Global Business Guide Indonesia

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Business Guide | Termination of Employment in Indonesia

The termination of employment in Indonesia is regulated by the Labour Law and Law No. 2 of 2004 on the Settlement of Industrial Relations Disputes. In principle, a 30-day notice period must be given to terminate an employment contract.

The regulations for individual terminations:

  • Termination without Cause

    The employee is terminated for reasons that are not related to misconduct but due to external factors such as bankruptcy, reorganisation of the company, and mergers.

  • Termination with Cause

    The employee is terminated due to a violation of the employment contract or grave misconduct. The employee can also be dismissed if they have been unable to work for more than six months due to legal proceedings brought against them. Furthermore, if the employee has been absent from work for more than five consecutive working days without providing adequate evidence can have his/her employment contract terminated. 

Severance Payments in Indonesia

Severance payments in Indonesia differ on whether an employee is considered a definite term employee or an indefinite term employee.

For indefinite term employees, severance payments consists of:

  • Severance pay;
  • Long service pay;
  • Compensation of rights.

For definite term employees:

Definite term employees are not entitled to severance payment, long service pay, or compensation of rights. If the employer terminates the employment agreement of a definite term employee before its expiry, the employer is obliged to pay the employees’ salary until the end of the employment agreement period.

Components for Severance Payments in Indonesia

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Components for Long Service Payments in Indonesia

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Compensation of Rights in Indonesia

The compensation of rights in Indonesia are as follows:

  • Compensation for housing and medical costs, approximately totalling to 15% of severance payment;
  • Compensation of annual leave which was not taken by the employee;
  • Compensation of travel expenses.

For more information about the Employment Law in Indonesia or finding a local partner in Indonesia, contact GBG Indonesia.

Global Business Guide Indonesia - 2017

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)