Termination Indonesia: A Complete Guide for Employers

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Employee termination is one of the most sensitive areas of employment management in Indonesia. For foreign companies, understanding the termination process is particularly important because Indonesian employment rules can differ significantly from practices in other countries.

A termination decision that is handled incorrectly can create disputes, additional financial liabilities, and compliance risks for the employer.

In Indonesia, termination of employment (Pemutusan Hubungan Kerja or PHK) is regulated through a combination of employment legislation and implementing regulations. One of the key regulations is Government Regulation No. 35 of 2021 (PP No. 35/2021), which specifically regulates termination procedures and employee entitlements following termination.

This guide explains the key principles foreign companies should understand before terminating an employee in Indonesia.

What Is Termination in Indonesia?

Termination of employment, commonly referred to as PHK (Pemutusan Hubungan Kerja), means the end of an employment relationship between an employer and an employee.

Termination may occur for various reasons, including circumstances related to:

• Business restructuring
• Company efficiency
• Company closure
• Employee misconduct
• Employee resignation
• Retirement
• Company acquisition or merger
• Bankruptcy
• Other legally recognized circumstances

The legal treatment of termination depends on the reason for the termination, the employee’s employment status, and the applicable employment agreement and company policies.

For employers, this means that termination should not simply be treated as an internal HR decision. The company must consider the applicable legal procedure and the employee’s statutory rights.

Is Employee Termination Allowed in Indonesia?

Yes. Employers can terminate employees in Indonesia, but the process is subject to specific legal requirements.

Indonesian regulations establish procedures for termination and provide employees with certain rights when their employment ends. PP No. 35/2021 specifically regulates the procedure for PHK as well as payment of severance, long-service awards, and compensation for rights that remain outstanding.

The employer should therefore establish:

1. A legally supportable reason for termination
2. Appropriate documentation
3. Proper communication with the employee
4. The required termination notice
5. A calculation of employee entitlements
6. Proper settlement and documentation of the employment relationship

Foreign companies should avoid treating Indonesian termination procedures as equivalent to those in their home country.

Common Reasons for Termination in Indonesia

The reason for termination is important because different circumstances can result in different employee entitlements.

Business Restructuring

A company may reorganize its operations because of changes in business strategy, organizational structure, market conditions, or operational requirements.

Where restructuring results in termination, the employer should document the business rationale and ensure that the termination process complies with applicable Indonesian regulations.

Company Efficiency

Companies may undertake efficiency measures when they need to reduce operating costs or restructure their workforce.

However, an employer should not assume that simply describing a termination as an “efficiency decision” automatically removes its legal obligations.

The applicable termination reason and the employee’s statutory entitlements must still be assessed.

Company Closure or Bankruptcy

A company’s closure, insolvency, or bankruptcy can also affect employment relationships.

PP No. 35/2021 provides specific rules concerning termination for certain company-related circumstances, including situations involving suspension of debt payments and bankruptcy. The employee’s entitlement can vary depending on the specific reason for the termination.

Employee Misconduct

Termination may also arise from employee misconduct or violations of workplace rules.

Before taking action, employers should ensure that the relevant employment agreement, company regulations, collective agreement, and applicable Indonesian employment rules are properly reviewed.

A termination decision based on misconduct should be supported by appropriate documentation and a defensible process.

Retirement

Retirement is another circumstance that may result in termination.

PP No. 35/2021 provides specific termination provisions for employees reaching retirement age, including a different calculation framework for certain termination benefits.

Termination Notice in Indonesia

One of the important procedural requirements is the termination notification.

Under PP No. 35/2021, when termination cannot be avoided, the employer must communicate the intention and reason for termination to the employee and, where applicable, the relevant trade union.

The notification is generally delivered in writing no later than 14 working days before the termination takes effect. For termination during a probationary period, the notification period is generally 7 working days.

This means employers should not wait until the final day of employment to communicate the termination decision.

A proper termination notice should clearly explain:

• The intention to terminate employment
• The reason for termination
• The effective termination date
• Relevant employee rights
• Any required next steps

What Happens If the Employee Rejects the Termination?

An employee who receives a termination notification and disagrees with the decision may submit a written rejection explaining the reasons.

Under PP No. 35/2021, the employee generally has 7 working days after receiving the notification to submit the rejection. If there is a disagreement, the parties should first attempt to resolve the matter through bipartite negotiations between the employer and employee and/or trade union.

If the dispute cannot be resolved through bipartite negotiations, the matter may proceed through the applicable industrial relations dispute resolution mechanism.

