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19 October 2020 (closed)
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Indonesian Law number 13 of 2003 regarding Manpower (Labor Law), stipulates four types of termination compensation which are applicable to permanent employees upon termination of their employment agreement: uang pesangon, uang penghargaan masa kerja, uang pisah, and uang penggantian hak. In this legal business column we will explain the exact meaning of each type of termination compensation and how each termination compensation is calculated based on the Labor Law.
Types of Termination Compensation
The employment termination compensation can be divided in 4 types of compensation:
1. Severance pay (uang pesangon) is a gift of money from employers to employees as a result of the termination of employment (Article 1(f) PER -03/MEN/1996 regarding Completion of Termination of Employment and Determination of Severance Pay, Services Pay and Compensation in Private Company (Decree 1996).
2. Long service pay (uang penghargaan masa kerja) is a gift of money from employers as to reward employers based on years of service (Article 1(f) Decree 1996 jo. article 1(7) Kep-150/Men/2000 regarding Completion of Termination of Employment and Determination of Severance Pay, Long Service Pay and Compensation in a Company).
3. Compensation rights pay (uang penggantian hak) is the gift of money from employers to employees to compensate for annual leave which has not been taken yet, long leave, travel expenses back to the place where the employee was hired, medical facilities, housing facilities and others (Article 1(f) Decree 1996).
4. Separation pay (uang pisah) is a voluntarily award provided by the employer as compensation for the employee’s service with the employer.
Calculation of Termination Compensation
According to article 156(2) Labor Law, the calculation of the minimum amount of severance pay shall be as follows:
|Amount of Years Working
||Amount of Severance Pay
|Less than one year||Wage of one month|
|One year or more, but less than two years||Wage of two months|
|Two years or more, but less than three years||Wage of three months|
|Three years of more, but less than four years||Wage of four months|
|Four years or more, but less than five years||Wage of five months|
|Five years or more, but less than six years||Wage of six months|
|Six years or more, but less than seven years||Wage of seven months|
|Seven years or more, but less than eight years||Wage of eight months|
|More than eight years||Wage of nine months|
Long Service Pay
According to article 156(3) Labor Law, the calculation for the minimum amount of long service pay shall be as follows:
|Amount of Years Working
||Amount of Long Service Pay
|Three years or more, but less than six years||Wage of two months|
|Six years or more, but less than nine years||Wage of three months|
|Nine years or more, but less than 12 years||Wage of four months|
|12 years of more, but less than 15 years||Wage of five months|
|15 years or more, but less than 18 years||Wage of six months|
|18 years or more, but less than 21 years||Wage of seven months|
|21 years or more, but less than 24 years||Wage of eight months|
|24 years or more||Wage of ten months|
Compensation Rights Pay
According to article 156(4) Labor Law, the calculation for the minimum amount of Compensation Rights pay shall at least include:
1. Annual leaves of the terminating employee which have not been taken yet and are not expired;
2. Transportation costs for returning the terminating employee and its family to the point of hire;
3. 15% of the severance pay and/or long service pay, as compensation for housing allowance, and health care allowance; and
4. Any other compensation as agreed upon by the employer and employee based on the employment agreement, company regulation or collective labor agreement.
According to article 162(2) Labor Law, the calculation for the amount of separation pay will be regulated by the employer and employee in the employment agreement, company regulation or collective labor agreement.