Two people left the same company on the same day. Their length of service, salary, and positions were equivalent. One received severance pay of 2 times the provision, while the other received 0.5 times. The difference was fourfold, and the reason was not on anyone's payslip: the reasons for termination were different.
This is the part that is most often overlooked when people look for ways to calculate severance pay. The length of service table is indeed easy to find. What ultimately determines the final figure is the multiplier outside that table.
Three components, not one
Severance compensation consists of severance pay (UP), appreciation for length of service (UPMK), and compensation for rights (UPH). All three are regulated in Article 40 of PP 35/2021.
The calculation basis is not just the basic salary, but the basic salary plus fixed allowances. Allowances that vary each month, such as overtime pay or attendance incentives, are not included.
Severance pay according to length of service (Article 40 paragraph 2):
| Length of Service | Severance Pay |
|---|---|
| less than 1 year | 1 month salary |
| 1 to less than 2 years | 2 months salary |
| 2 to less than 3 years | 3 months salary |
| 3 to less than 4 years | 4 months salary |
| 4 to less than 5 years | 5 months salary |
| 5 to less than 6 years | 6 months salary |
| 6 to less than 7 years | 7 months salary |
| 7 to less than 8 years | 8 months salary |
| 8 years or more | 9 months salary |
UPMK only appears in the third year (Article 40 paragraph 3): 3 to less than 6 years receives 2 months salary, then increases by one month every three years of service, up to 8 months salary at 21 to less than 24 years. For service of 24 years and above, it is 10 months salary. Below 3 years, the UPMK is zero.
UPH includes unused annual leave that has not expired, the cost of returning the worker and their family to the place where they were employed, and other matters regulated in the employment agreement, company regulations, or collective labor agreement.
The multiplier that determines the difference
Articles 41 to 57 of PP 35/2021 pair each reason for termination with its own severance multiplier. UPMK is almost always 1 time, so what really moves is the severance pay.
| Severance Multiplier | Example of Termination Reason |
|---|---|
| 2 times | long-term illness or disability due to work accident beyond 12 months; worker dies |
| 1.75 times | reaching retirement age |
| 1 time | merger or consolidation of companies; acquisition; efficiency to prevent losses; company closure not due to losses |
| 0.75 times | force majeure that does not cause the company to close |
| 0.5 times | efficiency due to company losses; closure due to losses for two years; bankruptcy; termination after the first to third warning letters |
Note the adjacent pairs. Efficiency "due to the company experiencing losses" is valued at 0.5 times, while efficiency "to prevent losses" is valued at 1 time. A difference of one phrase in the termination letter doubles the figure.
There are also groups that do not receive severance pay at all, only UPH and separation pay: resignation, absence for five consecutive working days after two proper written warnings, and urgent violations.
The table is a lower limit, not a dead standard
Through Decision Number 168/PUU-XXI/2023 announced in October 2024, the Constitutional Court stated that the phrase "provided under the following provisions" in the severance provisions does not have binding legal force as long as it is not interpreted as "at least". This means the figures in the table are a floor. Collective labor agreements may set higher figures, and that is valid.
Two exceptions that are easily overlooked. First, micro and small enterprises pay based on agreements with workers, not the table above (Article 59). Second, contributions to pension programs paid by employers can be counted as part of fulfilling this obligation, and if the benefits are smaller, the difference must still be paid by the company (Article 58).
Current developments
The same Constitutional Court decision ordered the labor cluster to be separated from the Job Creation Law into its own law, with a two-year deadline. The DPR established the Employment Protection Bill as an initiative proposal on August 27, 2026, targeting completion by October 2026. Until that law is enacted, PP 35/2021 remains the reference. Anyone who keeps a calculation template should mark that date for review. To check a case without restructuring the worksheet, a severance pay calculator is available that separates the three components and multipliers according to the reason for termination.
Sources
- Government Regulation Number 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Periods, and Termination of Employment, JDIH Financial Audit Agency
- Severance Calculation 2026 Based on the Job Creation Law, Hukumonline Clinic, May 7, 2026
- Partially Granted, MK Requests Employment Law to be Separated from the Job Creation Law, Constitutional Court of the Republic of Indonesia
- DPR Accelerates Discussion of the Employment Bill, ANTARA News, July 14, 2026
- Employment Protection Bill Approved as DPR Initiative Proposal, ANTARA News, August 27, 2026