Terminating employees in Indonesia requires strict compliance with Indonesian labor laws, failing which employers may face hefty fines and legal proceedings. As an employer, understanding the process and complying with the regulations is imperative to ensure a smooth and legal termination process.
Indonesian labor laws are governed by the Manpower Law (Law No. 13 of 2003), which outlines several provisions concerning the termination of employment. In this article, we will discuss the regulations that employers should adhere to when terminating employees in Indonesia.
Termination Based on Indonesian Regulation
Indonesian law provides a few reasons through which employment may be terminated. An employer may terminate an employment relationship for the following reasons:
1. Termination Based on Agreement
Under mutual agreement, an employment relationship may be terminated between the employer and the employee, following the terms and conditions of the agreement. This agreement must be presented in Indonesian and signed by both parties.
2. Termination Based on Cause
In Indonesia, an employer may choose to terminate an employee's current employment based on valid causes such as:
a. Employee Misconduct
b. Absenteeism
c. Alcohol and Substance Abuse
d. Breach of Company Rules and Regulations
e. Negligence or Fraud
f. Breach of Confidentiality
g. Incompetence or Substandard Performance
h. Reduction in Workforce
i. Termination Based on Company Closure or Bankruptcy
In some instances, an employer may have to terminate the employment of their employees due to bankruptcy or closure of the company. In such cases, the employer must provide notice to the employees as required by the Manpower Law.
Employees Rights
Employment termination in Indonesia follows certain provisions laid down by the Manpower Law. Employers must provide employees with:
1. Notice Period
Employers must provide a notice period before termination of employment, based on the employment period of the employee. If an employee has been employed for less than one year, notice must be given seven days before termination. For employees with a length of service between one to five years, this period extends to 30 days. For those who have been employed for more than five years, the notice period is extended to 60 days.
2. Severance Pay
Employers must provide severance pay to employees who have served beyond the probationary period. The pay is calculated based on the employee's length of service, and the reason for termination, as stipulated by the Manpower Law.
Obligation to Register Mutual Termination Agreement to the District Court
When an employment relationship is mutually terminated by the employer and employee, the parties must register this agreement with the relevant district court within seven days of the agreement. The agreement must also include the reason for termination.
Indonesian labor law is complex, and employment termination is no exception. Employers must be aware of the regulations that apply in their specific industry and must comply with these regulations during the termination process. We provide services that can help employers legally terminate their employees in compliance with Indonesian law. We are also experts in company registration, so if you're looking to register your business in Indonesia, we're here to help.
Contact us today for more information. WhatsApp: +62 859-3323-1567
Email: contact@lglbee.com
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