What Is Termination of Employment Relationship?
Based on Government Regulation Number 35 of 2021 concerning Fixed Term Employment Contract, Outsourcing, Working Hours and Rest Time, and Termination of Employment Relationship (“GR 35/2021”), Termination of Employment Relationship (“Pemutusan Hubungan Kerja” or “PHK”) is the termination of employment relationship due to certain matters, which result in the termination of rights and obligations between workers and employers.
Termination of employment relationship has different consequences either for Permanent Employment Contract (“Perjanjian Kerja Waktu Tidak Tertentu” or “PKWTT”) or Fixed-Term Employment Contract (Perjanjian Kerja Waktu Tertentu / “PKWT”). In PKWTT, the consequence of a termination of employment relationship is subject to the provisions of Article 40 to Article 59 PP 35/2021, while in PKWT the consequence of termination of employment relationship is in the form of compensation provided by employers to workers.
Legal Basis for Termination of Employment Relationship
- Chapter XII Law Number 13 of 2003 concerning Manpower (“Law 13/2003”);
- Government Regulation No. 35 of 2021 concerning Fixed Term Employment Contract, Outsourcing, Working Hours and Rest Time, and Termination of Employment Relationship (“GR 35/2021”);
- Government Regulation in Lieu of Law (Perppu) Number 2 of 2022 concerning Job Creation (“Perppu 2/2022”).
Read More: Types of Employment Contracts
Types of Termination of Employment Relationship
- Termination of Employment Relationship by Law
This type of termination of employment relationship occurs when the term of the employment agreement between the employer and worker ends. This can happen for several reasons, such as worker death, retirement, or a request from the company to terminate the employment relationship.
- Termination of Employment Relationship Due to Violation of Work Agreement
This type of termination of employment relationship occurs when the worker voluntarily resigns or breaches the work agreement. It is important to note that this type of termination is based on the worker’s own decision rather than being legally mandated.
- Termination of Employment Relationship Due to Certain Conditions
Certain conditions can cause termination of an employment relationship, such as if workers experience prolonged illness, companies experience redundancy, bankruptcy, or ongoing losses. In general, however, workers can submit voluntary resignation in these circumstances.
- Termination of Employment Relationship Due to Serious Mistakes
Termination of employment relationship can be carried out for workers who are proven to have made a serious mistake. The following are some examples of mistakes that are classified as serious as regulated in PP 35/2021:
- Stealing or embezzling company property;
- Using or spreading alcohol, narcotics, psychotropics, or other addictive substances in the work environment;
- Committing immoral acts or gambling in the workplace;
- Threatening, harassing or intimidating colleagues;
- Divulging company secrets;
- Taking other actions at the company which is punishable by imprisonment of at least 5 years, etc.
Termination Provision after the Government Regulation in Lieu of Law No. 2 of 2022
- Permissible Reasons Used by Companies to Terminate a Worker
- The company experiences mergers, consolidations, takeovers, or separations, leading to a discontinuation of the employment relationship.
- The company implements efficiency measures due to financial losses.
- The company ceases operations after incurring continuous losses for two years.
- The company shuts down due to force majeure circumstances.
- The company is in a state of debt payment postponement.
- Workers request termination of the employment relationship due to the following reasons on the part of the employer:
- Physical or verbal abuse, harassment, or threats toward workers;
- Persuasion or instruction of workers to engage in unlawful activities;
- Non-payment of salaries for three consecutive months;
- Failure to fulfill obligations promised to workers.
- Assignment of tasks beyond the scope of the work agreement.
- Assignment of tasks that endanger the life, safety, health, and moral integrity of workers.
- A decision from the Industrial Relations Dispute Settlement agency confirms that the employer fails to address the aforementioned concerns, leading to the termination of the employment relationship.
- Workers voluntarily resign.
- Workers remain absent for five consecutive days without providing a written explanation, despite being summoned twice by the employer.
- Workers violate provisions outlined in the work agreement and company regulations, despite receiving three warning letters.
- Workers are unable to perform their duties due to a six-month detention by authorities for being suspected of having committed a crime.
- Workers experience prolonged illness or disability lasting over 12 months resulting from an accident.
- Workers reach retirement age.
- Workers pass away.
- Prohibited Reasons for Termination of Employment Relationship
- Workers are on prolonged medical leave for a continuous period exceeding 12 months.
- Workers are absent from work due to legal obligations to the state.
- Workers are engaged in religious observances as mandated by their faith.\
- Married workers;
- Workers are pregnant, have given birth, undergone an abortion, or are breastfeeding their babies;
- Workers have a blood relation or marital ties with other employees within the same company;
- Workers establish, join, or hold administrative positions in a Workers/Labor Union (Serikat Pekerja/Serikat Buruh) and engage in Union activities during working hours with the employer’s consent or as stipulated in the work agreement;
- Workers report their employer to the authorities based on suspicions of criminal activity;
- Discrimination based on diverse viewpoints, religion, political beliefs, ethnicity, skin color, social class, gender, physical condition, or marital status;
- Workers with permanent disabilities, work-related illnesses, or uncertain recoveries as determined by medical professionals.
Read More: Religious Holiday Allowance in Indonesia
Calculation of Severance Pay after the Government Regulation in Lieu of Law No. 2 of 2022
It is important to highlight that when employers terminate employment relationship, they are required to provide severance pay, service period rewards pay, and compensation money (“UPH” or Uang Penggantian Hak) to the worker. UPH serves as compensation for various worker rights, such as unused annual leave, transportation costs for workers returning to their residence, and other provisions outlined in the work agreement, Company Regulation, or Collective Labor Agreement.
Severance pay is calculated based on the fixed-wage component received by workers, which includes the basic salary and all forms of fixed benefits. The following is a table of calculations based on Article 156 paragraph (2) Perppu 2/2022:
|Years of service||Severance Amount|
|< 1 year||1 time monthly wage|
|1 year||2 times the monthly wage|
|2 years||3 times the monthly wage|
|3 years||4 times the monthly wage|
|4 years||5 times the monthly wage|
|5 years||6 times the monthly wage|
|6 years||7 times the monthly wage|
|7 years||8 times the monthly wage|
|8 years or more||9 times the monthly wage|
Furthermore, the amount of Service Period Rewards pay is determined under Article 156 paragraph (3) Perppu 2/2022 as follows:
|Years of service||Amount of UPMK|
|3 years or more but less than 6 years||2 times the monthly wage|
|6 years or more but less than 9 years||3 times the monthly wage|
|9 years or more but less than 12 years||4 times the monthly wage|
|12 years or more but less than 15 years||5 times the monthly wage|
|15 years or more but less than 18 years||6 times the monthly wage|
|18 years or more but less than 21 years||7 times the monthly wage|
|21 years or more but less than 24 years||8 times the monthly wage|
|24 years or older||10 times the monthly wage|
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