Rules and practices of severance pay in Indonesia - the Labour Law Number 13 of 2003

This paper aims at systematically organizing multiple factors and presenting a comprehensive framework for calculating termination payments according to the law.

Content also available in: Bahasa Indonesia

Payments related to employment termination represent one of the most complicated subjects in Indonesia’s Labour Law No. 13 of 2003. Under the law, there are 2 types of employment agreements, 5 different types of termination payments, 9 benefit formulas and 21 determinants for these benefit formulas. This law offers flexibility to some provisions with regard to termination and related benefits. However, this flexibility or ambiguity may lead to misinterpretation of legal rights and obligations among workers and employers in some particular instances, with the consequence being industrial disputes and court cases.

This paper identifies three factors to determining the benefit formula that will be used to define the amount of termination payment due to an Indonesian employee whose employment has been terminated.