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The Calculations Associated with Retirement Compensation Payments

The Calculations Associated with Retirement Compensation Payments

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Introduction

The Gold Watch, Golden Handshake, and Golden Parachute. While these phrases commonly describe retirement, where does this ‘gold’ come from and how does one ‘hang up his or her boots’ in Indonesia?

According to Law No. 13 of 2013 concerning Employment Law (“Employment Law”), the compensation payments for retirement consist of a severance payment, service reward payment, compensation of right payment, and separation payment. With the many different payments required, it can be a bit daunting to fully comply. So, let’s make each payment type clear.

The severance payment is defined as a payment from the employer to employee as a result of the employee’s termination of employment. The service reward payment is defined as a reward from the employer to the employee in accordance with the employee’s years of service. The compensation of rights payment is defined as compensation that has not yet been taken by the employee such as annual leave, long leave, return travel expenses to the place of original hire, and/or medical facilities and is also defined as a voluntarily award provided by the employer as compensation for the employee’s service to the employer. The separation payment is defined as a voluntary award provided by the employer as compensation for the employee’s service with the employer. Due to its charitable nature, there is no mandated calculation to derive a set or standard total for this payment.

Pension Age

In respect to Art. 15 of Government Regulation No. 45 of 2015 concerning Implementation of Pension Guarantee Program, the age requirement to qualify for pension privileges is as follows:
(1) The retirement age is 56 (fifty six) years old.
(2) Starting January 1, 2019, the retirement age as referred to in paragraph (1) shall be 57 (fifty seven) years old.
(3) The retirement age as referred to in paragraph (2) shall increase 1 (one) year for every 3 (three) years until reaching the Retirement Age of 65 (sixty five) years old.

Retirement Compensation Payments

The calculations for the Compensation Payments for Retirement are regulated under Art. 167 jo. Art. 156 par. (2), Art. 156 par.(3) and Art. 156 par. (4) of Law No. 13 of 2013 concerning Employment Law (“Employment Law”) which include the severance payment, service reward payment, and compensation of right payment. The calculation of each compensation payment is as follows:

1.Severance Payment

In respect to Art. 156 par. (2) of Employment Law, the calculation of the minimum amount of severance payment is regulated as follows:

Working Period Service Reward Payment
Less than one year Wage of one month
One year or more, but less than two years Wage of two months
Two years or more, but less than three years Wage of three months
Three years of more, but less than four years Wage of four months
Four years or more, but less than five years Wage of five months
Five years or more, but less than six years Wage of six months
Six years or more, but less than seven years Wage of seven months
Seven years or more, but less than eight years Wage of eight months
More than eight years Wage of nine months

2. Service Reward Payment

In respect to Art. 156 par. (3) of Employment Law, the calculation of the minimum amount of service reward payment is regulated as follows:

Working Period Service Reward Payment
Three years or more, but less than six years Wage of two months
Six years or more, but less than nine years Wage of three months
Nine years or more, but less than 12 years Wage of four months
12 years of more, but less than 15 years Wage of five months
15 years or more, but less than 18 years Wage of six months
18 years or more, but less than 21 years Wage of seven months
21 years or more, but less than 24 years Wage of eight months
24 years or more Wage of ten months

3. Compensation of Rights Payment

In respect to Art. 156 par. (4) of Employment Law, the calculation of the minimum amount of service reward payment is regulated as follows:


a) Annual leave(s) due to the terminating employee which have not yet been taken and have not expired;
b) Transportation costs for returning the terminating employee and his/her family to the point of hire;
c) 15% of the severance pay and/or long service pay, as compensation for housing allowance, and health care allowance; and
d) Any other compensation as agreed upon by the employer and employee based on the employment agreement, company regulations, or collective labor agreement.

4. In respect to Art. 162 par. (2) of Employment Law, the calculation for the amount of separation payment could be regulated in the employment agreement, company regulation or collective labor agreement.

Summary and Conclusion

When it comes time to ‘take flight’ or ‘renounce the throne’, there are many financial considerations to observe. Thankfully, Indonesia has clearly outlined universal calculations to protect all involved.


Jakarta, 14 March 2018


by : Budhi Satya Makmur, S.H., M.H.



The Calculations Associated with Retirement Compensation Payments