For foreign companies, this makes proper documentation particularly important. A termination decision should be supported by records that demonstrate how and why the decision was made.

Featured Snippet: How Long Is Termination Notice in Indonesia?

In general, an employer must provide written termination notification no later than 14 working days before the termination takes effect. During a probationary period, the notification period is generally 7 working days. If the employee rejects the termination, the employee may submit a written rejection within 7 working days.

Business Perspective

For foreign companies entering Indonesia, termination should be considered part of the overall workforce compliance strategy—not simply an HR administration task.

A company may have a valid commercial reason to reduce its workforce, but the way the termination is implemented can determine whether that decision creates unnecessary legal and financial exposure.

Before terminating an employee, companies should therefore review the employment agreement, company regulations, applicable termination reason, employee tenure, required payments, and supporting documentation.

Expert Insight

The biggest termination risk for foreign employers is often not the decision itself, but the gap between the company’s internal HR practice and Indonesian employment requirements.

A termination process that appears normal in another country may require additional documentation, notice, negotiation, or employee payments in Indonesia.

For companies without an established local HR or legal team, reviewing the process before issuing a termination notice can significantly reduce compliance risks.

Key Takeaways

Before proceeding with an employee termination in Indonesia, employers should:

• Identify the legal and business reason for termination
• Review the employee’s employment agreement
• Check applicable company regulations or collective agreements
• Prepare supporting documentation
• Provide the required written notification
• Calculate employee termination entitlements
• Prepare final payroll and outstanding benefits
• Maintain proper termination records
• Follow the appropriate dispute-resolution process if the termination is challenged

The next part of this guide will examine severance pay, long-service pay, compensation for rights, termination calculations, and how employers can manage the financial side of termination in Indonesia.

Severance Pay in Indonesia

One of the most important financial considerations when terminating an employee in Indonesia is the employee’s statutory termination entitlement.

Depending on the circumstances of the termination, an employee may be entitled to one or more of the following:

• Severance Pay (Uang Pesangon)
• Long Service Pay (Uang Penghargaan Masa Kerja or UPMK)
• Compensation Pay (Uang Penggantian Hak or UPH)

These payments are regulated under PP No. 35/2021, which specifically covers termination procedures and the payment of severance, long-service awards, and compensation of rights.

However, the amount payable is not necessarily the same for every termination.

The applicable multiplier depends on the reason for termination and the circumstances surrounding the employment relationship.

What Is Severance Pay (Uang Pesangon)?

Uang Pesangon is a statutory termination payment calculated primarily based on the employee’s length of service and applicable termination circumstances.

The basic severance scale under the applicable regulation ranges from:

Length of Service	Basic Severance
Less than 1 year	1 month’s wage
1 year or more but less than 2 years	2 months’ wage
2 years or more but less than 3 years	3 months’ wage
3 years or more but less than 4 years	4 months’ wage
4 years or more but less than 5 years	5 months’ wage
5 years or more but less than 6 years	6 months’ wage
6 years or more but less than 7 years	7 months’ wage
7 years or more but less than 8 years	8 months’ wage
8 years or more	9 months’ wage

This table represents the basic statutory severance scale. The actual amount payable can be affected by the specific legal reason for termination and the applicable multiplier.

Therefore, employers should not calculate severance simply by multiplying the employee’s monthly salary by years of service.

What Is Long Service Pay (UPMK)?

Uang Penghargaan Masa Kerja (UPMK) is a statutory long-service payment that may apply depending on the employee’s length of service and the reason for termination.

The basic UPMK scale is generally:

Length of Service	Basic UPMK
3 years or more but less than 6 years	2 months’ wage
6 years or more but less than 9 years	3 months’ wage
9 years or more but less than 12 years	4 months’ wage
12 years or more but less than 15 years	5 months’ wage
15 years or more but less than 18 years	6 months’ wage
18 years or more but less than 21 years	7 months’ wage
21 years or more but less than 24 years	8 months’ wage
24 years or more	10 months’ wage

Again, this is the statutory scale before considering the specific termination scenario.

The employer should determine whether UPMK applies and what proportion is payable under the applicable termination provision.

What Is Compensation Pay (UPH)?

Uang Penggantian Hak (UPH) compensates employees for certain rights that remain outstanding when employment ends.

