Terminating Employees in Indonesia (2026): Severance, the Omnibus Law, and What Foreign Employers Get Wrong

Short answer: Indonesia has no at-will employment. To lawfully dismiss a permanent employee, a foreign employer must have a statutory ground (Article 154A, Manpower Law), give 14 working days' written notice, and pay a statutory severance package — severance pay, service pay, and compensation of rights (Article 40, GR 35/2021). Since Constitutional Court Decision 168/PUU-XXI/2023, a contested dismissal only takes legal effect after a final court ruling.

Foreign employers arrive in Indonesia carrying assumptions from home. In the US, employment is at-will. In Singapore, notice-plus-pay usually ends the relationship cleanly. Indonesia works nothing like either. Here, a permanent employee has a statutory right to keep their job unless the employer can point to a specific legal ground and fund a formula-driven payout — and after a landmark 2024 Constitutional Court ruling, an employee who refuses to go cannot be forced out until a court says so.

This is the single most expensive area of Indonesian employment law for foreign companies, and it is precisely where incorporation and EOR agents give you a severance calculator and stop. The calculator is the easy part. The procedure, the grounds, and the timing are where money is lost.

What law governs termination in Indonesia right now?

Three layers, in order:

• Law No. 13 of 2003 on Manpower (the "Manpower Law"), as amended by the Job Creation Law — originally Law No. 11 of 2020, now Law No. 6 of 2023 after the Omnibus Law was re-enacted.
• Government Regulation No. 35 of 2021 (GR 35/2021), effective 2 February 2021, which sets the operative rules on fixed-term contracts, termination grounds, and severance calculation.
• Constitutional Court Decision No. 168/PUU-XXI/2023, decided 31 October 2024, which rewrote two things every employer must understand (below).

One thing to watch: the Constitutional Court in Decision 168/2023 ordered the legislature to enact a new, standalone manpower law, separate from the Job Creation Law, within two years — by 31 October 2026. As of mid-2026 the draft Manpower Bill (RUU Ketenagakerjaan) is being fast-tracked through the DPR. The framework in this article is current, but the statute numbers may change once the new law passes. Treat any dismissal planned near or after October 2026 as governed by law in transition.

Can a foreign employer dismiss an employee at will?

No. Indonesia does not recognise at-will or no-reason termination for permanent employees (PKWTT). Article 154A of the Manpower Law lists the permitted grounds for dismissal, which include:

• Corporate actions (merger, consolidation, acquisition, spin-off) where the employee refuses to continue, or the employer will not retain them;
• Efficiency measures due to losses, with or without company closure;
• Continuous losses over two years, force majeure, suspension of debt payment (PKPU), or bankruptcy;
• Employee resignation;
• Absence for five consecutive working days after two proper written summonses;
• Breach of the employment contract, company regulation, or collective agreement (after three sequential warning letters);
• Serious/urgent misconduct (fraud, theft, embezzlement, and similar) specified in the contract or company regulation;
• Prolonged illness or disability after 12 months; retirement; and death.

Just as important is Article 153, which sets out prohibited grounds — dismissal is null and void by law if it is because of illness certified by a doctor (up to 12 months), marriage, pregnancy or childbirth, religion, ethnicity, political orientation, union membership, or filing a complaint against the employer. A dismissal on any of these grounds must be reversed and the employee reinstated (Article 153 paragraph 2).

How much is severance in Indonesia? The GR 35/2021 formula

A statutory dismissal package has three components (Article 40 paragraph 1, GR 35/2021):

• Severance Pay (uang pesangon / "SP") — scaled to length of service, capped at 9 months' wages.
• Service Pay (uang penghargaan masa kerja / "SVP") — a long-service award, from 2 up to 10 months' wages, only for employees with 3+ years of service.
• Compensation of Rights (uang penggantian hak / "CoR") — unused annual leave, repatriation costs, and other contractual entitlements.

The base scales (Article 40 paragraphs 2 and 3) are:

Here is the part the calculators hide: **the base figures are multiplied by a factor that depends on why you are terminating** (Articles 41–57, GR 35/2021). The reason drives the cost:

So the same 8-year employee on IDR 20 million/month costs roughly 0.5 × 9 = 4.5 months of the severance-pay component if let go for efficiency-due-to-losses, but a full 9 months — plus the same service-pay and rights — on the retirement uplift. The multiplier, not the base scale, is where planning happens.

Note also that GR 35/2021 removed the old 15% housing-and-medical uplift on the severance-plus-service subtotal that existed under the 2003 Manpower Law (Article 40 paragraph 4). Older online guides still include it; they are wrong for any dismissal today.

What did Constitutional Court Decision 168/2023 change?

Two things that directly hit foreign employers:

1. Severance is a floor, not a ceiling. The Court restored the words "at least" (sekurang-kurangnya) to Article 156 paragraph 2 of the Manpower Law. Under the Omnibus Law, the formula had read as a fixed amount; the Court held it must read as a minimum. In practice this legitimises the long-standing reality that severance settlements in Indonesia are frequently negotiated above the statutory number, and it removes the argument that the formula is a hard cap.

2. A contested dismissal is not effective until a final court ruling. Reading Article 151 paragraph 4, the Court held that where bipartite negotiation fails, termination must be suspended until the industrial-relations dispute process produces a final and binding decision. Until then, the employment relationship continues and — unless otherwise agreed — both sides keep performing their obligations, meaning the employer keeps paying wages while the case runs. This is the single most under-appreciated cost of getting a dismissal wrong in Indonesia.

