Indonesia Severance Pay: How to Calculate Under the Omnibus Law

Indonesia severance pay is not a goodwill gesture. It is a statutory obligation, and the calculation is more involved than most foreign employers realize when they first start hiring here.

The amount an employee receives when their employment ends depends on three separate components, each calculated differently. It also depends on why the employment is being terminated, because the same six years of service can result in a very different payout depending on whether the company is restructuring, closing down, or the employee resigned. Get the reason wrong, and the multiplier is wrong. Get the multiplier wrong, and the entire calculation is wrong.

This guide breaks down exactly how Indonesia severance pay works under the current legal framework, what each component covers, how the multiplier system operates, and what the numbers actually look like in practice.

The Legal Framework: What Governs Severance Pay in Indonesia

Three interconnected regulations currently govern severance pay in Indonesia, and understanding how they relate to each other is important before touching any calculation.

The primary foundation is Law No. 13 of 2003 on Manpower (Undang-Undang Ketenagakerjaan), which established the original severance pay structure and the principle that employers must compensate permanent employees upon termination.

This was substantially amended by Law No. 6 of 2023 on Job Creation (Undang-Undang Cipta Kerja), which ratified the Omnibus Law Government Regulation in Lieu of Law No. 2 of 2022. The Omnibus Law restructured the severance system, in some scenarios reducing the multipliers that applied under the original 2003 framework.

The operational implementation of these changes sits in Government Regulation No. 35 of 2021 (Peraturan Pemerintah No. 35 Tahun 2021 or PP 35/2021), which is the regulation HR teams and payroll managers work with directly. PP 35/2021 specifies the precise formula for each component of the severance package, the multipliers that apply per termination reason, and the procedural requirements around notice and documentation.

Finally, Constitutional Court Decision No. 168/PUU-XXI/2023, issued in October 2023, is the most recent significant development. While this ruling focused primarily on other aspects of the employment cluster within the Omnibus Law, including contract duration and sectoral minimum wages, it also signaled that a standalone Manpower Law is expected by late 2025 or 2026. As of the time of this writing, PP 35/2021 and the Omnibus Law remain the operative references for severance calculations, and the severance structure under these regulations has not been changed by the Constitutional Court decision.

Who Is Entitled to Severance Pay in Indonesia?

The first distinction to make is between permanent employees and fixed-term contract employees, because the entitlements are fundamentally different.

Permanent employees, those on an indefinite-term employment agreement (Perjanjian Kerja Waktu Tidak Tertentu or PKWTT), are entitled to the full severance package upon termination. This covers the three main components: 

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

The amount varies based on length of service and the reason for termination.

Fixed-term contract employees (Perjanjian Kerja Waktu Tertentu or PKWT) are not entitled to the standard severance package. Instead, they receive a Compensation Pay (Uang Kompensasi) when their contract expires or is extended. The formula for this is proportional: the number of months worked divided by 12, multiplied by one month’s salary. This compensation must be paid at the end of each contract period and again at each extension, not only at the final end of the employment relationship.

One important note for foreign companies: the PKWT compensation pay does not apply to foreign employees under Article 15(5) of PP 35/2021. This is a detail that surprises many multinational HR teams.

The Three Components of the Severance Package

For permanent employees facing termination, the severance package under Article 156 of the Manpower Law consists of three distinct components. Each is calculated separately and then added together.

Severance Pay (Uang Pesangon or UP)

This is the core component, calculated based on how long the employee has worked with the company. The scale under PP 35/2021 is as follows:

The maximum base severance pay is capped at 9 months’ wage, regardless of how long the employee has worked. An employee with 15 years of service has the same base UP as one with 8 years. What increases with additional tenure is the Long Service Award.

Long Service Award (Uang Penghargaan Masa Kerja or UPMK)

This component recognizes an employee’s longer-term contribution to the company and applies only to employees who have worked for at least 3 years. The scale is:

Compensation for Rights (Uang Penggantian Hak or UPH)

This third component covers entitlements the employee has accrued but not yet received at the time of termination. It includes unused annual leave that has not expired, transportation costs for returning the employee and their family to their original place of hire if they relocated for the job, and housing and medical allowances amounting to 15% of the combined UP and UPMK if those benefits were part of the employment package.

