Business · Companies · 10 hrs ago
Indonesia to Require Companies to Set Aside Severance Funds
Indonesia’s new labor law requires companies to set aside money for severance pay when they hire permanent employees.
The funds will be held by a government-appointed manager, rather than kept by each company.
The law is intended to help workers receive severance if they lose their jobs, including when an employer cannot pay.
The government says the fund manager should be established within a transition period of up to one year, and companies have until October 2027 to begin transferring funds.
The requirement does not apply to micro and small businesses.
Medium and large companies that fail to provide the funds may face escalating administrative penalties, and employers that fail to pay workers’ severance and related entitlements may face criminal penalties.
The law also sets 15 specific grounds for ending employment, according to the labor ministry.
Indonesia plans to require companies to set aside severance funds and place them with a government-appointed manager.
The requirement is set out in Law No. 27 of 2026 on Employment Protection and is planned to begin by October 2027.
The funds are intended to help ensure workers receive severance after layoffs.
Micro and small businesses are exempt, while medium and large companies that fail to comply may face administrative sanctions.
Danantara Indonesia said it had not been appointed to manage the funds.
- Who
- Indonesian companies, with micro and small businesses exempt.
- What
- Companies will be required to provide severance reserves and place them with a government-appointed institution.
- When
- Companies have until October 2027 to begin transferring the funds.
- Where
- Indonesia.
- Why
- To protect workers’ severance rights, including when employers cannot pay after layoffs.
This story does not have two clearly opposing sides.
Indah Anggoro Putri discussed the severance reserve scheme at a socialisation event for Law No. 27 of 2026.
Danantara Indonesia said it had not been appointed to manage the severance reserve fund.
Companies are due to begin transferring severance funds to the government-appointed manager.
- Law
- No. 27 of 2026 on Employment Protection
- Deadline
- October 2027
- Exempt businesses
- Micro and small enterprises
- Possible administrative sanctions
- Written warning, business restrictions, temporary suspension, or revocation of business licences
- Management appointment
- A government-appointed institution; Danantara said it had not been appointed
2 sources
What people are saying
If this severance reserve fund is managed by a government institution, God willing, workers who are laid off will no longer be denied their basic right, which is severance pay.
Danantara Indonesia has never received an assignment or appointment to manage the severance reserve fund, as reported.