How foreign companies can manage employee exits, PHK procedures, final payments, and employment records in Indonesia.
Ending an employment relationship in Indonesia is not simply a matter of telling an employee that their employment will end. The employer needs to understand the circumstances, review the employee’s employment arrangement, prepare the relevant documentation, communicate the decision properly, and settle the employee’s applicable rights.
For foreign companies, the process can be particularly unfamiliar. A headquarters policy that allows management to terminate employment quickly may not reflect the Indonesian framework. The company’s reason for the termination, the employee’s employment status, the applicable procedure, and the employee’s final entitlements all need to be considered together.
This guide explains Termination Indonesia from the employer’s operational perspective: what to review before a PHK decision, how different situations change the process, how employee payments should be approached, what happens when an employee disagrees, and how to properly close the employment relationship.
A Termination Decision Usually Starts With a Business or Employment Event
Most employee exits do not begin with a termination letter.
They begin with an event.
The company may be restructuring. A fixed-term contract may be reaching its agreed end. An employee may resign. A role may no longer be required. A disciplinary issue may have occurred. The company may be closing part of its operation.
The first task is therefore to identify what actually happened.
| Situation | Initial question |
|---|---|
| Business restructuring | What organisational change is taking place? |
| Efficiency measures | What is the actual business circumstance behind the reduction? |
| Misconduct | What happened and what documentation exists? |
| PKWT ending | Is the contract reaching its agreed end date? |
| Resignation | Did the employee voluntarily initiate the exit? |
| Retirement | Which retirement-related provision applies? |
| Company closure | Why is the business or operation closing? |
PP No. 35 Tahun 2021 remains in force and provides the principal implementing framework for PHK together with PKWT, working time, outsourcing, and related employee rights.
Termination Indonesia Depends on the Actual Circumstances
The same internal instruction can produce different legal consequences depending on the facts.
For example:
“Reduce one employee.”
is not enough information.
HR needs to know:
“Why this employee, why now, what employment arrangement applies, and what event is causing the employment relationship to end?”
This factual starting point helps prevent the company from choosing a termination category merely because it appears administratively convenient.
Check the Employee’s Employment Relationship Before Doing Anything Else
Once the situation is understood, HR should identify the employee’s employment status.
The main distinction is between:
PKWT — Perjanjian Kerja Waktu Tertentu
and
PKWTT — Perjanjian Kerja Waktu Tidak Tertentu
PP No. 35 Tahun 2021 regulates both employment arrangements and their relationship with termination.
What to Review for a PKWT Employee
Look at:
- Original contract
- Contract start and end date
- Permitted basis of the PKWT
- Extension history
- Actual work performed
- Whether the contract is ending naturally
- Whether the employer wants to end it before the agreed date
A PKWT that reaches its agreed end date should not automatically be processed in exactly the same way as an employer-initiated PHK involving a permanent employee.
For the detailed PKWT framework, link this section to:
Fixed Term Employment Indonesia
What to Review for a PKWTT Employee
For permanent employment, there is no predetermined contract expiry that automatically ends the relationship.
The employer therefore needs to establish the applicable reason and procedure before moving forward.
This is where the distinction between business decision and legal termination route becomes important.
Management may have decided that a position should disappear.
HR still needs to determine how the employment relationship can lawfully be ended.
Build the Employee’s Case File Before Preparing the Exit Package
Before the company calculates any final settlement, it should assemble the relevant employee information.
The file may contain:
Employment agreement
Company regulation
Collective labour agreement, where applicable
Payroll information
Attendance
Leave records
Performance documentation
Disciplinary records
Written warnings
Business restructuring documents
Previous communication with the employee
The documents required depend on the circumstances.
Why the Evidence Comes Before the Settlement
Suppose a company decides to terminate an employee because of performance.
Before discussing the final payment, HR should be able to answer:
- What performance issue occurred?
- Was the expectation communicated?
- What evidence exists?
- Was the employee given an opportunity to respond?
- What company policy applies?
- Was the same policy used consistently?
The purpose is not to create a larger administrative burden.
It is to make sure that the reason, evidence, procedure, and eventual settlement tell the same story.
