Employee Termination Procedures Under Indonesia's Job Creation Law 2026: Complete Guide

Termination of Employment (PHK) is the toughest decision for companies. In Indonesia, the Job Creation Law (Law 2/2022 replacing Perppu 2/2022) and GR 35/2021 regulate the procedure strictly. A single misstep—like the 14-day notice—can render the termination void ab initio, obligating the company to pay back wages and additional compensation.

Legal basis: Law 13/2003 Manpower (as amended by Law 2/2022), GR 35/2021 on PHK, GR 36/2021 on Wages. Core principle: PHK must be avoided as far as possible and is a last resort when employment cannot be maintained.

15 valid grounds for PHK (Art. 153 Manpower Law + Job Creation Law): (a) Merger/acquisition & employee unwilling to continue

Mandatory procedure: (1) Written termination notice minimum 14 working days before effective date (7 days for probation), must state specific reasons

Compensation (GR 35/2021 + GR 36/2021): Severance Pay (UP) = 1 month wages per year of service

Absolute prohibitions: sick ≤12 months (doctor's note), leave, pregnancy/maternity/nursing, state duty, union activities, whistleblowing. Violation = VOID AB INITIO (Art. 154). Risks: mandatory reinstatement + back pay (full wages during dispute) + additional compensation + criminal liability for directors (1 year prison / Rp100m fine).

Practical tips: Prepare internal procedure aligned with law, document reasons from start (financial reports, warning letters), calculate compensation accurately before sending notice, legal counsel before decision (counsel cost << back pay), prioritize bipartite negotiation (Industrial Court homologation faster & cheaper), never terminate during sick leave/pregnancy/union activity.