Indonesia Drops the 0.5 Severance Multiplier and Adds a Severance Reserve Fund: Cash Impact
Indonesia's manpower minister says the 0.5 severance multiplier is gone, and Law 27/2026 adds a severance reserve fund with an exemption for micro and small firms. Here is how to plan cash for it.When Indonesia's Employment Protection bill was passed on 6 October 2026, Minister of Manpower Yassierli said, as quoted by Katadata, that there is no longer severance pay with a 0.5 multiplier index. The resulting statute, Law Number 27 of 2026, in force since 28 October 2026, also creates a severance reserve fund, with an exemption for micro and small enterprises.
For a business owner both points lead to one question: how large is the liability really sitting behind the balance sheet, and when should you start setting money aside. This article sets out the Indonesia severance pay rules as reported, then shows how to bring them into a cash projection without rushing to change payroll.
What has been reported
The multiplier. According to Katadata (6 October 2026), the severance multiplier on termination of employment, known in Indonesia as PHK, rises from 0.5 to 1.0. Katadata also writes that a sentence in the text about the lowest multiplier is ambiguous. The minister's statement is clear in direction, but how it applies to each reason for termination still has to be read from the text and the implementing regulations.
The amounts. Fortune Indonesia (9 November 2026) summarises the components of a worker's entitlement:
| Component | Amount as reported |
|---|---|
| Severance pay (pesangon) | One to nine months of wages, depending on length of service |
| Long-service award | Two to ten months of wages |
| Compensation for rights | Including untaken leave and the cost of returning home |
The severance reserve fund. According to Katadata, the minister explained that the fund is separate from the Job Loss Guarantee programme run by BPJS Ketenagakerjaan, the state employment social security agency, and is designed for companies that close and cannot pay severance. Fortune Indonesia writes that employers must provide a severance reserve fund managed by a government body, and that micro and small enterprises are exempt.
What is not yet known
This list matters as much as the one above:
- The contribution amount. No source records it.
- The managing body. Not yet named.
- The start date of the obligation. Not stated.
- The severance table by years of service. The sources give ranges only.
- The criteria for micro and small enterprises under the exemption.
The Mekari Talenta blog (7 October 2026, written before promulgation) says contributions and the mechanism of the fund will be set by government regulation. According to Fortune Indonesia, implementing regulations for the law must be issued by 28 October 2027 at the latest.
We will not guess the contribution rate. Anyone quoting a specific percentage today is speculating.
Why this is a cash matter, not only a legal one
From here on, this is our advice, and every calculation below is a planning estimate.
Severance is a liability that stays invisible until it suddenly falls due. While the business runs normally, it is zero in the cash flow. The moment a branch closes or a large customer leaves, it appears all at once for several people. A higher multiplier means that invisible figure has grown.
The severance reserve fund, if it comes to apply to your business, changes the pattern from all at once to routine: a periodic outflow that belongs in the monthly or annual budget.
Both deserve a place in your cash projection now, even with rough numbers.
Estimating the liability per employee
Because the table by years of service is not in the sources, work with ranges. For each permanent employee, set up three columns:
- Current monthly wage.
- Length of service, counted from the start date.
- Estimated liability, as a range.
As a rough guide from the reported figures: severance of one to nine months of wages, and a long-service award of two to ten months of wages. The top of each range applies to the longest service; a recent hire sits far below it. How the two components add up in your case should be confirmed from the text of the law.
How to use it:
- For short-service employees, use the lower end of the range.
- For your longest-serving employees, use the upper end.
- For those in between, take a middle figure and mark it as a guess.
The result is not a figure you could pay anyone with. It is the big picture: summed across all staff, how many months of revenue does the liability equal. If the answer is a shock, better to be shocked now.
Bringing it into the cash projection
- Create an internal reserve line. Set aside a fixed amount each month in a separate account. You decide the amount from the picture above. This is not the statutory severance reserve fund, only your own cash discipline.
- Leave one empty row for the reserve fund contribution. Label it "awaiting government regulation". Once the amount is announced, you only need to fill it in.
- Record remaining leave per person. Compensation for rights includes untaken leave, and small businesses often have no record of it.
- Update once a year, or whenever wages rise, because every component is calculated from the wage.
What not to do yet
- Do not change payroll or deduct anything from wages on the grounds of the reserve fund. The mechanism does not exist yet.
- Do not assume your business is exempt. The micro and small criteria need to be read from the text.
- Do not postpone a sound business decision only because the severance figure looks large on paper. It is a contingent liability, not an invoice.
- Do not sign up for a financial product sold as a "severance reserve fund solution" before the rules are issued.
The data that needs to be tidy
The whole estimate above needs only three data points per person: start date, latest wage and remaining leave. If these are already recorded in your payroll and leave system, for example in Polynusa, the table can be built in an afternoon. If not, tidying them is the first job.
Note: this article summarises news reports and is not legal or financial advice. Confirm workers' entitlements and any reserve fund obligation for your business with an employment consultant, an accountant or your local manpower office.
Sources
- Katadata, 6 October 2026
- Fortune Indonesia, 9 November 2026
- Mekari Talenta (blog), 7 October 2026
FAQ
Does the 0.5 severance multiplier still apply in Indonesia?
According to Katadata, Minister Yassierli said there is no longer severance with a 0.5 multiplier, and the multiplier on termination rises to 1.0. Katadata also notes that a sentence in the text about the lowest multiplier is ambiguous.
Who must provide the severance reserve fund?
Fortune Indonesia reports that employers must provide it and that a government body manages it, with micro and small enterprises exempt.
How much is the severance reserve fund contribution?
No source records it yet. The Mekari Talenta blog says contributions and mechanism will be set by government regulation.