Severance pay in Indonesia is arithmetic, not negotiation. Government Regulation PP 35/2021, the implementing rule of the Job Creation Law, fixes a base entitlement from length of service, then multiplies it by a factor set by the reason the employment ended. Get the ground wrong and you can be out by six months of wages on a single exit. Since the Constitutional Court’s ruling of October 2024, getting it wrong also means the termination itself may not take effect until a court says so.
This guide gives the full tables (every ground, every multiplier, with the article of PP 35/2021 that sets it), plus the wage base, the tax treatment, the exit costs that sit outside severance, how Indonesia compares across Southeast Asia, and worked costings at real salaries.
One caveat before the tables. Indonesian employment law is amended, reinterpreted and litigated constantly, and parliament passed a new standalone employment bill on 6 October 2026 that is still to take effect. Treat every figure here as a starting point to confirm with qualified Indonesian legal counsel, not as a final answer. This guide is information, not legal advice.
The three components of Indonesian severance
Every statutory termination payment is built from three elements, set out in Pasal 40 of PP 35/2021:
Uang Pesangon: the core severance pay, scaled to years of service (Pasal 40(2)).
Uang Penghargaan Masa Kerja (UPMK): a long-service reward, payable from three years of service (Pasal 40(3)).
Uang Penggantian Hak (UPH): compensation of rights (Pasal 40(4)), which is narrower and more specific than most guides suggest. It covers exactly three things: annual leave accrued but not taken and not yet lapsed; the cost of transporting the employee and their family back to the place where they were hired; and anything else written into the employment contract, company regulation (peraturan perusahaan) or collective labour agreement (PKB).
That third limb matters more than it looks. If you recruited someone from Medan or Makassar to work in Jakarta, their repatriation is a statutory cost you owe on exit. And UPH is the one component where your own documents create liability: a generous company regulation drafted years ago is still binding when you terminate.
What counts as wage
For severance purposes, wage means basic salary plus fixed allowances (upah pokok plus tunjangan tetap), under the Job Creation Law’s amendments to Article 157 of the Manpower Law. Variable pay (performance bonus, sales commission, attendance-linked allowances, overtime) sits outside the calculation.
“Fixed” is the word that causes disputes. A transport or housing allowance paid at the same amount every month, irrespective of attendance or output, is a fixed allowance and belongs in the base. Relabelling it does not change that. The cheapest hour of legal advice a foreign employer can buy in Indonesia is the one spent classifying allowances correctly before the first contract is signed, because that classification is then applied to every severance calculation for the life of the team.
Uang Pesangon: severance pay by length of service
The base severance entitlement rises with tenure, capping at nine months of wage (Pasal 40(2)). Everything beyond eight years is rewarded through UPMK instead.
Years of service | Uang Pesangon (months of wage) |
|---|---|
Under 1 year | 1 |
1 to under 2 years | 2 |
2 to under 3 years | 3 |
3 to under 4 years | 4 |
4 to under 5 years | 5 |
5 to under 6 years | 6 |
6 to under 7 years | 7 |
7 to under 8 years | 8 |
8 years or more | 9 |
Uang Penghargaan Masa Kerja (long-service reward)
Employees with three or more years of service also receive UPMK, on top of pesangon (Pasal 40(3)).
Years of service | UPMK (months of wage) |
|---|---|
Under 3 years | None |
3 to under 6 years | 2 |
6 to under 9 years | 3 |
9 to under 12 years | 4 |
12 to under 15 years | 5 |
15 to under 18 years | 6 |
18 to under 21 years | 7 |
21 to under 24 years | 8 |
24 years or more | 10 |
The final step skips nine: an employee at 24 years jumps from eight months to ten. It is not a typo in the regulation, and payroll systems configured from a linear assumption get it wrong.
The multiplier for every termination ground
This is the table that decides the bill. PP 35/2021 sets a specific entitlement for each ground in Pasal 41 through Pasal 57, twenty-three distinct scenarios. UPMK is paid at 1× on almost every employer-initiated ground, including several that are commonly, and expensively, assumed to attract pesangon alone.
