Termination of employment (PHK) is one of the most sensitive moments in any employment relationship. Amid ongoing efficiency-driven layoffs across several sectors in 2026, many workers don't know exactly what they're entitled to. This article summarizes how to calculate severance pay, long-service pay, and compensation for rights under Indonesia's current labor regulations.
Legal Basis for Severance Calculations
Indonesia's current severance rules stem from the Job Creation Law and its implementing regulation, Government Regulation No. 35 of 2021 (on fixed-term contracts, outsourcing, working hours, rest periods, and termination), which replaced part of the earlier 2003 Manpower Law. The amount and multiplier applied differ depending on the reason for termination — efficiency, company losses, voluntary resignation, or retirement, among others.
Three Components of Termination Rights
In general, a terminated employee is entitled to three components: severance pay (calculated from tenure, up to a maximum of 9 months' wages for 8+ years of service), long-service pay (starting after 3 years of tenure, up to a maximum of 10 months' wages for 24+ years of service), and compensation for rights, covering unused annual leave, return travel costs to the place of hire, and other entitlements set out in the employment agreement or company regulations.
A Simple Worked Example
As an illustration, an employee with 6 years of service earning a base salary of Rp6,000,000 per month, terminated for efficiency reasons, could be entitled to 7 months' wages in severance pay (per the tenure table), plus 2 months' wages in long-service pay, plus compensation for unused rights. Note that the multiplier applied (1x, 0.5x, or 0.75x of the base entitlement) varies depending on the termination reason set out in Articles 40–43 of GR 35/2021 — so the stated reason for termination significantly affects the final amount an employee receives.
When to Pursue a Legal Remedy
Severance disputes most often arise when a company states a termination reason that doesn't match the actual circumstances, delays payment without explanation, or calculates using an incomplete wage base (for example, omitting fixed allowances). If bipartite negotiation with the company reaches an impasse, employees can pursue mediation at the local Manpower Office, and if no agreement is reached, file a claim with the Industrial Relations Court (PHI).
Conclusion
Understanding the components and calculation method for severance pay helps both employees and employers avoid protracted disputes. Because the formula and multipliers are fairly technical and depend on the stated termination reason, it's advisable to have the calculation reviewed by an employment law consultant to ensure the amount received complies with current regulations and to avoid potential losses down the line.
Legal Services Division, PT Legalku Multi Digital, Semarang.