Severance Pay in Indonesia: Amounts, Steps and Termination
Severance pay in Indonesia depends on the reason and years of service. See the scales, a worked example and the steps before an employment ends.
References (4)
- UU No. 27 Tahun 2026 on Manpower Protection (Pelindungan Ketenagakerjaan), signed, promulgated and in force 28 October 2026 (State Gazette 2026 No. 179). Article 228 sets the steps before ending employment and the talks between the two sides. Article 229 lists when no talks are needed. Article 230 lists the reasons an employer may not use. Article 231 lists the reasons employment can end.
- The same law. Article 232 sets severance pay, long-service pay and compensation of rights. Article 233 covers separation pay, Article 234 the wage base and Article 235 duties while a dispute runs. Articles 236 to 249 set what is paid for each reason. Article 250 covers micro and small businesses, and Article 253 the severance reserve fund. Articles 88, 90 and 92 cover compensation at the end of a fixed-term contract, ending one early, and probation.
- UU No. 2 Tahun 2004 on industrial relations disputes. Articles 3 to 5 set talks between the two sides, then mediation or conciliation, then the court. Article 7 makes a signed mutual agreement binding.
- PP No. 37 Tahun 2021 on the job-loss scheme, as amended by PP No. 6 Tahun 2025. Article 20(3) lists the proof an employee needs to claim.
Severance pay in Indonesia depends on why the employment ends and how long the employee has served. Under the Manpower Protection Law (Undang-Undang (UU) 27/2026, in force since 28 October 2026), the employer first tries to avoid ending an employment, then negotiates it, and pays from two scales based on basic wage plus fixed allowances. MAM works the figures out with you before you speak to the employee. Our guide to the new manpower law covers the rest.
What the employer pays
For ending employment (pemutusan hubungan kerja, or PHK), the law names three payments, and in some cases a fourth, separation pay (UU 27/2026, Articles 232 and 233):
- Severance pay (uang pesangon), on a scale by years of service.
- Long-service pay (uang penghargaan masa kerja), on a second scale that starts at 3 years.
- Compensation of rights (uang penggantian hak): annual leave not yet taken and not yet lapsed, the cost of travel back to where the employee was hired, for the employee and their family, and anything else the contract, company regulations or collective agreement promise.
- Separation pay (uang pisah), paid in the cases the law or the contract, company regulations or collective agreement name, such as resignation.
Severance and long-service pay are calculated on the basic wage plus fixed allowances, not on total pay (Article 234(1)).
How severance pay in Indonesia is calculated
Find the employee’s length of service on the scale, then multiply by the number for the reason, from the second table.
The scale, by length of service
| Severance | Long service | |
|---|---|---|
| Under 1 year | 1 month | Starts at 3 years |
| 1 year | 2 months | Starts at 3 years |
| 2 years | 3 months | Starts at 3 years |
| 3 years | 4 months | 2 months |
| 4 years | 5 months | 2 months |
| 5 years | 6 months | 2 months |
| 6 years | 7 months | 3 months |
| 7 years | 8 months | 3 months |
| 8 years | 9 months | 3 months |
| 9–11 years | 9 months | 4 months |
| 12–14 years | 9 months | 5 months |
| 15–17 years | 9 months | 6 months |
| 18–20 years | 9 months | 7 months |
| 21–23 years | 9 months | 8 months |
| 24+ years | 9 months | 10 months |
The severance column is a minimum (Article 232(2)).
How the reason changes the amount
| Severance | Long service | Article | |
|---|---|---|---|
| Merger, not kept on | 2 × | 1 × | Article 236(2) |
| Closure after losses | 1 × | 1 × | Article 237 |
| Owner closes | 1 × | 1.5 × | Article 238 |
| After warning letters | 1 × | 1 × | Article 244 |
| Long illness | 2 × | 2 × | Article 246 |
| Retirement | 2 × | 1 × | Article 247 |
| Death | 2 × | 1 × | Article 249 |
For each reason in the table, compensation of rights is also due (to the heirs, for death). For a long illness, or a disability from a work accident, lasting beyond 12 months, the employee may apply to end the employment and is then paid as shown (Article 246). Other reasons, such as force majeure, bankruptcy or detention, each have their own article (Articles 239 to 245). A micro or small business agrees the amounts with the employee (Article 250).
A worked example
An employee with five years of service, on a basic wage of IDR 12,000,000 and a fixed allowance of IDR 3,000,000, loses the job because the owner decides to close the company for good (Article 238).
| Description | IDR |
|---|---|
| Monthly wage base Basic wage and fixed allowances | 15,000,000 |
| Severance pay 6 months × 1 | 90,000,000 |
| Long-service pay 2 months × 1.5 | 45,000,000 |
| Severance and long-service pay | 135,000,000 |
Compensation of rights (untaken leave and the other items listed above) is paid on top.
Employers must also keep a severance reserve fund, managed by a government institution; micro and small businesses are exempt, and a Government Regulation will set out how it works (Article 253).
Notice period and the steps before employment ends
-
Try to avoid it
Steps such as cutting overtime come first.
-
Talks
The employer negotiates with the union or the employee.
-
Agreement
What both sides agree is signed and binds them.
-
Or a final decision
Without agreement, mediation and then the court.
-
Final payment
What is owed goes through payroll.
Before ending an employment, the employer works through the steps the law lists, such as cutting overtime and working hours, not renewing fixed-term contracts that have ended, and offering voluntary early retirement (Article 228(2)). If ending it still cannot be avoided, the employer negotiates with the union, or with the employee where they are not a member, for up to 30 working days (Article 228(3) and (4)). What the two sides agree is signed as a mutual agreement, which binds both (UU 2/2004, Article 7).
No talks are needed when an employee resigns, a fixed-term contract ends, the employee reaches the retirement age in the contract, company regulations or collective agreement, or the employee dies (Article 229). An employee who resigns applies in writing at least 30 days before the leaving date (Article 231(i)).
If the employee does not agree
If the talks end without agreement, the matter goes to mediation (or conciliation, if both sides choose it) through the local manpower office, and only after that to the Industrial Relations Court, the specialist labour court (Article 228(5); UU 2/2004, Articles 3 to 5). The employment then ends only once the decision is final. A termination carried out without an agreement and without a final decision on that dispute is void, and the employer must take the employee back (Article 228(6) and (7)). Until the decision, both sides keep to their obligations; the employer may suspend the employee but keeps paying the wage and the employee’s usual rights (Article 235).
Questions employers ask
What is the notice period for resigning in Indonesia?
Do I need court approval to dismiss an employee in Indonesia?
What does an employee who resigns receive?
Does probation count towards length of service?
Can an employee be dismissed while sick or pregnant?
What do fixed-term employees receive when the contract ends?
Around the exit: EOR, stay permit and the job-loss scheme
For a foreign employee who leaves, see our guide to cancelling their stay permit. An Indonesian employee who claims the state job-loss benefit (JKP) can use a mutual agreement registered at the Industrial Relations Court, or a final court decision, among the proof (Government Regulation (PP) 37/2021, Article 20(3), as amended by PP 6/2025). Our guide to JKP covers the claim.
How severance pay is taxed is covered in our guide to severance pay tax.
Where we are the legal employer under an employer of record arrangement, the cost of ending an employment is agreed with you before the hire. Our HR consulting team works through a termination with you before the employee is told, and prepares the mutual agreement and the termination report; our payroll team pays what is owed. If it ever goes further, we can represent you.