Ground for termination (PHK) | Pesangon | UPMK | Also owed |
|---|---|---|---|
Merger, consolidation or spin-off, and the employee declines to continue or the employer declines to take them on (Pasal 41) | 1× | 1× | UPH |
Acquisition of the company (Pasal 42(1)) | 1× | 1× | UPH |
Acquisition that changes terms to the employee’s detriment, and the employee declines to continue (Pasal 42(2)) | 0.5× | 1× | UPH |
Efficiency because the company is making losses (Pasal 43(1)) | 0.5× | 1× | UPH |
Efficiency to prevent losses, company still profitable (Pasal 43(2)) | 1× | 1× | UPH |
Closure after two years of losses, continuous or intermittent (Pasal 44(1)) | 0.5× | 1× | UPH |
Closure not caused by losses (Pasal 44(2)) | 1× | 1× | UPH |
Closure caused by force majeure (Pasal 45(1)) | 0.5× | 1× | UPH |
Force majeure that does not close the company (Pasal 45(2)) | 0.75× | 1× | UPH |
Suspension of debt payment, PKPU, caused by losses (Pasal 46(1)) | 0.5× | 1× | UPH |
PKPU not caused by losses (Pasal 46(2)) | 1× | 1× | UPH |
Bankruptcy (Pasal 47) | 0.5× | 1× | UPH |
Employee applies for termination because the employer breached its obligations, and the claim succeeds (Pasal 48) | 1× | 1× | UPH |
The same claim dismissed by the tribunal, and the employer then terminates (Pasal 49) | None | None | UPH and uang pisah |
Voluntary resignation meeting the statutory conditions (Pasal 50) | None | None | UPH and uang pisah |
Absence of five or more consecutive working days after two proper written summonses (Pasal 51) | None | None | UPH and uang pisah |
Breach of contract, company regulation or PKB after first, second and third written warnings (Pasal 52(1)) | 0.5× | 1× | UPH |
An urgent violation as defined in the contract, company regulation or PKB (Pasal 52(2)) | None | None | UPH and uang pisah |
Six months’ detention on suspicion of a criminal offence, causing company loss (Pasal 54(1)) | None | None | UPH and uang pisah |
Six months’ detention not causing company loss (Pasal 54(2)) | None | 1× | UPH |
Prolonged illness or disability from a work accident beyond 12 months, raised by either party (Pasal 55) | 2× | 1× | UPH |
Retirement age reached (Pasal 56) | 1.75× | 1× | UPH |
Death of the employee, paid to the heirs (Pasal 57) | 2× | 1× | UPH |
You cannot simply declare losses. For the 0.5× efficiency route under Pasal 43(1), the regulation’s own elucidation states that losses are proven, among other things, by internal or external audit results. A company terminating on efficiency grounds without that evidence is exposed to a claim that the correct ground was Pasal 43(2), double the pesangon.
An urgent violation only exists if you wrote it down. The nil-severance route in Pasal 52(2) applies to violations defined in the employment contract, company regulation or PKB. If your Indonesian documents do not define them, that route is not available to you, and a serious misconduct case falls back to the warning-letter path at 0.5× pesangon plus full UPMK. Pasal 52(3) also lets an employer skip the notification letter that Pasal 37(3) otherwise requires 14 working days before a termination, the one procedural shortcut in the framework.
Uang pisah works on the same principle. Pasal 49, 50, 51, 52(2) and 54 all set it at the amount regulated in the employment contract, company regulation or PKB. The statute fixes no figure. Whatever your own documents say is the number, including nothing, if they are silent. For the procedure that sits around all of this, see our guide to employee termination in Indonesia.
What the 2024 Constitutional Court ruling changed
On 31 October 2024 the Constitutional Court decided case No. 168/PUU-XXI/2023, reviewing the employment provisions of Law No. 6 of 2023 on Job Creation. The tables above survive intact. What changed is the negotiating position and the timeline around them.
Statutory severance is a minimum, not a maximum. The Court restored the reading that the amounts in the law are a floor; employers may pay more, and employees may bargain for more. The table is now where a negotiation starts, not where it ends.
A contested termination is not effective until a court says so. Where the employee refuses, the parties must go to bipartite negotiation, and if that fails the termination takes effect only once the industrial relations dispute-resolution process has produced a legally binding decision. Both parties are expected to keep performing their obligations until then, which in practice means wages continue to run.
