Indonesia's parliament passed a new labour law with higher severance benefits, the Indonesia Business Post reported. The Dewan Perwakilan Rakyat (DPR), Indonesia's national legislature, approved the statute after a deliberative process that engaged labour federations, employer associations, and ministry officials across multiple working sessions.

The law raises the severance compensation owed to workers whose employment terminates under covered circumstances. Indonesia Business Post reported the statute increases benefits payable across termination categories and lifts the cost of layoffs for Indonesian employers operating across the country's major industries, including manufacturing, mining, financial services, and hospitality.

What does the law change?

Indonesian severance law governs payments due when the employment relationship ends. The framework distinguishes between termination categories, including redundancy, retirement, misconduct, voluntary resignation, and contract expiry. Each category carries a defined multiplier of monthly wages determined by length of service.

The new legislation lifts those multipliers across the schedule, raising the compensation owed to terminated workers. Indonesia Business Post reported the increases apply most visibly to long-tenure employees, whose longer terms of service produce the highest severance calculations under Indonesian law.

What is the practical effect for employers?

Indonesian severance sits at the centre of the country's labour cost structure. The framework shapes hiring decisions, redundancy planning, and the contingent liabilities that Indonesian employers disclose in financial statements. Indonesian companies recognise severance obligations as part of their employee benefit liabilities under Indonesian financial reporting standards.

A higher severance schedule directly raises the cost of workforce restructuring. Multinational companies with Indonesian subsidiaries will need to:

• Revise termination templates used by human resources departments
• Recalculate redundancy budgets for ongoing operations
• Update actuarial assumptions for long-service staff
• Adjust reserve requirements in upcoming financial statements
• Review collective bargaining agreements that reference severance formulas

How does the law affect workers?

Indonesian workers gain a stronger financial cushion at termination. The Indonesia Business Post coverage emphasised the protective purpose of the legislation, particularly for workers in industries with high turnover or seasonal employment patterns. Labour organisations welcomed the higher severance schedule as recognition of long service and a counterweight to abrupt dismissal practices.

For contract workers, the legislation may bring severance treatment closer to that of permanent staff. Indonesia's labour framework has historically distinguished the two categories, and the new law reportedly narrows that gap. Workers on fixed-term contracts whose terms expire without renewal will receive enhanced severance compared with prior schedules.

What happens next?

The legislation now proceeds to presidential signature and promulgation. Once signed, the Ministry of Manpower will issue implementing regulations that set the operative severance multipliers and define transition rules. Until those regulations publish, practitioners should track official gazette releases for the precise numbers and effective dates.

The timeline from signature to effect will determine how quickly the new schedule governs terminations. Indonesian labour law typically allows a transition period during which terminations may proceed under either the old or the new schedule, depending on the date the employment relationship ends. Practitioners should expect implementing regulations to address both new terminations and pre-existing obligations.

Why does this matter for practitioners?

Labour and employment counsel advising Indonesian operations should prepare for higher termination costs in client budgets. The new law will require updates to standard separation agreements, workforce reduction protocols, cross-border employment policies, due diligence for mergers in Indonesia, and compliance training for human resources staff.

Companies with severance obligations under existing collective agreements should review those instruments to determine whether they incorporate the new schedule automatically or require renegotiation. Counsel should also prepare for potential disputes during the transition period, when uncertainty over the applicable severance schedule may produce litigation in Indonesia's industrial relations courts.

What should employers do now?

Indonesian employers should conduct an immediate review of their severance obligations and termination procedures. The first practical step is to map current severance exposures against projected post-implementation costs. Companies operating across multiple jurisdictions should coordinate responses across their regional employment counsel to ensure consistent treatment of cross-border assignments and expatriate staff.

The new law creates a near-term compliance agenda. Failure to update internal procedures before the law takes effect will expose employers to administrative sanctions and back-pay claims. Practitioners advising Indonesian operations should brief client management teams promptly to align policies with the new severance regime before implementing regulations publish.