Depending on the circumstances, this may include applicable:

• Unused annual leave that qualifies for compensation
• Relocation or return costs for the employee and family, where applicable
• Other rights provided under the employment agreement, company regulations, or collective agreement
• Other legally recognized compensation

The exact components should be reviewed against the employee’s employment documents and the applicable termination provision.

For foreign companies, this is particularly important because company policies may provide benefits beyond the statutory minimum.

How Is Termination Pay Calculated in Indonesia?

A simplified termination calculation can be expressed as:

Termination Payment = Applicable Severance + Applicable UPMK + Applicable UPH

However, this is only a simplified framework.

The actual calculation depends on:

1. The employee’s length of service
2. The reason for termination
3. The employee’s wage components
4. Whether severance applies in full, partially, or under another statutory multiplier
5. Whether UPMK applies
6. Applicable compensation rights
7. The employee’s contract and company regulations

For this reason, employers should determine the applicable termination provision before calculating the final amount.

What Counts as “Wage” for Severance Calculation?

The wage used for calculating statutory termination benefits is not necessarily limited to the employee’s basic salary.

Depending on the applicable wage structure, the calculation may include:

• Basic salary
• Fixed allowances

Employers should therefore review the employee’s payroll structure before calculating severance.

A common mistake is to automatically use the employee’s take-home pay as the severance calculation basis.

Instead, HR should identify the legally relevant wage components first.

Example: Basic Termination Calculation

Consider an employee with:

• Monthly wage: IDR 15,000,000
• Length of service: 5 years
• Applicable basic severance scale: 6 months’ wage

The basic severance amount would be:

6 × IDR 15,000,000 = IDR 90,000,000

However, this does not automatically mean the employee receives IDR 90,000,000 as the final termination settlement.

The employer must still determine:

• The applicable termination reason
• The applicable severance multiplier
• Whether UPMK applies
• Applicable UPH
• Any outstanding salary
• Unused qualifying leave
• Other contractual or statutory obligations

This distinction is important when preparing a termination budget.

Termination Because of Company Efficiency

Business efficiency is one of the situations that may lead to termination.

However, employers should distinguish between different legal circumstances because the applicable employee entitlement can differ.

For example, the termination rules can vary depending on whether efficiency is connected with:

• Preventing company losses
• The company actually experiencing losses
• Business restructuring
• Closure
• Other circumstances recognized under the applicable regulation

The company should document the underlying business circumstances and ensure that the termination reason matches the applicable legal framework.

Termination Because of Company Closure

A company that closes its Indonesian operations may need to terminate its employees.

The financial consequences depend on why the company is closing and the legal circumstances surrounding the closure.

For example, a closure due to business losses can be treated differently from a closure unrelated to losses.

Therefore, a foreign company should not simply apply one generic “company closure” formula to every employee.

The reason for closure should be documented and reviewed before the termination package is finalized.

Termination Due to Employee Misconduct

Employee misconduct can also result in termination.

However, employers should establish the factual basis for the termination and follow the applicable employment rules and company procedures.

Relevant documents may include:

• Employment agreement
• Company regulations
• Collective labor agreement
• Written warnings
• Investigation records
• Attendance records
• Performance documentation
• Evidence of the alleged violation
• Previous disciplinary actions

The applicable termination entitlement may differ depending on the specific circumstances.

For this reason, employers should avoid assuming that misconduct automatically means that no termination payment is required.

Termination During Probation

Probationary employment requires particular attention.

Under Indonesian employment rules, probation is associated with permanent employment (PKWTT) rather than a fixed-term employment agreement (PKWT).

Employers should therefore ensure that the employment arrangement is correctly classified before relying on probation-related provisions.

A foreign company should not automatically apply its home-country probation practices to an Indonesian employee.

Fixed-Term Employees and Termination

Fixed-term employees, known as PKWT employees, are subject to a different framework from permanent employees.

PP No. 35/2021 specifically regulates PKWT arrangements and compensation.

This distinction matters because the end of a PKWT and an early termination of a PKWT are not necessarily treated in the same way.

Employers should review:

• The PKWT agreement
• Contract duration
• Extension history
• Reason the employment relationship ends
• Whether the contract has naturally expired
• Whether the employer terminates the agreement before its agreed end date

Foreign companies should therefore avoid using a single termination formula for both PKWT and PKWTT employees.

Termination and Employee Disputes

If the employee does not agree with the termination, the dispute should first be addressed through the applicable bipartite negotiation process.

The Constitutional Court’s interpretation of the employment provisions has also emphasized that termination disputes that cannot be resolved through bipartite negotiation may proceed through the industrial relations dispute-resolution mechanism, with the termination process subject to the applicable legal requirements.