The clock is long. Law firm commentary on the decision puts the theoretical route (bipartite, mediation, Industrial Relations Court, Supreme Court) at around 140 days, and the real-world route at one to two years where a case is appealed.
Read together, those three points explain why sophisticated employers in Indonesia settle. A negotiated exit at, say, 1.5× the statutory figure, documented in a perjanjian bersama and registered with the Industrial Relations Court, is routinely cheaper than paying the statutory figure plus eighteen months of contested wages and legal fees.
A new standalone employment statute is also coming. The Court ordered lawmakers to separate employment from the Job Creation Law and pass a dedicated act within two years, a deadline that falls on 31 October 2026. The RUU Pelindungan Ketenagakerjaan was approved as a DPR legislative initiative on 27 August 2026 and the DPR passed it in plenary on 6 October 2026. As at 17 October 2026 its official text and start date have not been published. Nothing in this guide changes until it takes effect, but severance is one of the clusters the new law is expected to touch, and any 2027 workforce plan should assume the framework may shift.
Worked costings
All four examples use a wage of Rp 12,000,000 per month, basic plus fixed allowances, and exclude UPH.
Scenario | Calculation | Total | Payable |
|---|---|---|---|
2 years, efficiency to prevent losses (1×) | Pesangon 3 × 1; no UPMK under 3 years | 3 months | Rp 36,000,000 |
6 years, efficiency due to audited losses (0.5×) | Pesangon 7 × 0.5, plus UPMK 3 × 1 | 6.5 months | Rp 78,000,000 |
10 years, retirement (1.75×) | Pesangon 9 × 1.75, plus UPMK 4 × 1 | 19.75 months | Rp 237,000,000 |
10 years, voluntary resignation | No pesangon, no UPMK | None | Uang pisah per contract, plus UPH |
The retirement line is the one that surprises people: at ten years of service, a single retirement costs more than a year and a half of salary. It is also the most predictable liability an employer has, which makes it the easiest to provision for and the least excusable to be caught by.
Tax on severance: who pays, and how much
Severance paid as a lump sum is taxed under PP 68/2009, implemented by PMK 16/PMK.03/2010, at final PPh 21 rates on the cumulative gross amount.
Cumulative gross severance | Final PPh 21 rate |
|---|---|
Up to Rp 50,000,000 | 0% |
Above Rp 50,000,000 to Rp 100,000,000 | 5% |
Above Rp 100,000,000 to Rp 500,000,000 | 15% |
Above Rp 500,000,000 | 25% |
Four things follow from the word final. The tax is withheld from the employee’s payment rather than added to the employer’s cost. No PTKP personal allowance is deducted first. The employee does not credit it against their annual return. And the brackets run cumulatively across amounts paid within a period of up to two calendar years, so splitting a payment across December and January does not reset the ladder.
Stretching payment beyond two calendar years does break the final regime, and the later portion is taxed as ordinary income at progressive rates. That is almost always worse for the employee and a reliable source of dispute, so an instalment plan past the two-year line should be a deliberate, advised decision rather than a cash-flow convenience.
Applied to the retirement example above: Rp 237,000,000 gross attracts nil on the first Rp 50 million, 5% on the next Rp 50 million (Rp 2,500,000), and 15% on the remaining Rp 137 million (Rp 20,550,000). That is Rp 23,050,000 of final PPh 21, leaving the employee Rp 213,950,000 net. The employer’s cost is the gross figure either way.
What JKP does, and what it does not do
Indonesia’s unemployment insurance, Jaminan Kehilangan Pekerjaan (JKP), was substantially upgraded by PP 6/2025, in force from 7 February 2025. A terminated employee who qualifies receives a cash benefit of 60% of reported wage for up to six months, calculated on a wage cap of Rp 5,000,000.
It costs the employer nothing extra. The programme is funded at 0.36% of wage: 0.22% from central government, and 0.14% recomposed out of the employer’s existing JKK contribution rather than added to it. PP 6/2025 also removed the 0.10% that previously came out of JKM.
It does not reduce your severance liability by a single rupiah. JKP is a benefit paid to the employee from the state scheme. Pesangon, UPMK and UPH are unaffected.
