Overview of Termination Compensation in Indonesia

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

Severance Pay

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.

Separation Pay

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.

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