Termination Compensation, When & How Employer Should Provide It?

 In Ketenagakerjaan

The termination of employment is likely to happen in the industrial relation. The termination of employment is a condition where the relationship between the employee and the employer ends. However, it will inevitably stop the right and the responsibility of the worker and the employer.

The conflict between the company and its employee becomes the main ground of the employee dismissal. However, more reasons could lead termination of employment to happen. These reasons are explained in the Manpower Law No 13 the Year 2003.

No Termination Reason Manpower Law Provision
1. Voluntary resignation 162 (1)
2. The employee does not pass the probation 154
3. The end of the job contract 154 (b)
4. Workers violate employment agreements or company regulations 161 (3)
5. Employer commits violation 169 (1)
6. Marriage between employee 153
7. Employer closed due to continuous losses or force majeure. 164 (1)
8. Efficiency/redundancy/downsizing by the employer 164 (3)
9. The employee refuses to continue his contract due to the company’s change of status, merger, consolidation, and change of ownership. 163 (1)
10. The employer changes its status, merger, consolidation, and changes in the company’s ownership. 163 (2)
11. Employer’s bankruptcy 165
12. Death of employee 166
13. The employee absents for 5 days 168 (1)
14. Employee’s long-term illness and a work accident 172
15. Employee’s retirement 167
16. Criminal action against Employee 160 (7)
17. The employee is arrested for guilty 160 (7)

The Employer’s Obligation to Provide Termination Compensation

Termination Compensation, When & How Employer Should Provide It?

 

The termination of employment raises the employee’s right and the employer’s duty to provide termination compensation. Generally, the compensation is entitled to the employees as a reward for their service to the company. The Manpower Law No 13 the Year 2003 Article 156 Paragraph 1 defines the company’s obligation to give termination compensation for its employee.

 

Article 156

 

In the case of termination of employment, the employer is required to pay the severance pay, long service pay, and compensation of rights for the employee.

 

Practically, three types of termination compensation should be received by the employee over the termination of employment. They are Severance Payment (Uang Pesangon), Long Service Pay (Uang Penghargaan Masa Kerja), and Compensation of Rights (Uang Penggantian Hak). However, the company is also advised to provide Separate Money (Uang Pisah) for the employee as a reward for their service. The regulation about the separate money is not stated in the Labor Law. The difference between these four types of compensation is explained below:

 

  1. Severance Payment (Uang Pesangon)

The employer gives the severance payment to the employee because of the termination of employment.

  1. Long Service Pay (Uang Penghargaan Masa Kerja)

The employers give long service pay as an appreciation for the long-term service of the employee.

  1. Compensation of Right (Uang Penggantian Hak)

Compensation of right is paid by the employers to the employee to compensate for the employee’s rights.

  1. Separate Money (Uang Pisah)

The employer gives separate money voluntarily as a reward for the employee’s service to the company.

 

 

 

 

Who is Eligible for UP, UPMK, and UPH?

Termination Compensation, When & How Employer Should Provide It?

 

 

Severance Payment (UP), Long Service Pay (UPMK) and Compensation of Right (UPH) are provided to the employee due to the employment termination under these reasons:

  1. The employee violates employment agreements or company regulations.
  2. Termination of employment due to the employer’s loss or force majeure.
  3. Efficiency by the employer.
  4. The employee submits a resign later due to the misconduct of the employer.
  5. Marriage between employees.
  6. The employee does not want to continue his contract because of the company’s change of status, merger, consolidation, and change of ownership in the company.
  7. The employer does not want to continue its employee’s contract because of the company’s change of status, merger, consolidation, and change of ownership in the company.
  8. The employer gets bankruptcy.
  9. The death of the employee.
  10. Employee’s long-term illness and a work accident.

The employee only receives Long Service Pay (UPMK) and Compensation of Right (UPH) if the termination of employment happens in the ground of these circumstances:

  1. The employee is arrested and does not able to carry out work (after 6 months).
  2. The employee is arrested and found guilty.

Compensation of right (UPH) and Separate money (UP) are entitled to the employee when the work termination arises due to these reasons:

  1. The employee absent for 5 days and does not come back to work after given two-times notice by the employer.
  2. The employee resigns voluntarily.

 

 

 

 

Overview of the Termination Compensation Law

Termination Compensation, When & How Employer Should Provide It?

Termination compensation is a matter that could not be taken lightly, especially for the employee. No wonder if the government puts concern on this matter by issuing laws that regulate the right of the employee to receive the compensation as a reward for their service to the company. The termination compensation is arranged in Manpower Law No 13 the Year 2003 and Kepmenaker No 78 the Year 2001 about severance payment (UP), Long service pay (UPMK), and compensation of right (UPH).