Your paperwork gates your employee’s claim. JKP requires proof of termination: a PHK report receipt from Kemnaker or the provincial or district Disnaker, or a mutual agreement registered with the Industrial Relations Court. Failing to report the termination, as Pasal 38 requires, blocks a benefit the employee is entitled to and leaves you without documentation.
JKP is unavailable where the employee resigned, retired, was permanently disabled, died, or simply reached the end of a fixed-term contract. Eligibility also requires 12 months of contributions within the preceding 24, and a claim filed within six months of termination.
Fixed-term employees get compensation, not severance
PKWT (fixed-term) employees sit outside the severance framework entirely. Instead, Pasal 15 to 17 of PP 35/2021 give them uang kompensasi:
One month’s wage per 12 continuous months of service, pro-rated for any other period: months of service divided by 12, times one month’s wage.
Payable from one month of continuous service, at the end of the contract, and again at the end of each extension.
Owed even when either party ends the contract early, calculated on the time actually served (Pasal 17).
Not payable to foreign nationals employed on a PKWT (Pasal 15(5)).
The wage base has its own rules under Pasal 16: basic plus fixed allowances where both exist; wage without allowances where the company does not use that structure; and basic salary alone where the only allowances are variable. Our PKWT vs PKWTT guide covers which contract type you are actually allowed to use. For most professional roles the answer is PKWTT, which is what MixWork employs on.
Two provisions most guides skip
Pension contributions can be credited against severance (Pasal 58). Where an employer enrols employees in a pension programme under Indonesia’s pension-fund legislation, the contributions the employer has paid may be counted toward its obligation for pesangon, UPMK and uang pisah across Pasal 41 to 52 and Pasal 54 to 57. If the pension benefit is smaller than the severance owed, the employer pays the difference. The catch is Pasal 58(3): the arrangement must be set out in the employment contract, company regulation or PKB. Retrofitting it after a termination does not work.
Micro and small businesses negotiate (Pasal 59). Employers in that category must still pay pesangon, UPMK, UPH and uang pisah, but the amounts are set by agreement between employer and employee rather than by the tables. Failing to pay at all is separately sanctioned under Pasal 61, with administrative penalties running from written warnings up to suspension of business activity. Most foreign-invested operations fall outside this category; it is included here because the exemption is frequently over-claimed.
Exit costs that are not severance
Severance is the largest line in an Indonesian exit, not the only one:
Wages to the final working day, plus any accrued overtime.
Pro-rata THR, depending on when in the religious-holiday cycle the termination falls. See our guide to THR in Indonesia for the timing rules.
Repatriation of the employee and their family to the place of hire, where applicable, as part of UPH.
Support for detained employees. If an employee is detained on suspicion of a criminal offence, Pasal 53 relieves the employer of wages but requires support to their dependants: 25% of wage for one dependant, 35% for two, 45% for three, and 50% for four or more, for up to six months.
Wages during a contested termination, which after the 2024 ruling can be the largest number on this list.
Legal and mediation costs, and management time measured in months rather than hours.
A reasonable planning assumption for a professional team in Indonesia is that a mid-tenure involuntary exit lands somewhere between six and twelve months of total employment cost once everything above is counted. Your auditors may also require a provision for accrued severance obligations on the balance sheet; that is a question for them rather than for a guide.
The mistakes that cost the most
Paying from the tenure table without checking the ground. The tables are the easy part; the multiplier is where the money is.
Dropping UPMK on the 1× grounds. Merger, acquisition, closure not caused by losses and preventive efficiency all carry 1× UPMK on top of 1× pesangon. At six years’ tenure that omission is three months of wages.
Treating the statutory figure as a ceiling. It has been a floor since October 2024.
Terminating unilaterally. Where the employee objects, the process runs to a binding decision, and the employment relationship, including pay, does not simply stop in the meantime.
Claiming losses without audit evidence, or claiming an urgent violation that no company document defines.
Excluding fixed allowances from the wage base, which understates every component at once.
Not reporting the termination, which blocks the employee’s JKP claim and leaves you without the documentation any later dispute will turn on.
How Indonesia severance compares across Southeast Asia
Severance is one area where Indonesia protects employees more than most neighbours. Here is how the statutory baselines compare in 2026.
