How do you terminate an employee in Indonesia in 2026?
Indonesia owes severance from the very first month of work. Every employer-initiated dismissal of a permanent employee triggers a mandatory three-tier dispute process. Skipping any stage of that process exposes you to reinstatement orders and full back pay covering the entire period of dispute.
· Indonesia guide
Illustration · Jakarta, Indonesia
Severance pay in Indonesia is owed from the very first month of permanent employment. The formula caps at 9 months of salary for eight or more years of service. That cap is then multiplied up or down depending on the reason for dismissal.
Before you can dismiss a permanent employee, you must attempt bipartite negotiation for up to 30 days. If that fails, the case moves to tripartite mediation, then to the Industrial Relations Court. Bypassing any stage does not make the dismissal quicker. It makes it invalid.
Dismissal protection applies from day one. There is no minimum qualifying period before an employee can challenge a termination. Protected grounds include pregnancy, union membership, religion, disability, and whistleblowing. (Government Regulation No. 35 of 2021)
What are valid grounds for dismissal in Indonesia, and what procedure must you follow?
You must have a valid legal reason to dismiss a permanent employee in Indonesia. Valid reasons include misconduct, poor performance, business efficiency, company losses, restructuring, force majeure, mutual agreement, and the employee's own resignation or death.
Protection from dismissal applies from day one. You cannot dismiss an employee for being pregnant, on sick leave for less than twelve months, a union member or officer, a whistleblower, or for reasons related to religion, race, ethnicity, disability, or political views.
Indonesia uses a three-tier dispute resolution process for every contested dismissal of a permanent employee (PKWTT). You cannot jump straight to termination. The process is set out in Government Regulation No. 35 of 2021 (PP 35/2021) and Law No. 2 of 2004 on Industrial Relations Disputes.
The three-tier process
- Bipartite negotiation. The employer and employee (or union) negotiate directly for up to 30 days. If they reach agreement, document it in a written settlement signed by both parties.
- Tripartite mediation. If bipartite talks fail or the time runs out, either party files a written request with the local manpower office. A mediator is appointed and has up to 30 further days to facilitate agreement. If mediation fails, the mediator issues a written recommendation.
- Industrial Relations Court (PHI). Either party may reject the mediator's recommendation and file with the PHI. Court proceedings can take several months. Appeals go to the Supreme Court.
Written notice requirements
The employer must give at least 2 weeks written notice before the effective termination date. The notice must state the reason and the proposed severance calculation. The employee then has 7 working days to accept or reject in writing. Rejection triggers bipartite negotiation.
During the bipartite period, the employment relationship continues and wages must be paid. You cannot unilaterally stop payroll while the dispute is open.
Termination multipliers by reason
The base severance formula is multiplied depending on why the employee is dismissed:
- Business efficiency (to prevent losses): full base severance (1.0x)
- Company running at actual losses: half base severance (0.5x)
- Retirement: 1.75x severance
- Employee death: 2.0x severance payable to the family
Gross misconduct dismissal (after due process) typically triggers a different calculation set out in PP 35/2021. Always check which multiplier applies before issuing the termination notice.
Establish a valid reason
Anchor the termination in one of the categories recognised by PP 35/2021: misconduct, capability, efficiency, losses, restructuring, or force majeure. Dismissals without a recognised reason are invalid.
Issue written notice
Give at least 2 weeks written notice, stating the reason and the proposed severance calculation. The employee has 7 working days to respond.
Run bipartite negotiation
If the employee rejects the notice, negotiate directly with the employee or their union for up to 30 days. Document every meeting in writing.
Escalate to mediation if needed
If bipartite talks fail, either party requests tripartite mediation from the local manpower office. Continue paying wages throughout.
Settle or proceed to court
If mediation fails, either party may file with the Industrial Relations Court. A negotiated settlement at any stage is binding on both parties and ends the process.
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Establish a valid reason
Anchor the termination in a recognised category under PP 35/2021: misconduct, capability, business efficiency, company losses, restructuring, force majeure, or mutual agreement. Dismissals without a recognised ground are invalid regardless of process.
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Issue written notice
Give at least 2 weeks written notice, stating the reason and the proposed severance calculation. The employee then has a short response window to accept or reject in writing.
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Run bipartite negotiation
If the employee rejects, negotiate directly with the employee or their union for up to 30 days. Document every meeting. Continue paying wages throughout.
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Escalate to mediation if needed
If bipartite talks fail, either party requests tripartite mediation from the local manpower office. The mediator has several further weeks to facilitate agreement and issues a written recommendation if none is reached.
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Settle or proceed to court
If mediation fails, either party may file with the Industrial Relations Court (PHI). A negotiated settlement at any stage is binding once registered with the court and ends the process.
