Indonesia New Manpower Regime: Termination of Employment under Omnibus Law and Its Implementing Regulations
In connection with the enactment of Law No. 11 of 2020 on Job Creation (“Law 11/2020” or “Omnibus Law”). We will now address the key changes of the employment regime, particularly with respect to employment termination pursuant to the newly implementing regulations in relation with the Omnibus Law. (Note: You can access our earlier publication on the FAQ on the new manpower regime here).
This article will address the following matters in connection with changes in employment termination provisions: (i) procedures for termination of employment for permanent workers and (ii) termination benefits after the enactment of the Omnibus Law.
Legal Framework: In writing this article, we refer to the following laws and regulations:
-
Law No. 13 of 2003 on Manpower Law as lastly amended by Law 11/2020 (“Amended Law 13/2003”); and
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Government Regulation (“GR”) No. 35 of 2021 on Fixed Term Employment, Outsourcing, Working Hours and Rest Times and Termination (“GR 35/2021”).
(together referred to as “Manpower Regulations”)
Procedures for Termination of Permanent Employee: In general, termination of employment under the manpower regime shall be made through 2 (two) schemes: (i) employee’s voluntary resignation or (ii) termination by employer due to certain reason.
The employer must notify such termination, including the basis of termination, to the employee and/or the labor union (if he/she is a member of a labor union) in writing at least 14 (fourteen) working days before the date of termination, or 7 (seven) working days if the employee is on probationary period.
Notwithstanding the above, company can waive the notice obligation in the event that the employee has conducted an urgent violation of employment agreement, Company Regulation (“CR”), or Collective Labor Agreement (“CLA”) (Art. 52 (3) of GR 35/2021).
If the employee accepts the termination, the employer can proceed to notify such termination of employment to the relevant manpower office. Otherwise, the employee must submit a rejection letter to such termination no later than 7 (seven) working days.
In case that the employee rejects his/her termination, the employee and employer must conduct a bipartite negotiation. If no consensus is reached, then both parties shall proceed the termination case through the dispute settlement procedures (i.e., mediation and the court proceedings) at the Industrial Relation Court.
Compensation Pay for Non-Permanent Employees: GR 35/2021 provides that non-permanent employee shall be entitled to receive a compensation pay upon the completion of its employment contract. Below is the calculation formula of compensation pay pursuant to Art. 16 (1) of GR 35/2021:
|
Service Period |
Compensation |
|
< 1 month |
None |
|
> 1 month but <12 month |
(Service period/12) x (1 month salary + fixed allowance) |
|
12 month |
1 month salary + fixed allowance |
|
>12 month |
(Service period/12) x (1 month salary + fixed allowance) |
The above compensation pay shall be made upon the completion of the initial period of a fixed-term contract prior to any extension thereof, as well as to the completion of any extension of that fixed-term contract.
Severance Payment for Permanent Employee: The employer shall pay severance package which includes (i) severance pay, (ii) service pay, and (iii) compensation (as applicable) to the terminated employee upon such termination. (Note: Compensation pay of severance package is different with the compensation given to non-permanent employee as above. In this context, compensation consist of: (i) remaining annual leave; (ii) repatriation expenses of the employee; and (iii) other compensation as determined in the employment agreement, CR, or CLA.)
Calculation of Severance Pay and Service Pay: The current Manpower Regulations sets out the entitlement of severance and service pay based on the employee’s service period as follows:
| Severance Pay | Service Pay | ||
|---|---|---|---|
| Service Period | Monthly Salary | Service Period | Monthly Salary |
|
<1 year |
1 |
3-6 years |
2 |
|
1-2 years |
2 |
6-9 years |
3 |
|
2-3 years |
3 |
9-12 years |
4 |
|
3-4 years |
4 |
12-15 years |
5 |
|
4-5 years |
5 |
15-18 years |
6 |
|
5-6 years |
6 |
18-21 years |
7 |
|
6-7 years |
7 |
21-24 years |
8 |
|
7-8 years |
8 |
>24 years |
10 |
|
> 8 years |
9 |
||
Employee’s Severance Package Entitlement based on the Ground of Termination: GR 35/2021 further sets out the calculation formula of severance package entitlement based on the ground of termination. Below is a table comparison of employee’s severance package entitlement based on the ground of termination before the Omnibus Law and GR 35/2021.
|
Ground of Termination |
Before Omnibus Law |
Amended Law 13/2003 and GR 35/2021 |
|
Company merger and consolidation |
|
|
|
Company spin-off |
Not available |
|
|
Acquisition of Company |
|
If the company initiates termination:
|
|
If the company initiates termination:
|
||
|
Company efficiency |
Efficiency resulting in the company closing:
|
Due to company loss:
|
|
To prevent company loss:
|
||
|
Company Closure |
Due to company losses for 2 consecutive years
|
Due to company loss for 2 years (either consecutive or not)
|
|
Without company losses or force majeure
|
Without company losses
|
|
|
Due to force majeure
|
Due to force majeure
|
|
|
Force majeure without company closure |
Not available |
|
|
Suspension of company’s debt payment obligations due to losses |
Not available |
Due to company losses
|
|
Without company losses
|
||
|
Company bankruptcy |
|
|
|
Employees’ request due to employer’s action |
|
|
|
Company’s decision following a decision by the IRC that the company has not conducted employee’s accused (referred to the point above) |
Not available |
|
|
Employee’s voluntary resignation |
|
|
|
Employee’s absence for at least 5 consecutive days |
|
|
|
Employee’s violation on employment agreement, CR, or CLA (after having given 3 warning letters) |
|
|
|
Employee committing criminal action |
Employee is guilty pursuant to final & binding court decision
|
Criminal actions that cause company losses
a. If the employee cannot be working due to detention for >6 months
b. If the employee is guilty due to final & binding court decision
|
|
Criminal actions that do not cause company losses a. If the employee cannot be working due to detention for >6 months
b. If the employee is guilty due to final & binding court decision
|
||
|
Employee’s prolonged illness (>12 consecutive months) due to work-accident |
|
|
|
Retirement |
|
|
|
Employee’s death |
|
|
Exemption of Severance Payment for Micro and Small Enterprise: Under the new regime/Omnibus Law, micro and small enterprises are exempted from the requirement to pay severance package according to the formula set out in GR 35/2021. Severance payment for micro and small enterprises shall be paid based on the agreement between the relevant employers and the terminated employee (Art. 59 of GR 35/2021).
The article above was prepared by Marshall S. Situmorang (Partner), Audria Putri (Senior Associate), and Aniendita Rahmawati (Associate).