This makes documentation extremely important.

A company should be able to demonstrate:

• Why the termination was proposed
• How the employee was notified
• What discussions took place
• How the termination payment was calculated
• Whether the employee accepted or rejected the termination
• How any dispute was handled

Termination Payment Checklist

Before finalizing a termination, HR should verify:

• Employee employment status
• Length of service
• Reason for termination
• Applicable termination provision
• Basic wage and fixed allowances
• Severance calculation
• UPMK calculation
• UPH calculation
• Outstanding salary
• Qualifying unused leave
• Other contractual benefits
• Termination notice
• Supporting documentation
• Employee acknowledgment or response
• Final payroll
• Proof of payment
• Termination documentation

Why Foreign Companies Need a Local Termination Process

For a foreign company, the most difficult part of termination is often not calculating the employee’s salary.

The bigger challenge is making sure that the reason, procedure, documentation, and payment are aligned.

A company may have a legitimate business reason for reducing its workforce, but an incomplete termination process can create unnecessary disputes and additional costs.

This is particularly relevant for companies managing Indonesian employees from overseas headquarters.

HR teams should therefore establish a documented Indonesian termination procedure rather than relying entirely on global HR templates.

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Termination Process in Indonesia: Step by Step

A compliant termination process should be handled systematically. Foreign companies should avoid making the termination decision first and attempting to resolve the documentation afterward.

A practical process can be divided into the following steps.

Step 1: Identify the Reason for Termination

Start by identifying the actual reason for ending the employment relationship.

The reason should be consistent with the company’s documentation and the applicable Indonesian employment regulations.

For example, the company may be dealing with:

• Business restructuring
• Efficiency measures
• Company closure
• Employee misconduct
• Retirement
• Expiration of a fixed-term agreement
• Other circumstances recognized under Indonesian regulations

The termination reason should not be changed simply to fit a preferred compensation calculation.

Step 2: Review the Employment Documents

Before issuing a termination notification, HR should review:

• Employment agreement
• PKWT or PKWTT status
• Company regulations
• Collective labor agreement, if applicable
• Employee handbook
• Previous written warnings
• Performance records
• Relevant company policies
• Payroll and benefits records

This review helps determine both the appropriate procedure and the employee’s potential entitlements.

Step 3: Calculate the Employee’s Entitlements

The company should calculate the employee’s expected final settlement before communicating the termination.

Depending on the circumstances, this may include:

• Severance pay
• UPMK
• UPH
• Outstanding salary
• Qualifying unused annual leave
• Other contractual benefits
• Other amounts legally or contractually payable

The calculation should be documented so that HR can explain how the final amount was determined.

Step 4: Prepare the Termination Notification

When termination cannot be avoided, the employer should prepare the required written notification.

The notification should clearly identify:

• The employee
• The termination reason
• The effective termination date
• Relevant employee rights
• Any required next steps

The notification should be consistent with the applicable termination procedure under Indonesian law.

Step 5: Communicate With the Employee

Termination should be communicated professionally and clearly.

For sensitive cases, HR should prepare the meeting carefully and ensure that the employee understands:

• Why the employment relationship is ending
• When the termination becomes effective
• What payments the employee will receive
• What happens to benefits
• How company property should be returned
• What documents the employee will receive

For foreign companies, communication can be particularly important when headquarters and Indonesian HR teams operate in different countries.

Step 6: Handle Employee Rejection or Disagreement

If an employee rejects the termination, the employer should not simply proceed as though the disagreement does not exist.

The parties should follow the applicable dispute-resolution process, beginning with bipartite negotiations where required.

All discussions should be properly documented.

This may include:

• Meeting records
• Written responses
• Negotiation minutes
• Proposed settlement terms
• Employee correspondence
• Supporting evidence

If the dispute cannot be resolved through bipartite negotiations, the parties may proceed to the applicable industrial relations dispute-resolution mechanism.

Step 7: Complete the Final Payroll

Once the termination arrangements are finalized, HR and payroll should calculate the employee’s final payment.

The final payroll review should include:

• Salary up to the final working day
• Overtime, where applicable
• Unpaid allowances
• Statutory termination payments
• Qualifying unused leave
• Other contractual benefits
• Applicable deductions
• Other outstanding employee balances

The final calculation should be reconciled against the employee’s payroll records.

Step 8: Complete Employment and Company Documentation

The company should maintain appropriate records showing that the termination process was completed.

