Since 2023, we’ve been flooded with news about retrenchment and layoffs from multiple companies, and there seem to be no signs of this stopping anytime soon. Whether you’re an employer or an employee in Indonesia, having a clear understanding of how retrenchment (Pemutusan Hubungan Kerja, PHK) should be conducted and the benefits workers are entitled to under Indonesia’s Manpower Law will help ensure both parties are treated fairly.
So, who’s covered under Indonesia’s Manpower Law?
“All employees working under an employment agreement (Perjanjian Kerja) in Indonesia are protected under the Manpower Act No. 13 of 2003, as amended by the Job Creation Law No. 11 of 2020 (the ‘Omnibus Law’) and Government Regulation No. 35 of 2021.”
This covers both Indonesian and foreign workers employed under permanent (PKWTT) and fixed-term (PKWT) employment agreements. Workers on outsourcing (alih daya) arrangements also receive protections under the applicable regulations.
Under Indonesian law, an employer may carry out a retrenchment (PHK) due to business efficiency, restructuring, merger, company closure, or force majeure. The employer must first attempt to negotiate the terms of separation with the employee or the company’s bipartite cooperation institution (LKS Bipartit). If no agreement is reached, the dispute is referred to the Industrial Relations Court (Pengadilan Hubungan Industrial, PHI).
As the employer, you must notify the employee in writing at least 30 working days before the effective days of retrenchment. You must also report the retrenchment to the Ministry of Manpower (Kementerian Ketenagakerjaan, Kemnaker) and the relevant regional Manpower Office (Dinas Tenaga Kerja).
How do I manage a retrenchment in Indonesia?
“Employers must give at least 30 working days’ written notice and must attempt bipartite negotiation before proceeding with a retrenchment.”
If bipartite negotiation between employer and employee fails, the matter is referred to mediation by the Manpower Office (Dinas Tenaga Kerja). If mediation is unsuccessful, the case may be brought to the Industrial Relations Court (PHI). Employers must also ensure that employees enrolled in BPJS Ketenagakerjaan (Employment Social Security) receive notification so that they can claim their applicable benefits after separation.
How are retrenched employees compensated?
“Under Government Regulation No. 35 of 2021, retrenched employees are entitled to a combination of severance pay (Uang Pesangon), long-service payment (Uang Penghargaan Masa Kerja), and compensation payment (Uang Penggantian Hak).”
Severance pay (Uang Pesangon) rates by years of service:
- Less than 1 year: 1 month’s wages
- 1 year to less than 2 years: 2 months’ wages
- 2 years to less than 3 years: 3 months’ wages
- 3 years to less than 4 years: 4 months’ wages
- 4 years to less than 5 years: 5 months’ wages
- 5 years to less than 6 years: 6 months’ wages
- 6 years to less than 7 years: 7 months’ wages
- 7 years to less than 8 years: 8 months’ wages
- 8 years and above: 9 months’ wages
Long-service payment (Uang Penghargaan Masa Kerja) is payable to employees with 3 or more years of service, at rates of 2–10 months’ wages depending on tenure. In addition, retrenched employees are entitled to compensation for unconsumed annual leave, housing and medical allowances (15% of severance + long-service payment), and expenses for returning to their place of origin where applicable.
Employees who have contributed to BPJS Ketenagakerjaan’s Jaminan Kehilangan Pekerjaan (JKP — Job Loss Guarantee) program are entitled to cash benefits (45% of wages for the first 3 months, 25% for months 4–5), job market access, and skills training.
How can I get help if I think I’ve been unfairly retrenched?
Try resolving the matter with your employer first through the bipartite mechanism. If you believe your PHK was conducted unlawfully — for example, without proper notice, without payment of statutory entitlements, or for prohibited reasons (such as union membership, pregnancy, or filing a complaint against your employer) — you can:
- File a complaint with the regional Manpower Office (Dinas Tenaga Kerja) for mediation
- Bring the case to the Industrial Relations Court (Pengadilan Hubungan Industrial, PHI) if mediation fails
- Contact your labour union (Serikat Pekerja/Serikat Buruh) for representation, if you are a member
- Claim your BPJS Ketenagakerjaan JKP benefits through the BPJS Ketenagakerjaan portal
Ultimately, your retrenchment rights in Indonesia are determined both by law and by the terms of your employment agreement. Ensure any agreed terms are clearly documented before signing. If you’ve been retrenched and are looking for your next opportunity, our experienced consultants at People Profilers Indonesia are ready to help you find a role suited to your skills and experience.