The UPH is situational and varies from one employee to the next depending on their remaining leave balance, contract terms, and whether relocation costs apply.

The Wage Base: What Counts as “One Month’s Wage”

Before any calculation can begin, the wage base must be defined correctly. Under PP 35/2021, one month’s wage for severance purposes includes the basic salary plus any fixed monthly allowances. Variable payments such as performance bonuses, overtime pay, and reimbursements are excluded.

This distinction matters in practice because many Indonesian compensation structures include a mix of fixed and variable components. A finance manager earning IDR 15,000,000 per month in basic salary plus IDR 3,000,000 in fixed transport and meal allowances would have a wage base of IDR 18,000,000 for severance calculation purposes. Only the variable bonus they receive quarterly would be excluded.

Getting the wage base right before calculating severance is essential. Under-calculating the base, even unintentionally, creates a liability that surfaces at the worst possible time.

The Multiplier System: Why the Reason for Termination Changes Everything

This is the part of Indonesia severance pay that most foreign employers do not fully understand until they are in the middle of a termination.

PP 35/2021 does not simply say “pay the severance table above.” It applies a multiplier to the UP and UPMK components depending on why the employment is ending. The same employee with the same tenure can receive anywhere from 0.5 times to 2 times the base calculation depending on the termination ground.

The key multipliers under PP 35/2021 are:

Efficiency to prevent losses (company remains profitable): UP x 1, UPMK x 1 The company decides to reduce headcount to prevent future losses, not because it is currently in the red. Employees receive the full base calculation.

Efficiency due to actual losses: UP x 0.5, UPMK x 1 The company has been running losses and terminates employees as a direct result. The severance pay component is halved, but the long service award remains at full value.

Company closure not due to losses: UP x 1, UPMK x 1 The owner decides to close a profitable business. Employees receive full base calculation.

Company closure due to losses: UP x 0.5, UPMK x 1 The company has incurred continuous losses for two or more years and closes down. Severance pay is halved.

Merger, consolidation, or spin-off where employee is unwilling to continue: UP x 1, UPMK x 1 The corporate structure changes and the employee does not want to continue under the new entity. Full calculation applies.

Acquisition where employee is unwilling to continue: UP x 0.5, UPMK x 1 The company is acquired and the employee opts not to continue. Severance pay is halved.

Retirement: UP x 1.75, UPMK x 1 This is the most generous multiplier in the framework. Employees reaching retirement age receive 1.75 times the base severance plus the full long service award. A 22-year employee earning IDR 15,000,000 per month, for example, would receive UP of 9 months multiplied by 1.75, totaling IDR 236,250,000, plus UPMK of 8 months at IDR 120,000,000, plus UPH on top.

Employee dies: UP x 2, UPMK x 2 The family of a deceased employee receives double the base severance and double the long service award. This is the highest multiplier in the framework.

Employer serious misconduct (employee-initiated termination): UP x 1, UPMK x 1 If an employer commits serious violations, such as failing to pay wages for three consecutive months or engaging in abusive behavior, the employee has the right to unilaterally terminate the employment relationship and claim full severance.

Employee voluntary resignation: No UP, No UPMK, UPH only Employees who resign of their own accord are not entitled to severance pay or the long service award. They retain only their right to UPH, which covers unused annual leave and any other remaining entitlements.

A Worked Example

To see how these components come together in practice, consider this scenario.

An employee has worked for a company for 6 years and 3 months. Their monthly wage, including basic salary and fixed allowances, is IDR 12,000,000. The company is terminating their position due to a business efficiency exercise intended to prevent future losses, not in response to existing losses.

The applicable multiplier is UP x 1, UPMK x 1.

Severance Pay (UP): 6 years of service falls in the 6 to less than 7 years bracket, which entitles the employee to 7 months’ wage. At IDR 12,000,000 per month, that is IDR 84,000,000.

Long Service Award (UPMK): 6 years of service falls in the 6 to less than 9 years bracket, which entitles the employee to 3 months’ wage. That is IDR 36,000,000.

