Indonesian labor law mandates specific notice periods for both employers and employees during termination of employment contracts. These requirements are established in Law No. 2/2004 on the Settlement of Industrial Relations Disputes (Settlement Law).

Notice Period for Employers

The Settlement Law dictates the minimum notice period an employer must provide to an employee before termination. In most cases, employers must give a written notification of termination to the employee at least 14 working days before the effective date of termination.

However, there are exceptions to the 14-day notice period for employers. If the employee is resigning voluntarily, reaching retirement age, or if the termination is due to serious employee misconduct, a shorter notice period or termination without notice may be justified under the Settlement Law.

Notice Period for Employees

The minimum notice period required by an employee when resigning from their position is generally less than what employers must provide. Employees typically need to provide at least 30 days' written notice to their employer before their last working day.

It's important to note that employment contracts may stipulate different notice periods than the minimums outlined by law. Always refer to the specific terms of the contract for the most accurate information.

Indonesian law, specifically Law No. 13 of 2003 on Manpower, mandates severance pay for employees under certain termination circumstances.

Types of Severance Pay

In Indonesia, there are three main types of severance-related payments:

• Severance Pay (Uang Pesangon - UP): This is a mandatory payment provided when the employer initiates the termination.
• Long Service Pay (Uang Penghargaan Masa Kerja - UPMK): This is an additional payment for employees who have served for a significant period.
• Compensation Rights (Uang Penggantian Hak - UPH): This compensation covers accrued entitlements and rights an employee would have otherwise received, such as annual leave, bonuses, etc.

Eligibility for Severance Pay

Severance pay entitlement largely depends on the reason for termination:

• Employer-Initiated Termination: Employees are usually entitled to severance pay (UP), long service pay (UPMK), and compensation rights (UPH) if the termination is initiated by the employer, except in cases of serious misconduct by the employee.
• Company Closure: Entitlement exists when the termination is due to business closure or bankruptcy.
• Voluntary Resignation: Typically, employees who resign voluntarily aren't entitled to severance pay (UP) but may be entitled to compensation rights (UPH) for unused entitlements.
• Retirement: Employees who reach mandatory retirement age receive severance pay entitlements.
• Death of Employee: Severance payments become payable to the employee's heirs upon the employee's death.

Calculation of Severance Pay

The calculation of severance pay (UP) and long service pay (UPMK) is based on the employee's length of service and their last salary:

• Severance Pay (UP): The amount varies based on the length of service and is calculated according to a tiered scale outlined in the Manpower Law.
• Long Service Pay (UPMK): Employees are entitled to long service pay depending on their tenure, calculated according to a set scale.

Employee termination in Indonesia is governed by a regulated process to ensure fair treatment and adherence to labor laws. The Law No. 13 of 2003 on Manpower ("Manpower Law") and Law No. 2 of 2004 on the Settlement of Industrial Relations Disputes ("Settlement Law") are the primary sources that govern this process.

Termination Process

1. Termination Notice: The termination process begins with a written notice specifying the reasons and the effective date of termination.

   • Employer-Initiated: The employer must generally provide a minimum of 14 working days' notice, or 7 days if the termination is during a probationary period.
   • Employee Resignation: Employees must provide a minimum 30 days' written notice when they resign.

2. Negotiation and Mediation: In cases where the employee disputes the termination, a bipartite negotiation (direct discussion between the parties) is the first step. If unresolved, mediation through the local Ministry of Manpower may be attempted to reach a mutual agreement.

3. Industrial Relations Court: Disputes unresolved through mediation can be escalated to the Industrial Relations Court for a binding decision.

4. Reporting: Once a termination is final, the employer must report it to the local Manpower Office.

Grounds for Termination

The Manpower Law outlines acceptable reasons for termination, including:

• Employer-Initiated Termination:

  • Company closure or bankruptcy
  • Efficiency reasons (reductions in workforce, restructuring)
  • Employee's prolonged illness
  • Retirement
  • Serious misconduct by the employee

• Employee-Initiated Termination (Resignation):

  • Personal reasons
  • Company’s breach of employment contract

Additional Points

• Employment contracts may contain additional terms and conditions regarding termination, provided they don't violate the Manpower Law.
• Early termination during a fixed-term contract may result in penalties for the breaching party.