Following the Indonesian House of Representatives’ approval of the Employment Protection Bill in October 2026, Law No. 27 of 2026 (“Law 27”) regarding Employment Protection marks the next stage of Indonesia’s employment-law reform, replacing Law No. 13 of 2003 on Manpower and specified employment provisions of the Job Creation Law.
For employers, the focus now turns from legislative debate to what the framework means for everyday workforce decisions. This article examines the principal changes, distinguishes new requirements from protections already established, and considers what they mean for employers navigating recruitment, restructuring and termination.
More detailed protection, with important qualifications
Law 27 sets out a more detailed framework for employment conditions, industrial relations and termination. For employers, the principal task is not simply updating article references – contracts, workplace policies, outsourcing arrangements and termination budgets should be reviewed together.
However, not every provision is a wholly new legal obligation. Several protections were already recognised through amendments or Constitutional Court decisions reflected in the November 2024 consolidation. Others may already exist in implementing or separate legislation. In particular, detailed termination-payment schedules should not automatically be presented as increases over the entire pre-2026 regime.
The main workplace changes
Contracts and outsourcing. Article 82 limits a fixed-term agreement to two years initially, followed by no more than two one-year extensions. This is a four-year sequence, compared with the annotated five-year baseline. A fixed-term employment agreement that is not made in writing shall be deemed as a permanent employment agreement by operation of law. Written extension notice is required at least seven days before expiry. Outsourcing is also more specifically regulated: the general support-service list covers cleaning, catering, security and worker transport, while mining/oil and state-owned enterprises face separate subsidiary requirements.
Leave and employee voice. Article 118 quantifies long-service rest at 30 calendar days after each five years of continuous service and prevents collective leave from reducing annual leave. Maternity leave comprises at least three initial months, with up to three additional months for specified medical conditions; month four attracts full pay, and months five and six attract 75%. The mandatory bipartite-institution threshold falls from 50 to 10 workers. In a single-union company, the direct bargaining membership threshold falls from more than 50% to more than 30%, with a separate workforce-vote route where that threshold is not met.
Foreign workers. Article 62 expressly requires both an approved manpower-utilisation plan and ministerial endorsement, alongside revised exemptions and HR/personnel-function restrictions.
Wages. Wage-setting provisions specify an index band of 0.5–1 and a governor-approved minimum-wage exception supported by bipartite agreement and external audit. The agreed wage floor for micro and small enterprises is stated as 50% of the applicable minimum wage.
Efficiency omitted as a standalone termination ground
Law No. 13 of 2003 expressly listed efficiency measures, with or without closure where the company suffered losses, as a termination ground in Article 154A(1)(b). Article 231 of Law 27 does not reproduce that standalone ground. Employers should therefore not assume that a cost-saving or headcount-reduction objective, labelled as “efficiency,” is itself sufficient to justify dismissal.
This omission is not a blanket prohibition on restructuring. Article 231 retains distinct grounds such as qualifying loss-related closure, owner-decided permanent closure, force majeure and insolvency. Article 81 also addresses agreed termination events and mutual termination agreements. Each route requires its own legal basis and facts; contractual wording should not be treated as an automatic substitute for the omitted ground. Article 228’s prevention, negotiation and dispute-resolution requirements remain central.
Termination benefits: identify the ground before calculating the amount
The termination framework does not prescribe one universal package. Article 232 retains three principal components: severance pay (uang pesangon), service pay (uang penghargaan masa kerja), and compensation for outstanding rights (uang penggantian hak). Which components and multipliers apply depends on the lawful termination ground.
The base severance scale runs from one month’s wage for service below one year to nine months for service of at least eight years. The service-award scale begins at two months for at least three years’ service and reaches ten months for at least 24 years. These are base scales, not a universal aggregate ceiling. Severance and service awards are generally calculated using basic wage plus fixed allowances. Outstanding-rights compensation includes unused, unexpired annual leave, qualifying return travel and other rights stipulated in the employment agreement, company regulations or collective agreement.
Separate provisions address corporate transactions, loss-related closure, force majeure, insolvency, misconduct, resignation and absence. A qualifying voluntary resignation, for example, attracts rights compensation and separation money rather than the full severance/service-award package.
Separation money (uang pisah) is distinct from severance. Article 233 links separation money to specified grounds in workplace instruments. Where no amount is stipulated, the text says an amount “may be set” to at least one month’s wage. That permissive wording should not be described as an automatic one-month entitlement for every departing worker. More favourable existing separation-money arrangements are preserved.
Special rules also matter. Micro and small employers, and the specified flexible-work relationships, use agreed payment amounts under Articles 250–251. Fixed-term compensation must be assessed under its separate provisions rather than automatically applying the ordinary termination scales. Pension arrangements may offset retirement liabilities in accordance with Article 248, but a relevant shortfall remains payable.
Payment obligations go beyond the final settlement
Employers must consider procedure and continuing exposure alongside the benefit calculation. Article 228 requires prevention measures and bipartite negotiations; unresolved contested dismissals require a final and binding dispute-resolution decision. Article 235 preserves wages and other obligations during the dispute process. These principles partly carry forward protections already recognised in the annotated baseline.
Article 253 introduces a government-managed severance reserve for qualifying termination liabilities, with micro and small employers exempt and implementation details delegated. Article 299 also provides an asset-backed recovery mechanism for unpaid rights following a settlement agreement or final decision.
Criminal sanctions: nonpayment is not only a civil risk
Law 27 distinguishes individual and corporate exposure and uses fine categories rather than the earlier Rupiah ranges. For termination planning, three provisions deserve particular attention:
Intentional nonpayment: Article 295 penalises intentional failure to pay the termination benefits covered by Article 232(1), with up to four years’ imprisonment or a maximum category-IV fine.
Failure to reinstate: Article 294 provides up to two years’ imprisonment and/or a maximum category-III fine for failure to reinstate under Article 228(7) and/or Article 230(2).
Inspection non-compliance: Article 296 provides up to two years’ imprisonment and/or a maximum category-III fine for specified failures involving inspection access/data, reporting conditions and following up recommendations.
For these offences, corporate offenders face fines between categories IV and VI. Article 298 preserves the obligation to pay worker rights despite criminal punishment.
Limitation periods: unlimited time for payment claims is not unlimited time for every dispute
Article 152 expressly permits claims without a time limit for wages and all payments arising from employment. Employers should therefore maintain reliable wage, service, termination and payment records and assess historical monetary exposure rather than assuming an old payment liability disappears merely with time.
This is an express statutory confirmation, not a wholly new removal of a limitation period in 2026. The November 2024 consolidation already records the Constitutional Court’s invalidation of Article 96 in Decision 100/PUU-X/2012 and its subsequent deletion. Equally, Article 152 concerns payment claims; it should not be read as making every dismissal challenge, procedural step or criminal proceeding timeless. Any separate applicable filing or prescription period must be checked independently.
Practical implications
Employers should audit fixed-term and outsourcing arrangements, revise leave and consultation policies, and model termination costs by lawful ground, service and wage components rather than using a single multiplier or an “efficiency” label. Review pension and collective arrangements, escalate potential nonpayment/reinstatement/inspection offences, and preserve evidence of historical payments.
Transitional rules, continuing implementing regulations and any claim-specific deadlines must be checked before assuming that every change is immediate or every older liability is time-barred.
This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user’s own risk. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.
For further information, please contact:
Syahdan Z. Aziz, Partner, SSEK