Compensation for Rights (UPH): The employee has 8 days of unused annual leave remaining. Assuming a 22-working-day month as the basis, the daily rate is IDR 12,000,000 divided by 22, giving IDR 545,454 per day. Eight days of unused leave amounts to IDR 4,363,636. The employee does not have a housing or medical allowance in their package, so the 15% component does not apply.

Total severance package: IDR 84,000,000 plus IDR 36,000,000 plus IDR 4,363,636 equals IDR 124,363,636.

Now consider the same employee being terminated because the company is experiencing losses: the UP multiplier drops to 0.5. The UP component becomes IDR 42,000,000 instead of IDR 84,000,000, and the total package falls to IDR 82,363,636. A difference of over IDR 40,000,000 from the same employee with the same tenure, driven entirely by which multiplier applies.

The Procedural Requirements Around Severance Pay

The calculation is only half of the compliance picture. Before severance is paid, the termination process must follow specific procedural steps under PP 35/2021 and the Omnibus Law.

The employer must issue a written notice of termination (Surat Pemberitahuan Pemutusan Hubungan Kerja) to the employee at least 14 working days before the intended effective termination date. For employees still on probation, the notice period is 7 working days. The notice must state the reason for termination, the proposed severance calculation, and the payment date.

The employee then has 7 working days to respond in writing, either accepting or rejecting the termination. If accepted, a Mutual Termination Agreement (Perjanjian Bersama) is executed and registered with the local Manpower Office. If rejected, the dispute enters the industrial relations mechanism, which involves bipartite negotiation first, then potentially mediation through the Manpower Office, and finally the Industrial Relations Court if unresolved.

Skipping the notice or documentation process, even when the financial calculation is correct, creates procedural grounds for a termination to be challenged. The XPND team regularly sees foreign companies that have calculated severance correctly but failed on the procedural side, which is equally costly to resolve.

Common Mistakes Foreign Companies Make With Severance Pay in Indonesia

After supporting many companies through employee terminations in Indonesia, the XPND team has seen the same calculation errors repeat across industries and nationalities.

The most common is applying the wrong multiplier. Companies undergoing restructuring sometimes classify terminations as “efficiency due to losses” when the company is actually profitable, to access the 0.5x multiplier. This is legally indefensible and frequently ends in industrial disputes that cost more than the original saving.

A closely related issue is using the wrong wage base. Excluding fixed allowances from the monthly wage calculation, either intentionally or through careless payroll setup, produces a lower number that will be challenged by a well-informed employee or their union representative.

Another frequent error is treating all terminations as equivalent when calculating notice periods and documentation requirements. Companies that operate across multiple provinces sometimes apply a single procedure uniformly without accounting for local variations in how Manpower Offices interpret the registration and reporting requirements.

Finally, many foreign companies do not account for the Unemployment Insurance (Jaminan Kehilangan Pekerjaan or JKP) interaction with severance. For employees covered under JKP through the Social Security Agency for Employment (Badan Penyelenggara Jaminan Sosial Ketenagakerjaan or BPJS Ketenagakerjaan), the JKP benefit is paid separately from severance and does not reduce the employer’s severance obligation. Both run simultaneously and independently.

How XPND Supports Severance Pay Compliance

Calculating Indonesia severance pay correctly requires accurate tenure records, a clearly documented wage structure, and the right multiplier applied to the right termination ground. Each of these is a point of failure when HR processes are not built to handle termination compliance from the start.

XPND provides HR administration and payroll support for PT PMA and PT PMDN companies operating across Indonesia. This includes maintaining the employee records and wage structure documentation that severance calculations depend on, structuring termination procedures that meet the notice and registration requirements under PP 35/2021, and calculating the full severance package including UP, UPMK, and UPH in accordance with the applicable multiplier for each case.

For companies facing a termination for the first time in Indonesia, getting external support before issuing the notice letter is significantly less expensive than correcting a procedurally flawed termination after the employee has already filed a dispute. The Indonesia Labor Law guide on the XPND website provides broader context on the full employment framework, while the Employee Contract Types guide covers the distinction between PKWTT and PKWT entitlements in detail.

For companies still in the hiring phase and building their workforce, the step-by-step guide on how to hire employees in Indonesia explains how to structure employment relationships from day one in a way that makes future compliance, including severance, straightforward rather than retrospectively complicated.