 

 

No The Law Article and Paragraph
1 Manpower Law No 13 The Year 2003 Article 156 Paragraph (4)

Article 157 Paragraph (1)

Article 161 Paragraph (3)

Article 169 Paragraph (1)

Article 153

Article 161 Paragraph (3)

Article 164 Paragraph (1)

Article 164 Paragraph (3)

[Article 163 Paragraph (1)

[Article 163 Paragraph (2)

Article 165

Article 166

Article 172

Article 160 Paragraph (7)

Article 160 Paragraph (7)

Article 168

Article 162

Article 162 Paragraph (1) and (2)

 

2 Decree of Labor Minister (Kepmenaker) No 78 the Year 2001 about severance payment (UP), long service pays (UPMK), and compensation of right (UPH). Article (1) Paragraph (6), (7), (8)

Article (15) Paragraph (1), (2), (3)

Article (18) Paragraph (1), (2), (3)

Article (26) Paragraph (b)

Article (27)

Article (28)

Article (31)

Article (32)

 

The termination of employment must be the last way when the conflict between the employer and the worker could not be solved by the bipartite method. In fact, the government wishes that the employers could make all effort to avoid dismissing their employees.

 

However, to prevent more conflict after the work termination, the government advises the employer to prepare termination compensation as a reward for the employee’s service. The severance payment, the long service pays, and the compensation of rights should be entitled to the employee fairly based on the law applied in Indonesia.

 

The termination compensation given to the employee is different based on the reasons for the termination. The circumstances regarding those who are eligible for the termination compensation and which types of compensation that could be received are all explained clearly in the law.

 

In case the employer refuses to pay the compensation in reason the termination compensation is not written in the employment contract, the employee may report the employer to the labor office. Hence, this matter will then be solved using a tripartite method. However, when the employer is found applying rules that is different from the regulation stated by the government in the law on the table above, the government may give them a penalty.

 

Therefore, the human resource (HR) of the company should be aware of Manpower Law. Thus, he could arrange the company rules that are in line with the regulation by the government. On the other side, the employee should also educate themselves about the law and understand clearly the employment contract before deciding to work for a certain company.

 

 

 

 

Termination Compensation for a Voluntary-Resigned Employee

Termination Compensation, When & How Employer Should Provide It?

The company should provide a termination compensation when dismissing its permanent employee. How about the employee who resigns voluntarily without any coercion from the company? Are they eligible for termination compensation?

 

However, the employer could not stop when there is a permanent employee who decides to stop working due to certain reasons. The employee termination case like this has been discussed in the Manpower Law No 13 the Year of 2003 Art 156 Paragraph (1), (2), and (3).

 

It is stated in the regulation that the employee who voluntarily resigns from the job is not eligible for severance payment (Uang Pesangon) and long service pay (UPMK). However, the employee still has the right to receive compensation of rights (UPH) and separate money (Uang Pisah) if he/she resigns with the right procedure. The scheme of the resignation is explained in the Manpower Law Art 162 (3) as follow:

 

  1. The employee should submit a written resignation not later than 30 (thirty days) before the date of resignation.
  2. The employee is not in an official status.
  3. The employee should continue to perform its duty in the company until the date of resignation.

The regulation overcompensation of right (UPH) that could be received by the resigned employee is arranged in the Manpower Law Art 156 (4). The compensation of the right includes:

  1. Compensation for housing and medical costs, approximately 15% of severance payment and/or the long service pay (for those who fulfill the requirements);
  2. Compensation of annual leave that was not taken by the employee;
  3. Compensation of travel expenses for the employee and his/her family;
  4. Other subjects agreed upon the employer and the employee in the employment agreement and company regulation.

Furthermore, the labor ministry states that the resigned-employee who is a non-management committee in the company is also eligible for separate money (Uang Pisah). However, the matter about the amount of the compensation of right (UPH) and even separate money (Uang Pisah) and its procedure becomes an authority of the employer. Hence, it must be written in the employment agreement (Perjanjian Kerja), company regulation (Peraturan Perusahaan), and collective employment agreement (Perjanjian Kerja Bersama).

Nevertheless, although the employees who resign from their job do not have right to obtain long service pay (UPMK) as stated in the manpower law, the employer still may reward the employment with UPMK by arranging the rule in the employment agreement (PK), company regulation (PP), and collective employment agreement (PKB).

Generally, the Labor Law does not discuss the method of computing the termination compensation based on the level of the employee in the company. Eg. The manager who resigns will gain more compensation than those who are just in the level of regular employees. The amount of the UPH, UPMK, and UP for the resigned employee is differentiated based on the years of working, the compensation which was not taken by the employee, and the regulation of the company itself. However, it is possible for the higher-level employees to receive more compensation since their basic pay and allowance are bigger than the regular workers.