How much notice must you give an Indonesian employee?
The minimum written notice for employer-initiated termination is 2 weeks. This applies to permanent employees after probation.
During probation (up to 3 months), the notice period is shorter: 7 days. No severance is owed when employment ends during probation.
| Employment stage | Minimum employer notice |
|---|---|
| During probation (permanent contract only) | 7 days |
| After probation, permanent employee | 2 weeks |
Probation applies only to permanent (PKWTT) contracts. It is capped at 3 months and must be stated expressly in writing. Fixed-term contracts (PKWT) cannot include a probation period at all.
Employee resignation
An employee who resigns voluntarily must give 30 days written notice. Voluntary resignation does not trigger severance pay under standard rules. Ensure the resignation is genuinely voluntary: any pressure or constructive dismissal restores severance entitlement and reopens the dispute process.
Pay during notice
Wages continue through the full notice period. You cannot substitute a payment to waive the notice period unless both parties agree in writing and the amount is documented in the settlement record.
How is Indonesian severance pay calculated?
Severance pay (Uang Pesangon, UP) is owed from the very first month of permanent employment. There is no minimum service threshold before it applies.
The base formula runs in bands up to a cap of 9 months of salary for eight or more years of service. That base is then multiplied by a factor (0.5x to 2.0x) depending on the reason for dismissal.
The UP (severance pay) formula bands service years up to a cap of 9 months of salary for 8+ years of service. A long service award (UPMK) stacks on top, capped separately at 10 months for 24+ years. A compensation of rights component (UPH) covers unused leave and agreed benefits.
The UP severance bands
| Years of continuous service | Base UP (months of salary) |
|---|---|
| Less than 1 year | 1 month |
| 1 to less than 2 years | 2 months |
| 2 to less than 3 years | 3 months |
| 3 to less than 4 years | 4 months |
| 4 to less than 5 years | 5 months |
| 5 to less than 6 years | 6 months |
| 6 to less than 7 years | 7 months |
| 7 to less than 8 years | 8 months |
| 8 or more years | 9 months (cap) |
Long service award (UPMK)
The long service award (Uang Penghargaan Masa Kerja) starts after 3 years of service and runs in its own band system, capped at 10 months of salary for 24 or more years. It is payable on top of UP for most dismissal types.
Compensation of rights (UPH)
A third component covers accrued but unused annual leave and other agreed benefits. Where housing or medical allowances formed part of the package, UPH is typically calculated as 15% of the combined UP and UPMK total.
Tax on severance
Indonesian severance payments carry a preferential tax rate: 0% up to IDR 50,000,000, then 5% up to IDR 100,000,000, then 15% up to IDR 200,000,000, then 25% above IDR 200,000,000. These are final taxes, separate from the standard income tax rates.
What happens when you make multiple employees redundant at the same time?
Indonesia does not set a fixed headcount trigger for a separate collective consultation regime the way the UK or EU does. Every termination of a permanent employee follows the same three-tier dispute process, regardless of how many people are affected.
When making many employees redundant at once, union notification and bipartite engagement happen in parallel across all affected employees. The process does not simplify with scale. It multiplies.
Sources differ on whether a specific headcount threshold (sometimes cited as ten or more employees) triggers heightened scrutiny under PP 35/2021. L&E Global and ICLG both confirm that the law does not distinguish mass termination from individual termination in terms of the formal procedural obligations. The bipartite, mediation, and court pathway applies to every case.
What does change at scale:
- Union involvement becomes mandatory where a recognised union exists. Every affected employee covered by the collective labour agreement must be included in bipartite negotiations.
- Simultaneous bipartite processes run in parallel. Each employee is a separate party; you cannot run one bipartite meeting to cover all of them unless they are all in the same union and the union negotiates collectively.
- Bipartite window applies per employee. The 30 days window for each negotiation runs independently. A 50-person redundancy where employees reject notices at different times creates overlapping dispute windows.
Practical planning for a large redundancy in Indonesia: start bipartite engagement well ahead of the planned termination date. Budget for the severance calculations for every employee from day one of their tenure. Allow time for some employees to reject and escalate to mediation.
Can you reach a mutual termination agreement in Indonesia?
Yes. Mutual agreement (Perjanjian Bersama) is a recognised way to end employment in Indonesia. Both parties sign a written settlement that sets out the agreed termination date and the full payment terms.
A mutual agreement reached during bipartite negotiation is registered with the Industrial Relations Court. Once registered, it is enforceable as a court order.
