Payroll in Indonesia (Part 2): Entitlements and Termination Benefits

Understanding payroll entitlements and termination benefits in Indonesia is essential for any employer operating in the country. From mandatory allowances like Tunjangan Hari Raya (THR) to paid leave policies and severance obligations, Indonesian labour laws are clear—but compliance can be complex. In this article, we break down the key components of employee entitlements and termination packages so you can manage your payroll processes confidently and in full accordance with local regulations.

THR (Tunjangan Hari Raya) 

This religious holiday bonus is mandatory in Indonesia. Employers must pay it at least seven days before the relevant religious holiday. If an employee has worked for a full year, they receive one month’s salary. If they’ve worked less than a year, the amount is prorated based on the number of months worked. It’s a crucial component of employee welfare and heavily monitored by authorities. 

Learn more about THR in our blog HERE.

Maternity and Paternity Leave 

New regulations were put in effect on July 2, 2024 (in accordance with Law No.4 of 2024 on Maternal and Child Welfare) which introduced significant updates to maternity and paternity leave policies in Indonesia.  

Maternity Leave 

• Working mothers are entitled to a minimum of three (3) months of paid maternity leave after childbirth.  

• An additional three (3) months of leave may be granted if there are medical complications affecting the mother or child, supported by a doctor’s certificate. 

Salary During Leave 

• First 4 months: 100% of regular salary 

• Months 5 & 6: 75% of regular salary 

Miscarriage Leave 

In the event of a miscarriage, mothers are entitled to 1.5 months of paid leave, extendable with medical certification. 

Paternity Leave 

• Fathers are entitled to 2 days of paid leave during childbirth. 

• Miscarriage Leave: Fathers are entitled to 2 days of paid leave if their spouse experiences a miscarriage. 

• Employers are required to provide fathers with sufficient time to accompany their spouse or child in cases of health complications, or if the mother or child passes away.  

Special Leaves

Severance Pay (Uang Pesangon) Requirements

For retirement or employer-initiated terminations:

Long Service Pay Benefits (Uang Penghargaan Masa Kerja)

Eligible after 3 years of service:

Compensation Right Pay (Uang Penggantian Hak)

Compensation Right Pay covers entitlements such as:

• Unused annual leave
• Relocation expenses to their domicile (if applicable)

Reason for Termination for Permanent Contract and Benefits Calculation:

Sick Leave and Payroll Impact

Medical leave compensation:

Indonesian labour regulations are comprehensive and highly structured — from religious holiday bonuses and maternity leave to severance packages and sick leave entitlements. For employers, understanding and complying with these obligations isn’t just about avoiding penalties; it’s about building a responsible, sustainable business. 

If you're unsure how these regulations apply to your company or need support navigating compliance, Smart Advisory Solutions is here to help. 

Reach out to our team to ensure your HR and payroll policies are fully aligned with Indonesian law.