By Indonesia’s House of Representatives passed the Manpower Protection Law on 6 October, fulfilling a Constitutional Court order to separate labour rules from the Job Creation Law, according to The Jakarta Post. The law introduces a severance reserve fund for formal workers, which will operate alongside the existing job loss insurance programme (JKP).
The Jakarta Post reported the change on 27 October 2026, noting that recorded layoffs reached 105,658 in 2025, up 35.5 percent from the previous year according to Manpower Ministry data. Roughly 60 million Indonesians are in formal work. The newspaper said: “When a company collapses, its workers are often among the last to receive what they are owed. Its assets go first to secured creditors, while severance sometimes arrives years later. The Manpower Protection Law promises to change that.”
What the severance reserve fund changes
The core shift is timing and security. Under the existing framework, severance pay is an employer obligation paid directly to the worker when employment ends. If the employer is insolvent, the worker becomes an unsecured creditor and often waits behind banks and other secured lenders.
A reserve fund changes that structure. Employers set aside money before termination occurs, so the funds exist independently of the company’s solvency at the moment of dismissal. The Jakarta Post does not specify contribution rates, the managing institution, or whether the fund replaces or supplements direct employer payments. Those details will come from implementing regulations, which have not yet been published.
What is clear is that the reserve fund works alongside JKP, the existing job loss insurance programme managed by BPJS Ketenagakerjaan. JKP provides cash benefits, job market information and training for workers who lose their jobs. The reserve fund appears to address a different gap: the severance payment itself, not the post-termination safety net.
How this sits with existing severance rules
Indonesia’s severance framework has been through several layers. Law No. 13 of 2003 set the original matrix. The Job Creation Law, Law No. 11 of 2020, and its implementing regulation, Government Regulation No. 35 of 2021, compressed that matrix. Under PP 35/2021, severance pay is calculated using multipliers based on years of service: 0.5 times, 1 times, 1.75 times and 2 times monthly wages, plus a long-service award.
The Manpower Protection Law does not, on the facts reported, state whether those multipliers change. Employers should not assume the reserve fund replaces the existing calculation. It may sit on top of it, or it may modify how the obligation is funded. Until the implementing regulations are issued, the prudent reading is that the severance amount a worker is entitled to remains governed by the existing matrix, while the reserve fund changes how employers provision for that liability.
Other provisions HR teams need to track
The law is broader than severance. Fixed-term contracts are now capped at four years: an initial two years with up to two one-year extensions. Outsourcing is limited to support services. Internships may not exceed six months and must include an allowance and social security coverage.
Minimum wages will be based on a living-cost survey conducted by Statistics Indonesia (BPS) with the national wage council. That replaces or refines the previous formula approach and could lead to different wage-setting dynamics at the provincial and regency level.
The law covers the full employment lifecycle: recruitment, job placement, training, wages, workplace safety and dismissal. For HR and payroll teams, that means the compliance surface is wide. The severance reserve fund is the headline item, but the contract term limits and internship rules will affect day-to-day hiring practice more immediately for many employers.
What payroll and HR teams should do now
The implementation timeline is not yet published. That does not mean inaction is safe. Employers with Indonesian entities should first map their current severance exposure. That means calculating the potential liability for every permanent employee under the PP 35/2021 matrix, then modelling what a reserve fund contribution would look like under different scenarios.
Second, review fixed-term contract portfolios. Any contract that would exceed four years in total, including extensions, will need restructuring once the law takes effect. Contracts already in force may be grandfathered or may need adjustment; the law as reported does not state which.
Third, audit outsourcing arrangements. If a company uses outsourced workers for anything beyond support services, those arrangements may need to be brought in-house or reclassified.
Fourth, check internship programmes. The six-month cap, allowance requirement and social security coverage obligation will affect graduate programmes and similar schemes.
Foreign employers using an employer of record or professional employer organisation in Indonesia should ask those providers how they are preparing for the reserve fund. The provider’s compliance posture becomes the client’s compliance risk.
The reserve fund’s accounting treatment is also unresolved. Whether it is a funded trust, an insurance premium or a balance sheet provision will affect financial statements and cash flow planning. Finance leads should watch for guidance from the Ministry of Manpower and BPJS Ketenagakerjaan.
Sources: The Jakarta Post
Photo: Indonesian Guests of Government visit Australia Parliament House - SVP Program 2 by Rhiannon Johannes / DFAT, CC BY 4.0