 

 

 

Does the Temporary Worker Eligible for Termination Compensation?

Termination Compensation, When & How Employer Should Provide It?

A temporary worker is an employee who works in a company in a specific period, or until the completion of the job. According to the Manpower Law, a temporary worker with a fixed-term employment contract (Perjanjian Kerja Waktu Tertentu) can be employed only 2 years. The extending of the contract is allowed, yet just for 1 year. Thus, the maximum working period for the temporary employee with fixed-term employment contract is only 3 years.

 

In case the employer wants to extend the contract, it should give the employee a written notice at least 7 days before the due date of the employment contract. If the company breaches the role, the fixed-term employment contract (PKWT) should be changed into the unspecified-term employment contract (PKWTT). However, if the status of the temporary worker changes into an employee with PKWTT contract as the employer breaks the Manpower Law, this employee which dismissed by the company is eligible for severance payment (Uang Pesangon). If the employer terminates the employment on the expiry date of the contract, the employer is not obliged to provide severance pay.

 

In addition to that, if there is a condition where the employer or the employee terminates the employment before the specific time in the contract, the party which proposed the termination should provide compensation to the other party. This compensation that should be given covers the employee’s wages until the specific time that the fixed-term employment contract was due to finish. However, this role does not work only due to the death of the employee, the court decision, and some other circumstances agreed upon both parties in the employment agreement and regulation.

 

 

Reference: Has Indonesia’s Labor and Employment Law Brings Justice to All Laborers?

 

Calculation of Termination of Employment

Termination Compensation, When & How Employer Should Provide It?

It has been explained on the previous discussion that the employee eligible for termination compensation (severance payment, long service pay, and compensation of right) is the permanent employee with unspecified-term employment contract (PKWTT).

 

While the circumstances under the termination define the type of the termination compensation that could be gained.  Below are the formulas to compute the amount of termination compensation based on the Manpower Law No 13 The Year 2003.

 

 

  1. Severance Payment (Uang Pesangon)

The government arranges the regulation of severance payment in the Labor Law Art 156 (2).

The Severance Payment Total Years of Working
1-month salary Less than 1 year
2 months salary 1 year but less than 2 years
3 months salary 2 years but less than 3 years
4 months salary 3 years but less than 4 years
5 months salary 4 years but less than 5 years
6 months salary 5 years but less than 6 years
7 months salary 6 years but less than 7 years
8 months salary 7 years but less than 8 years
9 months salary More than 8 years

 

 

  1. Long Service Pay (Uang Penghargaan Masa Kerja)

The calculation over the long service pay (UPMK) is arranged in the Labor Law Art 156 (3).

The Long Service Pay Total Years of Working
2 months salary 3 years but less than 6 years
3 months salary 6 years but less than 9 years
4 months salary 9 years but less than 12 years
5 months salary 12 years but less than 15 years
6 months salary 15 years but less than 18 years
7 months salary 18 years but less than 21 years
8 months salary 21 years but less than 24 years
10 months salary 24 years or more

 

  1. Compensation of Rights (Uang Penggantian Hak)

The Compensation of rights regulation is explained in the Manpower Law Article 156 (4). The compensation of the right is as follow:

  1. Compensation for housing and medical costs, approximately 15% of severance payment and/or the long service pay (for those who fulfill the requirements);
  2. Compensation of annual leave that was not taken by the employee;
  3. Compensation of travel expenses for the employee and his/her family;
  4. Other matters are written in the employment agreement and company regulation.

 

  1. Separation Pay (Uang Pisah)

The employer provides separate money voluntarily as an appreciation of the employee’s service to the company. Based on the Labor Law Article 162 (2), the amount of the separation money and the mechanism to give it is under the employer’s authority.

However, this also must be arranged by the employer in the employment agreement (Perjanjian Kerja), company regulation (Peraturan Perusahaan), and collective employment agreement (Perjanjian Kerja Bersama). Thus, the matter of separation pay could be discussed together with the employee.

 

The government states that all employers in Indonesia must struggle to avoid the termination of employment. Therefore, should the employers unable to solve the conflict with the employee using the bipartite method, they can positively dismiss the employee and provide the termination compensation following the termination reasons arranged by the government in the Labor Law.

 

BP Lawyers can help you: we can assist you in providing the best solution to the legal program of your business or your company’s.  You can contact us via ask@bplawyers.co.id or +62 821 1000 4741

Recent Posts

Leave a Comment

Hubungi Kami

Punya pertanyaan? Kirimkan kami pesan dan kami akan membalas pesan Anda, segera!

Not readable? Change text.

Start typing and press Enter to search