Relevant documentation may include:

• Termination notification
• Employee response
• Termination agreement, if applicable
• Calculation of termination benefits
• Final payslip
• Proof of payment
• Employment records
• Return-of-company-property records
• Other required HR documentation

Good documentation provides an important compliance record if questions arise later.

Termination for Foreign Companies: What Should HR Check?

Before terminating an Indonesian employee, a foreign company should review five major areas:

1. Legal Compliance

Confirm that the proposed termination is consistent with applicable Indonesian employment regulations.

2. Employment Status

Determine whether the employee is:

• PKWT
• PKWTT
• In a probationary period
• Covered by a collective agreement
• Covered by specific company policies

3. Financial Exposure

Calculate the potential termination cost before making the final decision.

This allows management to understand the full financial impact rather than looking only at the employee’s monthly salary.

4. Documentation

Ensure that the company has sufficient evidence supporting the termination decision and the process followed.

5. Dispute Risk

Assess whether the employee could challenge the termination and whether additional legal or HR review is appropriate.

Common Termination Mistakes by Foreign Companies

Foreign employers can create unnecessary risk when they apply their home-country HR practices directly to Indonesia.

Treating Indonesian Termination Like a Simple At-Will Process

Employers should not assume that an employee can simply be terminated because management no longer wants to continue the employment relationship.

The applicable Indonesian termination process and employee entitlements must be considered.

Using the Wrong Termination Reason

The reason documented by the company should accurately reflect the actual circumstances.

Using a generic reason simply because it appears easier can create problems if the decision is later challenged.

Ignoring PKWT and PKWTT Differences

Fixed-term and permanent employment relationships are governed by different rules.

HR should confirm the employee’s status before determining the termination procedure and financial obligations.

Calculating Severance From Take-Home Pay

Termination calculations should use the applicable wage components rather than automatically treating take-home pay as the calculation basis.

Failing to Document the Process

A verbal termination with limited supporting documentation can make it difficult for the employer to demonstrate how the decision was reached.

Paying the Employee Without Reviewing the Legal Basis

Making a payment does not automatically correct an improperly conducted termination process.

The company should review the procedure and calculation together.

Applying Global HR Templates Without Local Review

A termination letter designed for another country may not contain all the information or procedural elements required for Indonesia.

Global HR policies should therefore be adapted to Indonesian requirements.

Termination Compliance Checklist for Employers

Before completing an employee termination in Indonesia, employers should confirm:

• Termination reason identified
• Employee employment status confirmed
• Employment agreement reviewed
• Company regulations reviewed
• Collective agreement reviewed, if applicable
• Supporting documentation prepared
• Termination notification prepared
• Required notice period checked
• Employee response recorded
• Bipartite negotiation conducted where required
• Severance entitlement calculated
• UPMK entitlement reviewed
• UPH entitlement reviewed
• Final salary calculated
• Unused qualifying leave reviewed
• Other contractual benefits reviewed
• Final payroll completed
• Termination documents completed
• Payment records retained
• Company assets returned
• Employee records updated

When Should a Foreign Company Get Professional Help?

Professional HR or legal assistance can be particularly useful when the termination involves:

• Senior or executive employees
• Large-scale workforce reductions
• Employee misconduct disputes
• Significant severance exposure
• Company restructuring
• Business closure
• Foreign employees
• Collective labor issues
• Existing employee disputes
• Potential industrial relations litigation

For companies without an established Indonesian HR team, local expertise can help ensure that the termination process, documentation, and final settlement are properly aligned.

Frequently Asked Questions About Termination in Indonesia

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Conclusion

Employee termination in Indonesia requires more than calculating a final salary.

Employers need to consider the reason for termination, employment status, notification process, employee entitlements, documentation, and potential dispute resolution.

For foreign companies, the safest approach is to establish a termination process specifically adapted to Indonesian employment requirements rather than relying entirely on global HR procedures.

A properly documented process can help companies manage employee exits more consistently while reducing unnecessary compliance and dispute risks.

Need Help With Employment Compliance in Indonesia?

Managing employee termination, payroll, employment contracts, and HR compliance in Indonesia can be challenging for companies without a local HR team.

BigFish Global Consulting helps foreign companies manage their Indonesian workforce through HR, Employer of Record, payroll, recruitment, and corporate support services.

If your company is planning a workforce restructuring, employee termination, or broader HR compliance review in Indonesia, our local team can help you assess the process and manage the relevant requirements.

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