Home Blog Legal Framework for Employee Dismissal in Indonesia Employment Law Services | Human Resource | Indonesia Legal Framework for Employee Dismissal in Indonesia InCorp Editorial Team 8 January 2025 6 minutes reading time Table of Contents What are the Reasons for Terminating Employment? What Conditions Which Employment Contracts Cannot Be Terminated? Step-by-Step Employee Termination Procedure in Indonesia What Compensation is Owed After Termination? How Can Employers Ensure Compliance? Simplify Your HR and Recruitment Processes with InCorp Employee termination in Indonesia involves complex legal and procedural requirements to protect employers and employees. Employers must navigate these regulations to avoid legal disputes, ensure fairness, and maintain operational goals. This article will explain the reasons for termination, the conditions under which employee termination is prohibited, and the proper procedures and best practices for compliance. What are the Reasons for Terminating Employment? Indonesia’s employment law, specifically the 2020 Job Creation Law (Omnibus Law), outlines the legal grounds for termination. Employers must: Provide a valid reason as per labor regulations. Ensure procedural fairness through proper documentation and communication. Offer severance and other entitlements if applicable. The country’s labor laws provide a clear framework for acceptable reasons to end employment relationships, helping employers ensure compliance. Underperformance or Misconduct Employers can terminate employees for consistent underperformance or serious misconduct. However, evidence must support this, such as documented warnings or investigations. Common examples include: Failing to meet performance benchmarks despite support and training. Engaging in fraud, theft, or other unethical practices. Violating company policies or labor regulations. Economic or Structural Reasons Economic downturns or restructuring initiatives may necessitate workforce reduction. Employers can lay off employees due to financial constraints, operational downsizing, or mergers. However, these terminations require adherence to legal protocols, including severance payments and notice periods. Completion of Contractual Agreement Employees hired under fixed-term contracts are automatically terminated once the contract ends. Employers must ensure these terms are documented and agreed upon from the outset. READ MORE:7 Human Resource Management Challenges when Doing Business in IndonesiaWhy Hiring a Headhunter in Indonesia is Key to Your Business SuccessHuman Resource Outsourcing – Effective Hiring in Indonesia What Conditions Which Employment Contracts Cannot Be Terminated? Indonesian employment law protects employees from unfair dismissal. Employers are prohibited from terminating employees under the following circumstances: Discrimination and Harassment Claims Employees cannot be terminated based on discrimination related to gender, race, religion, ethnicity, or disability. Dismissing an employee who reports workplace harassment or discrimination is also considered illegal and subject to penalties. Pregnancy or Parental Leave Terminating an employee due to pregnancy, childbirth, or parental leave is strictly forbidden under Indonesian labor laws. This protection ensures that working parents are not penalized for fulfilling family responsibilities. Retaliation for Whistleblowing Employees who report illegal or unethical activities within the organization, such as corruption or safety violations, are protected under whistleblower laws. Retaliatory termination is deemed unfair and may attract legal action. Step-by-Step Employee Termination Procedure in Indonesia The termination process in Indonesia is designed to ensure fairness and compliance with labor laws. Below is a simplified guide to the essential steps involved in terminating employment. Notice Period The notice period ensures both parties have sufficient time to prepare for the end of the employment relationship: Employee Resignation: Employees must submit a written notice at least 30 days before their last working day. Employer Termination: Employers must notify employees of termination in writing at least: 14 working days for regular employees. 7 working days for employees on probation. Employee Termination Process in Indonesia The process involves a series of steps to facilitate a fair and transparent outcome: Bipartite Negotiation Employers and employees (or unions) negotiate termination terms. Discussions must be documented, signed, and concluded within 30 days. Agreements are registered with the Industrial Relations Court. Mediation by the Manpower Department If negotiations fail, the case moves to mediation with the Manpower Department: Both parties submit a written request. Mediators investigate within seven business days and propose solutions within 30 days. Agreements are finalized and registered with the court. If unresolved, parties can file lawsuits. Voluntary Resignation Process When an employee resigns voluntarily: They must submit a written resignation 30 to 60 days before their last working day. Employers are not obligated to provide service payments but may offer separation pay as a goodwill gesture. What Compensation is Owed After Termination? Indonesia’s labor laws specify distinct compensation structures for terminated employees, depending on the type of contract and the length of employment. The tables below summarize the severance and long-service payment requirements for indefinite and definite contracts. Indefinite Contracts Indefinite contracts apply to long-term employment without a fixed end date. Upon termination, employers must provide severance pay, long-service pay, and compensation for rights. Severance Pay Service PeriodCompensationLess than 1 year1 month’s wage1-2 years2 months’ wage2-3 years3 months’ wage3-4 years4 months’ wage4-5 years5 months’ wage5-6 years6 months’ wage6-7 years7 months’ wage7-8 years8 months’ wage8 years or more9 months’ wage Long-Service Pay Service PeriodCompensation3-4 years2 months’ wage4-5 years2 months’ wage5-6 years2 months’ wage6-7 years3 months’ wage7-8 years3 months’ wage8 years or more3 months’ wage9-12 years4 months’ wage12-15 years5 months’ wage15-18 years6 months’ wage18-21 years7 months’ wage21-24 years8 months’ wage24 years or more10 months’ wage Definite Contracts Definite contracts are fixed-term agreements typically used for project-based or seasonal work. Compensation must be paid upon the completion of the contract. Service PeriodCompensationLess than 12 monthsPro-rata based on months worked12 months or more1 month’s salary for each year of service How Can Employers Ensure Compliance? To minimize legal disputes and ensure fairness, companies should adopt the following measures when handling employee terminations: Review and revise company HR policies to align with Indonesia’s Labor Law on employment termination. Conduct training sessions for staff and management to educate them on labor laws, grounds for termination, and proper dismissal procedures. Implement a system for recording employee performance, behavior, and conduct. This documentation is crucial for supporting termination decisions. Keep accurate records for terminated employees, including reasons for termination, the dismissal process followed, and payments made. Apply the severance payment method introduced by Government Regulation 35 of 2021 and ensure employees are informed about this process. Consult legal experts during termination cases to reduce the risk of disputes and confirm compliance with labor laws. Refrain from terminating employees on discriminatory or prohibited grounds, such as pregnancy, sick leave, or retaliation, as the Labor Law outlines. Periodically review HR practices to ensure they meet Indonesian labor regulations regarding termination. Establish a transparent system for employees to raise grievances and appeal termination decisions, fostering trust and fairness. Monitor changes in labor laws and update company policies promptly to remain compliant. Simplify Your HR and Recruitment Processes with InCorp Employee termination in Indonesia requires strict adherence to labor laws, ensuring fairness and minimizing disputes. Employers must stay informed, maintain transparency, and uphold the rights of their workforce. Organizations can manage terminations effectively and ethically by following the outlined steps and best practices. To ensure full compliance and streamline your HR practices, InCorp can provide you with comprehensive HR and recruitment solutions to help you: Develop compliant HR policies. Manage employee recruitment and onboarding seamlessly. Ensure termination procedures adhere to Indonesian labor laws. Fill out the form below to streamline your HR and recruitment processes. Read Full Bio Daris Salam COO Indonesia at InCorp Indonesia With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.