Indonesian employers have until October 2027 to shift employee severance obligations into a centralized state-managed pool under a newly enacted labor statute, CNN Indonesia reported.
The Ministry of Manpower is preparing to designate a specific government institution to oversee the severance reserve fund, known locally as Severance Pay Reserve Fund. The mechanism stems from Law Number 27 of 2026 concerning Labor Protection, which overhauls how companies handle termination payouts.
Ministry officials designed the statute to eliminate instances where workers lose fundamental entitlements during mass layoffs. Employers will calculate and deposit funds into the government-appointed agency from the start of an employee’s contract under open-ended employment agreements.
“If there is a severance pay reserve fund managed by a government agency, God willing, there will no longer be laid-off workers who do not receive their basic rights, namely severance pay.” said Indah Anggoro Putri, Director General of Industrial Relations and Labor Social Security at the Ministry of Manpower, during a socialization event for the new law on Friday, November 13, as broadcast on the YouTube channel @NgoPiSIK.
Businesses Must Set Aside Severance Reserves
Under Article 253 of the labor protection law, businesses must set aside reserves specifically for severance and related termination rights. The requirement applies to permanent workers who have not been enrolled in private pension programs.
Micro and small enterprises are exempt from the mandatory reserve fund. However, medium and large companies face progressive administrative penalties if they fail to establish their severance reserves.
“Law Number 27 of 2026 brings a spectacular new regulation, namely the Severance Pay Reserve Fund,” Putri told CNN Indonesia.
The Ministry of Manpower can issue written warnings, restrict business activities, suspend partial or total operations, or revoke business licenses for noncompliant employers. The law also introduces criminal penalties for companies that outright refuse to disburse severance, service appreciation pay, and compensation rights following terminations.
Companies Must Transfer Reserves by October 2027
The government established a one-year transition window following the law’s enactment to form the designated management agency. Companies must complete the transfer of their severance reserves to the state-appointed body by October 2027.
Ministry officials point to past labor crises in labor-intensive sectors, such as manufacturing hubs in Central Java, where workers waited years for unpaid severance after factory closures. The reserve fund aims to prevent such defaults by keeping funds outside direct corporate control.
“This is a very concrete form of protection in the event of layoffs,” Putri said to CNN Indonesia, adding that the framework pairs stricter termination grounds with secured funding pools.
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