Termination Indonesia: Choosing the Right Route
Once the facts and employment status are clear, the employer can determine which termination route is relevant.
This is important because employee entitlements can differ according to the specific circumstances of the PHK.
PP No. 35 Tahun 2021 provides different treatment for different termination grounds, including company circumstances, employee circumstances, and other recognised situations.
Business Restructuring
A restructuring may change the organisation’s roles, reporting lines, or workforce requirements.
The company should document the actual organisational change and then determine the applicable termination framework.
Efficiency
Efficiency-related terminations require the employer to establish the circumstances underlying the decision.
The label “efficiency” should not replace the factual analysis.
Misconduct
A misconduct-related case requires a different evidence trail from a business restructuring.
The employer may need to review company rules, warnings, investigation material, and other relevant records.
Company Closure or Bankruptcy
A company closure can have different consequences depending on the circumstances surrounding the closure.
The reason for the closure should therefore be identified before the employee’s entitlement is calculated.
Retirement
Where employment ends because of retirement, the applicable termination provisions should be reviewed specifically rather than using a general PHK calculation.
Notification Is a Step, Not the Entire PHK Process
When termination cannot be avoided, PP No. 35 Tahun 2021 provides for written notification of the intention and reason for termination.
The general notification period is 14 working days before the termination takes effect, with a generally applicable 7-working-day period during probation.
The notification should be consistent with the actual circumstances and supporting documents.
What Should the Employee Be Told?
The communication should make clear:
- That the company proposes to end the employment relationship
- The reason
- The intended effective date
- Relevant employee rights
- The next step in the process
The employer should also maintain proof that the notification was delivered.
That evidence becomes particularly important if the employee disputes the proposed PHK.
What Happens When the Employee Says “I Do Not Agree”?
This is one of the most important points foreign employers need to understand.
A termination proposal is not necessarily the end of the legal process.
The Constitutional Court’s Decision No. 168/PUU-XXI/2023 interpreted the relevant PHK provisions so that the bipartite negotiation must be conducted through deliberation to reach consensus. Where no agreement is reached, PHK can only be carried out after a determination from the industrial-relations dispute-resolution institution has obtained permanent legal force.
The Employer Should Prepare for Two Paths
Agreement
The parties reach an agreement and document the settlement appropriately.
Dispute
The employee does not agree, and the matter proceeds through the applicable industrial-relations dispute-resolution mechanism.
This is why employers should prepare the factual and documentary basis before communicating the termination.
Calculate the Employee’s Rights Only After the Route Is Clear
A common mistake is to start with:
“How much severance do we pay?”
The more useful sequence is:
Reason → Employment status → Applicable provision → Employee rights → Final calculation
PP No. 35 Tahun 2021 regulates severance, long-service payment, compensation for rights, and other employee entitlements following PHK.
The Main Components Employers May Need to Review
Depending on the applicable circumstances, the settlement can involve:
Uang Pesangon
Severance pay.
Uang Penghargaan Masa Kerja (UPMK)
Long-service payment.
Uang Penggantian Hak (UPH)
Compensation for applicable rights.
The applicable amount is not identical for every termination.
Do Not Apply One Multiplier to Every Employee
Two employees can have the same salary and length of service but receive different statutory treatment because the circumstances surrounding their termination are different.
The employer should therefore identify the applicable provision before using the statutory calculation.
The Wage Base Needs Its Own Check
Once the applicable termination provision is identified, HR needs to determine the wage components relevant to the calculation.
Employers should review:
- Basic salary
- Fixed allowances
- Applicable wage components
- Employee payroll records
The employer should not simply take take-home pay and call it the severance calculation basis.
The relevant wage base depends on the applicable statutory framework and employee circumstances.
PKWT Expiry Deserves a Separate Check
A fixed-term employee reaching the end of a valid PKWT creates a different situation from a company deciding to terminate a permanent employee.
Before processing the exit, check:
Contract end date
Contract history
Extensions
Applicable PKWT compensation
Whether the agreement is actually expiring
Whether the company is ending it early
This distinction is important enough that HR should review the PKWT itself before deciding what the employee will receive.
