How to terminate an employee in Indonesia without lawsuits or overpayments
In Bali, employee termination is rarely as simple as “parting ways”—even in cases of conflict or poor performance.
In Indonesia, dismissal is not a single action but a structured legal process. Any mistake in procedure can immediately weaken the employer’s position.
A real case: the cost of a quick decision
A business owner in Bali decided to terminate an administrator due to poor performance. The process was handled quickly: the employee was informed verbally, paid their salary, and access to systems was revoked.
Some time later, the employee filed a complaint for unlawful termination.
Result:
The issue had to be resolved through negotiations and additional компенсации that were not originally planned.
What went wrong?
The core issue was the lack of proper procedure.
In Indonesia, even when the reason for termination seems obvious, the employer’s position becomes weak if three key elements are missing:
Documented violations
Proper procedural steps
Correctly executed documentation
Legal restrictions: who cannot be dismissed
Before initiating termination, it is critical to check whether the employee falls under legal protection (Article 153 of Indonesian labor law).
Employers are strictly prohibited from terminating employees due to:
Illness (with a valid medical certificate; sick leave can extend up to 12 months)
Pregnancy or breastfeeding
Marriage
Additionally, the law protects employees who:
Perform religious duties
Participate in labor unions
File complaints against the employer
Hold specific beliefs (religion, political views, gender, etc.)
If termination occurs on any of these grounds, the court may declare it invalid and require reinstatement.
The three-warning system (SP1, SP2, SP3)
If termination is based on discipline or performance, employers must follow a structured warning process.
This involves issuing three formal warning letters:
SP1 (first warning)
SP2 (second warning)
SP3 (final warning)
These must be issued sequentially within a six-month period. Each subsequent warning is given if the employee fails to improve after the previous one.
Important requirements:
Documents must be prepared by a local HR specialist
Each letter must be signed with a Materai stamp
Violations must be clearly described and linked to the employment contract
Serious violations still require procedure
Even in cases of serious misconduct—such as theft, fraud, or violence (Article 158)—the employer must still properly document evidence and follow procedures.
Termination does not eliminate financial obligations.
Moreover, under Article 160, if an employee is detained, the employer may be required to provide partial financial support to the employee’s family for up to six months.
Financial obligations
Severance and compensation are regulated under Article 156.
Payments typically include:
Base severance
Additional compensation based on years of service
If a fixed-term contract (PKWT) is terminated early without valid grounds, the employer may be required to pay the employee for the remaining duration of the contract.
What happens if you skip the rules
If termination is handled incorrectly:
The employee may file a claim with labor authorities
Compensation can amount to several months of salary or more
The dispute may delay and disrupt business operations
The practical approach: settlement over conflict
Indonesian labor law prioritizes consensus.
If an agreement cannot be reached, employees may initiate strikes or escalate the dispute to labor authorities.
In practice, the most effective strategy is often:
Mutual termination agreement (amicable settlement)
This approach allows both parties to resolve the issue without litigation, delays, or reputational risks.
Key takeaway
Following the legal procedure is always more cost-effective than dealing with disputes afterward.
Before making a termination decision:
Review the employment contract
Ensure all grounds are properly documented
Confirm compliance with legal requirements
If you are unsure, it is best to consult a legal expert before taking action.
Sari Desti S. Sianturi
HR Expert, Legal Indonesia