What is the correct termination procedure?

For a permanent employee where you have a valid ground:

1. Notify. Serve a written Notice of Termination on the employee (and the union, if any) at least 14 working days before the intended date — 7 days if the employee is still on probation (Article 37, GR 35/2021). The notice must state the ground, the proposed severance package, and the payment date. 2. Wait for the response. If the employee accepts, formalise it in a mutual agreement / termination acceptance letter and report it to the local Manpower Office, which issues a receipt. 3. If the employee objects, they must submit written reasons within 7 working days, and the matter goes to dispute resolution: bipartite negotiation → tripartite mediation at the Manpower Office → the Industrial Relations Court (Pengadilan Hubungan Industrial), with a final cassation appeal to the Supreme Court (Law No. 2 of 2004 on Industrial Relations Dispute Settlement). 4. Only a final and binding decision ends the relationship in a contested case — and, per Decision 168/2023, wage obligations generally continue until then.

For serious/urgent misconduct (theft, fraud, violence, and similar as defined in the contract or company regulation), Article 52 paragraph 2 of GR 35/2021 allows dismissal without the mutual-agreement step — but the burden of proof sits squarely on the employer, and getting this wrong converts a "for-cause" dismissal into an expensive wrongful one.

What this means for you

• Budget for the multiplier, not the base. Your real exposure depends on the legal ground you can actually prove. "Efficiency" sounds cheap (0.5×) but requires demonstrable losses; dressing up a performance problem as efficiency invites a challenge.
• A disputed dismissal is a running meter. Since Decision 168/2023, forcing out an employee who won't sign can mean paying wages for a year or more while the case winds through the courts. Negotiated exits are usually cheaper than "winning."
• Document the ground before you act, not after. Warning letters (SP-1, SP-2, SP-3), performance records, and financial statements are the evidence the Industrial Relations Court will demand.
• Your director who signs the termination must be an Indonesian citizen with labour-management authority — a point foreign-run PT PMAs routinely miss.
• Fixed-term (PKWT) staff are different. They get no severance package, but early termination triggers indemnity equal to the wages for the remaining contract term (Articles 61A and 62, Manpower Law) — so a two-year contract cut at month three is not "free" either.

Common mistakes we see foreign employers make

• Treating termination as at-will. Emailing "your last day is Friday" with two weeks' pay is not a lawful dismissal in Indonesia and exposes the company to a reinstatement claim.
• Using the wrong ground to save money. Labelling a redundancy as "misconduct" to avoid severance, or "efficiency" without proven losses, almost always unravels in mediation and costs more.
• Forgetting the multiplier and the removed 15%. Relying on an outdated calculator that still adds the old housing/medical uplift, or ignores the reason-based multiplier, produces a number the Manpower Office will reject.
• Ignoring Decision 168/2023's suspension rule. Assuming the person is "gone" on the notice date, then discovering wages must continue until a final ruling.
• No written company regulation (Peraturan Perusahaan). Without a registered PP or collective agreement defining misconduct and warning procedures, "for-cause" dismissals lack their legal footing.

Key takeaways

• Indonesia has no at-will termination; a permitted ground under Article 154A, Manpower Law is mandatory.
• Severance has three parts — severance pay (≤9 mo), service pay (≤10 mo), compensation of rights — under Article 40, GR 35/2021.
• The reason drives the cost via multipliers of 0.5× to 2× (Articles 41–57, GR 35/2021).
• Decision 168/PUU-XXI/2023 made severance a minimum and suspended contested dismissals until a final court ruling.
• Give 14 working days' notice and report the termination to the Manpower Office (Article 37, GR 35/2021).
• A new Manpower Law is due by 31 October 2026 — statute references may shift.

Frequently asked questions

Do I have to pay severance if I fire an employee for misconduct in Indonesia? For genuine serious/urgent misconduct defined in the contract or company regulation (Article 52 paragraph 2, GR 35/2021), the employee receives compensation of rights and a separation payment, but not the full severance-plus-service package. The employer must be able to prove the misconduct; unproven "for-cause" dismissals are frequently reclassified as wrongful, restoring full entitlements.

How is severance pay calculated in Indonesia in 2026? Take the base severance scale (1–9 months by service, Article 40(2)) and service-pay scale (2–10 months, Article 40(3)), then apply the multiplier for your termination ground (0.5× to 2×, Articles 41–57 of GR 35/2021), and add compensation of rights. The old 15% housing/medical uplift no longer applies.

Can I terminate a fixed-term (PKWT) employee early? Yes, but PKWT employees have no statutory severance package. If either party ends the contract before it expires, the terminating party owes indemnity equal to the employee's wages for the remaining term (Articles 61A and 62, Manpower Law), which can exceed a severance payout on a long contract.

What did the Constitutional Court change about termination in 2024? Decision 168/PUU-XXI/2023 (31 October 2024) restored "at least" to Article 156(2), making statutory severance a minimum rather than a fixed cap, and held that a contested dismissal only takes effect after a final and binding court decision — with wage obligations generally continuing until then.

How long does a contested termination take in Indonesia? The formal path runs bipartite negotiation, tripartite mediation, the Industrial Relations Court, and a possible Supreme Court cassation. In theory this is a few months; in practice a case appealed to cassation commonly takes one to two years, during which employment obligations may continue under Decision 168/2023.

This article is general information current as of July 2026, not legal advice. Indonesian employment regulations are changing — a new Manpower Law is due by October 2026 — and apply differently to each situation. Confirm your specific position with a licensed advisor before acting — we're happy to help.