For detailed contract guidance:
Fixed Term Employment Indonesia
Final Payroll Is Where the HR Decision Becomes a Financial Transaction
Once the termination route and employee rights are established, the company needs to prepare the final payroll.
The final settlement may need to account for:
- Salary up to the final employment date
- Applicable PHK payments
- UPMK where applicable
- UPH where applicable
- Outstanding leave-related amounts where applicable
- Approved reimbursements
- Contractual benefits
- Tax and statutory deductions
- Other outstanding employee amounts
Use One Final Settlement Record
Instead of having HR, Finance, and payroll calculate different versions, create one settlement record containing:
Employee
→ Employment status
→ Termination reason
→ Effective date
→ Applicable provision
→ Calculation
→ Other outstanding amounts
→ Deductions
→ Final amount
→ Payment evidence
For ongoing payroll support, this is the appropriate context to link to:
The Employee’s Leave and Benefits Should Be Closed Too
Termination is not only a severance calculation.
HR should also check whether anything remains outstanding under the employee’s existing benefit and leave arrangements.
Review:
- Annual leave
- Applicable statutory leave
- Company-provided benefits
- Insurance
- Allowances
- Reimbursements
- Other contractual benefits
The exact treatment depends on the benefit and applicable rules.
For the separate leave framework:
For broader employee-benefit planning:
A Termination Is Not Complete Until the Employee’s Systems Are Closed
After the final payment, the company still has administrative work.
The employee’s status may need to be updated across:
HR system
Payroll
BPJS
Tax records
Benefits
Company access
Company property
Employee documentation
One Exit Date, One Consistent Record
The effective termination date should not appear differently across HR, payroll, and other internal records.
A simple exit-control table can help:
| Record | Check |
|---|---|
| HR | Employment status changed |
| Payroll | Final payroll completed |
| BPJS | Employee status updated |
| Tax | Required payroll/tax administration completed |
| Benefits | Coverage/benefits closed where applicable |
| IT | Access handled |
| Assets | Company property returned |
| Documents | Exit records retained |
For companies without a dedicated Indonesian HR function, this administrative layer is often where local HR support becomes valuable.
When the Employee Challenges the Decision
A disputed termination needs a different operating approach from a mutually agreed employee exit.
The employer should preserve:
- Original termination proposal
- Employee response
- Supporting evidence
- Relevant employment documents
- Internal decision records
- Bipartite negotiation records
- Settlement documents
- Relevant communications
The Constitutional Court’s 2024 decision specifically modified the interpretation of several PHK provisions, including the role of bipartite negotiation and the requirement for a final determination when no agreement is reached.
Do Not Let Payroll Decide a Legal Dispute
Payroll should calculate what has been approved.
HR and the appropriate legal/industrial-relations function should determine the applicable employment process.
Keeping these responsibilities separate can help prevent a financial calculation from being mistaken for a legal resolution.
JKP Administration Also Needs to Be Closed Properly
Termination can also affect the employee’s access to the Job Loss Guarantee programme.
The current JKP implementation framework was amended through Permenaker No. 2 Tahun 2025, which includes administrative requirements relating to evidence of PHK and updating employee participation data. The regulation remains in force.
For employers, this means the employee exit should not end at the final salary payment.
The company should also review the relevant statutory reporting and employee-status updates.
What Foreign Headquarters Often Gets Wrong
A foreign headquarters may see an employee exit as a simple internal management action.
Indonesia requires a more locally adapted process.
The most common conceptual mistakes are not necessarily calculation errors.
They are process errors.
“We Already Decided”
A management decision does not eliminate the need to follow the applicable Indonesian PHK process.
“The Employee Accepted the Letter”
Acceptance of a document and agreement to the termination are not necessarily the same thing. The employer should retain evidence of the actual response and settlement.
“The Salary Is IDR 20 Million, So Severance Is Easy”
The applicable entitlement depends on the termination circumstances, employment status, wage components, and relevant statutory provision.
“Our Global HR Policy Covers This”
A global policy may be useful operationally, but the Indonesian process needs to reflect Indonesian employment requirements.
“Payroll Has Paid Everything, So We’re Done”
HR records, statutory administration, benefits, company property, access, and supporting documentation may still need to be closed.