Country | Statutory severance (baseline) | Roughly, at 5 years’ service |
|---|---|---|
Indonesia | Pesangon 1 to 9 months plus UPMK 2 to 10 months, multiplied 0.5× to 2× by reason | About 6 to 9 months’ pay |
Thailand | Tenure-based, 30 up to 400 days of wages | About 6 months (180 days) |
Philippines | Half to 1 month per year of service, by reason | About 2.5 to 5 months |
Malaysia | 10, 15 or 20 days’ wages per year of service by tenure | About 2.5 months |
Vietnam | Half a month per year, largely offset by state unemployment insurance | Often minimal in practice |
Singapore | No statutory severance; about 2 weeks to 1 month per year by practice | Discretionary |
Read the right way, this is a feature rather than a drawback. Higher statutory protection rewards employers who build stable, well-supported teams, and severance is only ever paid when you actually terminate someone. Manage hiring and retention well and it becomes a cost you rarely incur, while the same rules deter the churn-and-burn competitors you are hiring against.
Why Indonesia is still Southeast Asia’s best team-building base
On the metric that actually matters, total value, Indonesia wins. The country offers a deep pool of professionals with genuine multinational and global experience, available at a fraction of the cost of an equivalent hire in Singapore, Australia or Western markets, and with strong productivity. A more protective severance regime does not change that calculus; it changes who is equipped to operate in it.
That is where MixWork’s Employer of Record in Indonesia comes in. As the legal employer, MixWork applies the correct ground and multiplier, calculates UPH accurately, runs the termination procedure the regulation requires, reports the termination so the employee’s JKP claim is not blocked, and settles the payment, keeping you clear of the Industrial Relations Court.
Just as importantly, MixWork’s focus on retention and employee well-being means fewer severance events in the first place. Severance is a cost you incur on exits; the most effective way to control it is to build a team people do not leave and you do not need to remove. You get MNC-grade talent, employed compliantly, without carrying the statutory risk yourself.
Disclaimer: Indonesian employment law changes constantly. Regulations are amended, the Constitutional Court reinterprets them, ministerial rules are issued between them, and parliament passed a new standalone employment bill on 6 October 2026, ahead of the Court’s 31 October 2026 deadline. This guide is general information, current as of 13 September 2026, and is indicative rather than advice; figures, multipliers and procedures may have changed since it was written, and their application is specific to each case. Always confirm the exact entitlement for your situation with qualified Indonesian legal counsel before calculating, agreeing or paying severance, and do not rely on this page as legal advice. MixWork provides EOR and HR services and does not provide legal advice.
A note on who we place
For context on the people behind the compliance: MixWork places top-tier professionals, not volume staff. Degrees from Indonesia’s top universities, an average of six years of professional experience inside multinationals and global agencies, and roles from individual contributor through to managerial level. They are permanent employees on compliant Indonesian contracts rather than contractors, freelancers or virtual assistants, and twelve-month retention runs above 90%.
Primary sources
Every statutory figure in this guide traces to an official instrument. Confirm current requirements with qualified Indonesian legal counsel before relying on them.
Government Regulation No. 35 of 2021: fixed-term contracts, outsourcing, working time and rest, and termination. Pasal 15 to 17 (PKWT compensation), Pasal 36 to 39 (grounds and procedure), Pasal 40 (components), Pasal 41 to 57 (multiplier by ground), Pasal 58 to 59, Pasal 61 (sanctions).
Law No. 13 of 2003 on Manpower: the foundation of Indonesian employment law, as amended.
Law No. 6 of 2023 on Job Creation: the omnibus amendment that rewrote the contract, outsourcing and termination provisions, including the wage base for severance.
Constitutional Court Decision No. 168/PUU-XXI/2023, 31 October 2024: severance as a minimum, the requirement for a binding decision before a contested termination takes effect, and the order to enact a separate employment law by 31 October 2026.
Government Regulation No. 68 of 2009, implemented by PMK 16/PMK.03/2010: final PPh 21 rates on lump-sum severance.
Government Regulation No. 6 of 2025 and the JKP programme: benefit rates, funding and eligibility, in force 7 February 2025.
Law No. 2 of 2004: industrial relations dispute settlement, including the Industrial Relations Court.
