Indonesian Law Overview of Employee Compensation Pay

Long service pay is the appreciation that is given to the worker after their term of work in an enterprise is over. The worker entitles the reward money as a form of gratitude for their vocation during a certain period. 

In Indonesia, although this matter is elaborated in the Indonesian Law Act 13 of 2003 of Manpower, the form or the amount of a gratuity award is still often debated and becoming an important issue between the employee and the employer.

Many of the workers do not seem aware of their rights and obligations until they are thinking about leaving the company. Most of the permanent workers do not have a written contract specifying the rules of the employment, while fixed-term and foreign employee contract does not specify clearly of their rights and obligation. 

This is one of the main reasons of why it can be beneficial to have a third party such as law consultant to help to review the contract sign between the employee and the employer at the beginning of the employment.

When the long service pay is not specified in the employee contract, the Human Resource Department is referring to the labor law Act 13, Article 156 regarding the reward money as appreciation for the employee services.

1. Working time period 3 (three) or more years but less than 6 (six) years –2 (two) months’ salary

2. Working time 6 (six) or more years but less than 9 (nine) years – 3 (three) months’ salary

3. Working time 9 (nine) or more years but less than 12 (twelve) years – 4 (four) months’ salary

4. Working time 12 (twelve) or more years but less than 15 (fifteen) years – 5 (five) months’ salary

5. Working time 15 (fifteen) or more years but less than 18 (eighteen) years – 6 (six) months’ salary

6. Working time 18 (eighteen) or more years but less than 21 (twenty-one) years –7 (seven) months’ salary

7. Working time 21 (twenty-one) or more years but less than 24 (twenty-four) years –8 (eight) months’ salary

8. Working time 24 (twenty-four) or more years – 10 (ten) months’ salary

There are also additional calculations for compensating the employee, namely compensation rights pay, such as: 

1. Compensation for yearly leave that has not been used and is still valid on the time frame.

2. The transportation cost for the workers and their family to go to the next destination where they are accepted for work.

3. Housing replacement cost, medical expenses, and nursing are set at 15% (fifteen percent) for those who meet the qualifications.

Reference: Employee resign, must accept severance pay?

Since the employees expecting the employer to fairly giving their rights, ones also expected to fulfill their obligation. Most of the obligations are stated in the employment contract, but here are a few of general situation expected from the employer:- giving one-month prior notice, at least 30 (thirty) days before effective resignation date;

- giving their best performance to finish the working related tasks required;- does not breach any terms in the employee contract.

If there is anything other than specified in the contract, the law permits both parties to find a win-win solution. Not only to set the long service pay but also to protect all of the parties relationships in the future.

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