A Foreign Company’s PHK Readiness Check
Before issuing a termination notice, management should be able to answer:
What is causing the employment relationship to end?
What employment status does the employee have?
What documents support the situation?
Which termination provision applies?
Has the employee been properly notified?
What happens if the employee disagrees?
What employee rights need to be calculated?
Who approves the final settlement?
How will payroll and statutory records be closed?
Who owns the employee file after termination?
If these questions cannot be answered, the company may not yet have enough information to proceed.
When a Foreign Company Should Bring in Local HR Support
Local support can become useful when a company:
- has no Indonesian HR team
- is handling its first employee termination
- is restructuring its Indonesian workforce
- has several employees affected
- is dealing with a disputed PHK
- needs to reconcile HR and payroll records
- is managing employees from overseas headquarters
The role of local HR support is not simply to prepare a letter.
It can help coordinate the employment documentation, payroll information, employee records, and local administrative process around the employee exit.
Companies evaluating broader workforce support can also review:
An EOR is relevant to a different employment structure and should not be treated as a substitute for the termination rules governing an existing direct employee.
FAQ
What is Termination Indonesia?
Termination Indonesia refers to the rules and processes governing the ending of an employment relationship in Indonesia, commonly referred to as PHK. PP No. 35 Tahun 2021 provides the main implementing framework for termination and related employee rights.
Can an employer terminate an employee in Indonesia?
Yes, but the employer must follow the applicable Indonesian employment framework. The correct process depends on the reason for termination, the employee’s employment status, and the applicable circumstances.
How much termination notice is required?
Under PP No. 35 Tahun 2021, written notification is generally provided at least 14 working days before the termination takes effect, with a generally applicable 7-working-day period during probation. The subsequent process can depend on whether the employee accepts or rejects the termination.
What happens if the employee rejects the PHK?
The parties should engage in bipartite negotiation through deliberation to reach consensus. Where no agreement is reached, the Constitutional Court’s interpretation requires a determination from the relevant industrial-relations dispute-resolution institution that has permanent legal force before the PHK can be carried out.
Is severance the same for every employee?
No. The applicable employee entitlement depends on the termination circumstances, employment status, length of service, wage components, and relevant statutory provisions.
What payments can be included in a termination settlement?
Depending on the circumstances, employers may need to review severance pay, UPMK, UPH, final salary, applicable leave-related amounts, contractual benefits, and other outstanding amounts.
Is the end of a PKWT the same as PHK of a permanent employee?
No. A PKWT operates under a defined-term employment framework, while PKWTT does not simply end because a predetermined contract date arrives. The employer should review the actual contract and circumstances before processing the employee’s exit.
Does termination affect JKP administration?
It can. The current JKP framework includes administrative requirements relating to PHK evidence and changes to participant data. Permenaker No. 2 Tahun 2025 remains in force.
Need Help Managing Employee Termination in Indonesia?
For an international company, employee termination can involve HR, management, payroll, Finance, legal/industrial relations, and statutory administration at the same time.
BigFish Global Consulting supports foreign companies managing their Indonesian workforce through:
For companies entering Indonesia without an established local HR function, local support can help coordinate the operational side of employment management while the company’s internal management retains its business decisions.
Conclusion
Termination in Indonesia should be approached as a managed employment transition, not a single HR document.
The employer first needs to understand what is causing the employment relationship to end. It then needs to confirm the employee’s status, establish the applicable route, prepare supporting documentation, communicate the proposed PHK, address any disagreement, calculate the applicable employee rights, and complete the final administrative closure.
For foreign companies, the most important lesson is that the Indonesian process should not simply be copied from headquarters.
The employment agreement, business reason, supporting evidence, termination procedure, employee settlement, payroll, and final records should all remain consistent.
The 2024 Constitutional Court decision also means that employers need to pay particular attention to the relationship between PHK notification, bipartite negotiation, and industrial-relations dispute resolution.
A properly structured local process gives foreign employers a clearer way to manage employee exits while keeping HR, Finance, payroll, and management aligned.
BigFish Global Consulting can support companies managing Indonesian workforce administration, including HR, payroll, EOR, recruitment, and related local employment support.
