2021, provides substantial employee protections during termination. The termination framework includes three main payment components: severance pay (Uang Pesangon/UP), long service pay (Uang Penghargaan Masa Kerja/UPMK), and compensation rights (Uang Penggantian Hak/UPH).
The applicable multiplier for each component depends on the reason for termination. Employer-initiated termination for reasons such as efficiency or company closure typically triggers the highest multipliers. Understanding these calculations is essential for workforce planning in Indonesia.
Severance Pay (Pesangon) and UPMK
Pesangon is calculated based on years of service: less than 1 year = 1 month, 1-2 years = 2 months, 2-3 years = 3 months, up to 8+ years = 9 months maximum. The multiplier applied to this base varies: 1x for mutual agreement, 1.5x for company closure due to losses, and 0.5x-1x for other grounds. UPMK is an additional component for employees with 3+ years of service: 3-6 years = 2 months, 6-9 years = 3 months, up to 24+ years = 10 months.
Monthly wages for the calculation include base salary plus fixed allowances. The Omnibus Law capped severance at a lower level than the previous Manpower Law, but the amounts remain significant relative to Indonesian salary levels.
Compensation Rights (UPH) and Other Payments
UPH covers accrued but unused annual leave, return transportation costs (if the employee was recruited from another city), and other compensation specified in the employment agreement. Prorated religious holiday allowance (THR) must also be paid if termination occurs before the holiday. This is mandated under PP 36/2021 and typically equals one month's salary prorated for months worked.
Employers must also settle any outstanding wages, overtime, and other contractual payments as of the termination date. BPJS Ketenagakerjaan contributions should be maintained through the last day of employment.
Common Additional Benefits
Beyond statutory requirements, Indonesian employers commonly offer several supplementary benefits. Health insurance continuation through BPJS Kesehatan (approximately IDR 500,000/month for 3-6 months) is standard practice. Outplacement services (IDR 5-15 million) are increasingly common for professional-level employees.
Other benefits include reference letter guarantees, mental health counseling (IDR 1-3 million/month), gardening leave during the notice period, and in some cases laptop or equipment retention. These additional benefits are typically negotiated as part of the mutual termination agreement.
Summary of Termination Costs
For a mid-career Indonesian employee with 6 years of service and a monthly salary of IDR 15,000,000: Pesangon = 7 months x 1x multiplier = IDR 105,000,000. UPMK = 3 months = IDR 45,000,000. UPH = accrued leave + other compensation. Total statutory minimum is approximately IDR 160-170 million plus supplementary benefits.
Indonesian termination costs are among the highest in Southeast Asia relative to salary levels. Employers should factor in potential industrial court proceedings if the employee disputes the termination, which can extend the process by 6-12 months.
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