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Employee termination in
Indonesia.

SALARY PAYMENT IN Indonesian Rupiah (IDR, Rp)

CONTRACT LANGUAGES Bahasa Indonesia / English

PAYROLL TAX 10.24% – 11.74%

PAYROLL CYCLE Monthly

TIME TO HIRE 12 hours

Valid reasons to terminate employment in Indonesia

Termination laws in Indonesia are complex. Valid reasons for termination include reasons relating to the employee:

  • Violation of the employment agreement by the employee (after three warnings)
  • Imprisonment of the employee
  • Grave wrongdoing by the employee (including drunkenness, destruction of property, intimidation, and more).
  • Absent through sickness for longer than 12 months
  • Absent from work for longer than five days (without valid reason and after being given notice twice)
  • The employee reaches retirement age

Reasons relating to the employer can also be valid:

  • Change in company status/a merger with or acquisition by another company
  • Employer insolvency
  • Continuous financial loss for two years (proven by financial reports)
  • The business is permanently closed

Unfair reasons to terminate employment in Indonesia

Unfair reasons for dismissal in Indonesia are any not included in the list above. Some groups are protected in Indonesia and cannot be terminated. Special protections apply to the following groups:

  • In an occupational accident or with an illness for less than 12 months 
  • Getting married 
  • Serving the country 
  • On religious service 
  • Pregnant employees
  • Those who are a blood relative of another employee (as the reason for dismissal)
  • Labor union membership (as the reason for dismissal)
  • Those who have reported a crime committed by the employer 
  • Any type of discrimination (for example based on age)
  • Those permanently disabled after a work accident 

Dismissal procedure in Indonesia

The dismissal procedure is complex in Indonesia. To begin, employers must notify the employee (and the district and provincial labor offices) with intent to terminate, along with a justification. If this is accepted by the employee, their employment agreement will end after the designated notice period. If they reject it, then there must be a negotiation between the employer, employee, and any relevant labor union.

If negotiations are unsuccessful, the employer can request permission from the institute for settlement of industrial relation disputes. If it is rejected, then the employer can dispute the ruling and the case is passed on to a court decision.

Resignation procedure in Indonesia

Employees in Indonesia must provide written notice of resignation, generally with at least 30 days of notice. The law surrounding payment of severance in cases of resignation can be complex, so we recommend enlisting the support of Indonesia employment experts in these situations.

Hiring in Indonesia, Made Easy

Your business can easily hire employees in Indonesia without opening a local entity. We handle local employment law, complex tax regulations, and international payroll in 180+ countries worldwide. All you need to do is focus on your business.

FAQs

It is complicated to terminate employment in Indonesia.

If you (as an employer) need to terminate employment in Indonesia, you should seek professional legal help from experts in Indonesian employment law.

The risks of terminating employment in Indonesia include the possibility of having to go to court and argue for the termination to move forward. There are also serious financial risks for employers attempting to terminate employment before the contract has expired, including hefty severance payments.

These risks can be avoided by having a careful and methodical hiring process, and by hiring employees in Indonesia only on fixed-term, 1-year contracts and renewing each year. Finally, to fully mitigate hiring risks, you can work with a professional employer organization like Horizons who has local employment expertise and can advise you on a range of employment issues in Indonesia, including employment termination.

Please feel free to reach us if you have questions about your hiring project in Indonesia.

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