Mutual termination is common for senior exits and contested performance cases where both parties prefer a clean, documented end. The mutual agreement must be in writing, signed by both parties, and must set out:
- The agreed termination date
- The full severance calculation (UP, UPMK, UPH) and any enhanced terms
- Any agreed confidentiality or non-disparagement terms
- A mutual release of claims
Once both parties sign, the agreement is registered with the Industrial Relations Court and becomes enforceable as a court order. This gives the employer certainty that the employee cannot later reopen the dispute by claiming the termination was forced.
Points to watch
A mutual agreement that is genuinely mutual protects the employer. An agreement signed under duress, or where the employee had no real choice, may be challenged as a constructive dismissal. The challenge would trigger the full three-tier dispute process and restore severance entitlement at the applicable multiplier.
Always obtain a signed written receipt confirming the employee has received all payments before the registered settlement is filed. The court registration timeline varies by local office; allow 14 to 30 days.
How Teamed runs Indonesia terminations
Teamed is your legal employer of record in Indonesia. The cost is from $599 per employee per month, with zero FX mark-up in any currency. All termination procedures run through Teamed's Indonesia partner network.
We handle notice calculations, severance maths across all three components (UP, UPMK, UPH), bipartite documentation, and final-pay reconciliation. Everything runs on one platform. The decision on who to dismiss and why is always yours.
Real HR and legal experts handle your Indonesian hires, from the first offer letter through payroll, BPJS contributions, and termination. An actual person, not a ticket queue or pooled support. There is no setup fee and no exit fee, and employer cost passes through at cost, itemised on every invoice.
The split of responsibilities under EOR for Indonesia terminations:
| What Teamed handles | What the client decides |
|---|---|
| Notice period calculation and written notice preparation | Whether to dismiss, the reason, and the target date |
| UP, UPMK, and UPH calculation with multiplier check | Whether to enhance severance above the formula |
| Bipartite negotiation documentation and meeting records | Commercial terms and any ex-gratia top-up |
| Coordination with local counsel for mediation or PHI filing | Settlement vs court strategy |
| Final payroll: severance, accrued leave, BPJS reconciliation | Communication timing with the wider team |
| Tax withholding on severance at preferential rates | Whether to contribute to enhanced settlement terms |
The three-tier dispute process is slow by design. Teamed's Indonesia team knows which local manpower offices move faster, which mediators settle versus default to PHI referrals, and what documentation courts look for. That knowledge only comes from running many Indonesia terminations, not from a compliance wiki.
EOR, contractor onboarding, and entity support all live on one platform. An Indonesian hire can graduate from EOR to your own entity without switching systems or rebuilding records. Run the Crossover Calculator to see when the EOR model stops being right for your Indonesia headcount, until it isn't. Start from the Indonesia hiring overview; each guide here takes one layer of Indonesian employment law.
Frequently asked questions
Does Indonesia require severance pay from the first month of employment?
Yes. There is no minimum service threshold before severance pay (Uang Pesangon, UP) is owed on employer-initiated termination of a permanent employee. An employee with less than one year of service receives one month of salary as base severance. The formula bands upwards to a cap of 9 months of salary for eight or more years of service, before the reason-based multiplier is applied.
What notice period is required to dismiss an Indonesian employee?
At least 2 weeks written notice is required before the effective termination date. The notice must state the reason and the proposed severance calculation. During probation (maximum 3 months on permanent contracts), the notice period is 7 days and no severance is owed.
What is the mandatory dispute process before dismissal in Indonesia?
Every contested dismissal of a permanent employee must go through three stages: bipartite negotiation between employer and employee for up to 30 days, then tripartite mediation by the local manpower office, then the Industrial Relations Court if mediation fails. Wages continue throughout. Skipping any stage does not accelerate the dismissal. It makes the dismissal invalid.
When does unfair dismissal protection start in Indonesia?
Dismissal protection applies from the start of employment. There is no minimum qualifying period. Article 153 of the Manpower Law prohibits termination on grounds including pregnancy, religion, race, disability, union membership, and whistleblowing, regardless of how long the employee has worked.
What happens if you terminate an Indonesian employee without following the process?
A dismissal that bypasses the mandatory bipartite, mediation, and court process is not valid under Indonesian law. The Industrial Relations Court may order reinstatement with full back pay covering the entire period of the dispute, or award compensation at a level determined by the court. There is no statutory cap on compensation awards.
The bipartite negotiation window is not a formality. It runs for up to 30 days, wages continue throughout, and skipping it does not speed up the dismissal. It invalidates it. Indonesia terminations need a calendar and a plan, not a termination letter alone.
Indonesia pays severance from the first month of work. Most employers find that out too late.
The three-tier dispute process is slow. Wages run throughout. The court can order reinstatement.
Getting Indonesia right from the first hire costs far less than getting it wrong at dismissal.
