Severance Pay Calculation for Termination of Employment Based on the Latest Regulation

Termination of employment (PHK) can often be a time of uncertainty for both employees and companies. However, amid this challenging situation, it is important to know your rights—especially regarding severance pay. Since the enactment of the Job Creation Law, the rules on severance pay calculation have undergone significant changes. 

Let’s break down the details so you can calculate correctly!

Changes in Severance Pay Calculation Under the Job Creation Law

Following the issuance of Law Number 11 of 2020 on Job Creation, the severance pay calculation mechanism has been notably adjusted. This regulation consolidates and simplifies various provisions previously outlined in the Manpower Law. Its goal is to create a more flexible and competitive labor system for both workers and employers.

In general, severance pay is a form of compensation given to employees upon termination. Under the Job Creation Law, there are three main components in the severance pay calculation:

• Severance Pay (UP): Calculated based on the employee’s length of service.

• Long Service Appreciation Pay (UPMK): Granted to employees who have worked for a certain period as a token of appreciation for their loyalty.

• Compensation Pay (UPH): Compensation for entitlements such as unused annual leave, transportation costs, meal allowances, or other unpaid rights.

This simplification helps both employers and employees clearly understand what’s due during termination.

Read Also: Understanding Wage Protection for Outsourced Workers

How to Calculate Severance Pay Under the Job Creation Law

After understanding the core components of severance pay, it’s time to look at the exact entitlements based on the length of service.

1. Severance Pay (UP)

Severance pay is calculated based on your tenure with the company:

• Less than 1 year: 1 month’s salary

• 1–2 years: 2 months’ salary

• 2–3 years: 3 months’ salary

• 3–4 years: 4 months’ salary

• 4–5 years: 5 months’ salary

• 5–6 years: 6 months’ salary

• 6–7 years: 7 months’ salary

• 7–8 years: 8 months’ salary

• 8 years or more: 9 months’ salary

Note: "Salary" here includes the basic salary and fixed monthly allowances. This is the main base for calculating total severance pay.

2. Long Service Appreciation Pay (UPMK)

In addition to severance pay, you’re also entitled to UPMK as recognition for long service:

• 3–6 years: 2 months’ salary

• 6–9 years: 3 months’ salary

• 9–12 years: 4 months’ salary

• 12–15 years: 5 months’ salary

• 15–18 years: 6 months’ salary

• 18–21 years: 7 months’ salary

• More than 21 years: 8 months’ salary

UPMK is only granted if you’ve worked for at least 3 years. If your tenure is shorter, this component does not apply.

Read Also: 7 Signs Your Company Needs Professional Outsourcing Services

3. Compensation Pay (UPH)

This pay covers employee rights that have not been fulfilled until the end of employment. It may include:

• Unused annual leave

• Transportation cost for returning to the employee’s place of origin

• Meal and transport allowances, or other agreed benefits

UPH is situational and depends on the remaining entitlements up to the last working day.

Example of Severance Pay Calculation

Here’s a sample case to help you better understand how to calculate severance pay:

Case Example:

Andi worked at a manufacturing company for 7 years and 4 months, earning a basic salary of IDR 6,000,000 and fixed allowances of IDR 2,000,000 per month. He has 5 days of unused annual leave and is entitled to IDR 1,500,000 for return transportation.

Calculation Steps:

As shown above, the breakdown helps clarify the severance pay entitlements based on current regulations.

The changes introduced by the Job Creation Law have simplified the severance pay calculation process while ensuring clarity regarding employee rights upon termination. By understanding the components of severance pay—UP, UPMK, and UPH—you can ensure that your entitlements are calculated fairly and in accordance with the law. 

If your company is considering workforce efficiency efforts, ensure that all procedures are conducted fairly and transparently.

Read Also: Compliance Outsourcing for Service Quality Assurance

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