Rightsizing In Indonesia

Workforce "rightsizing", whether framed as redundancy, efficiency-driven restructuring, or role redeployment, is increasingly relevant and one of the most legally sensitive exercises for employers seeking to align their workforce with changing business needs.

In Indonesia, however, a rightsizing exercise must be carefully structured and must comply with the statutory grounds, procedural requirements, and minimum employee entitlements governing termination of employment. The increasing use of workforce analytics and artificial intelligence (“AI”) also introduces additional considerations when planning and executing a redundancy. In those circumstances, employers must therefore take into account not only manpower law requirements, but also personal data protection, discrimination, and AI-governance considerations.

Based on the foregoing, this guide highlights the key legal and practical considerations for employers planning a rightsizing exercise in Indonesia.

1. The Redundancy Framework – Grounds and Process

1.1 Redundancy as a Closed-List Ground for Termination

Termination of employment in Indonesia occurs on grounds set out in Article 154A(1) of Law No. 13 of 2003 on Manpower, as amended by Law No. 6 of 2023 on Stipulation of Government Regulation (“GR”) in Lieu of Law No. 2 of 2022 on Job Creation into Law (“Job Creation Law”) (the “Manpower Law”). The Manpower Law recognizes two categories of termination based on their nature, namely (i) termination due to the employee's inability, negligence, or misconduct (“General Reasons”) and (ii) termination due to the employer's circumstances (“Special Reasons”):

The above grounds are non-exhaustive. The Manpower Law provides flexibility to govern other grounds for termination of employment in the corresponding employment contract, company regulation (“CR”), or collective labor agreement (“CLA”) (Article 154A (2) of Manpower Law).

In the context of this guide, the term “redundancy” is not formally recognized under Indonesian manpower law. Instead, it can be associated with grounds of a similar nature to the statutory grounds most relevant to a rightsizing exercise, namely: (i) legal action by the company where the employee does not wish to continue or the employer does not wish to retain the employee, (ii) efficiency measures, (iii) company closure due to continuous losses, and (iv) company closure due to force majeure.

1.2. Mandatory Termination of Employment Sequencing

In principle, the employer, employee, union, and government must first make every effort to avoid termination of employment altogether. Where termination of employment cannot be avoided, the employer must notify the employee and/or union of the intended termination of employment and its reasons 7 (seven) or 14 (fourteen) working days before the termination of employment, depending on the employee's status (Article 37 of GR No. 35 of 2021 on Definite Term Contract, Outsource, Working and Rest Time, and Termination (“GR 35/2021”)).

If the employee rejects the termination of employment, resolution must be pursued through the following layers of procedure:

1. Bipartite Negotiation: The employer and the employee and/or union must first commence a bipartite negotiation through deliberation to reach consensus. The negotiation must be settled within 30 (thirty) days from the start of the bipartite negotiation process (Article 3(2) of Law 2 of 2004 on Industrial Relations Dispute Settlement, as amended by Law No. 1 of 2026 on Criminal Adjustment (“Law 2/2004”)). If the dispute is settled within this process, the employer and the employee and/or union shall draw up and enter into a mutual agreement to conclude the bipartite negotiation (Article 7(1) of Law 2/2004).
2. Tripartite Mediation/Conciliation: Only if the bipartite negotiation fails to resolve the termination, the employer and the employee and/or union shall escalate to tripartite mediation at the relevant manpower office (Articles 8 and 17 of Law 2/2004). The process shall be conducted by way of mediation or conciliation, led by an appointed mediator or conciliator from the manpower office, who shall issue a recommendation, albeit non-binding, for the employer and the employee and/or union to follow if the mediation or conciliation fails (Articles 13 and 23 of Law 2/2004).
3. Industrial Relation Court (“IRC”) Settlement: If employer and employee have not reached an agreement or the issued recommendation is not to their satisfaction, each party may file a lawsuit to the relevant IRC (Article 5 of Law 2/2004). Even then only after obtaining a decree, a termination of employment may be deemed either lawful or unlawful.

Accordingly, a rightsizing program must undergo the above process (including the dispute resolution process, as the case may be) to be deemed a lawful termination.

1.3. Employee’s Termination Entitlement

Under Indonesia’s manpower law, severance for indefinite-term employees (Perjanjian Kerja Waktu Tidak Tertentu or “PKWTT”) is categorized into 3 (three) types: (i) severance payment, (ii) service-period pay, and (iii) compensation of rights (together, “Severance Package”).

The Indonesian manpower framework provides a clear statutory threshold for the Severance Package. Base severance pay ranges from 1 (one) month's wage (under one year of service) to 9 (nine) months' wage (eight years or more of service). Service-period pay is calculated based on employment tenure, ranging from two months' wage (3 (three) to less than 6 (six) years of tenure) to ten months' wage (24 (twenty-four) or more years of service). Compensation of rights covers unused annual leave, relocation costs, and other agreed entitlements (Article 156 of Manpower Law).

GR 35/2021 further sets out the Severance Package multiplier based on the circumstances of the termination of employment. In general, termination of employment arising from the employee's own conduct provides less entitlement than termination arising from events outside the employee's control (e.g., prolonged illness, death, pension). For rightsizing exercises specifically, for instance, redundancy following a merger, consolidation, acquisition, or spin-off where the employee declines to continue shall receive one-times severance, one-times service-period pay, and compensation of rights. As another instance, efficiency-driven termination of employment to avoid potential losses shall be entitled to the same Severance Package as the aforementioned circumstances. Bear in mind that the Constitutional Court (Mahkamah Konstitusi or “MK”) Decision No. 168/PUU-XXI/2023 (“MK Decision 168/2023”) also held that the phrase "given in accordance with the following provisions" (diberikan dengan ketentuan sebagai berikut) in Article 156(2) of the amended Manpower Law must be read as "at least" (paling sedikit). This confirms that the severance thresholds set a statutory floor rather than a fixed entitlement, meaning that more generous severance terms in an employment agreement, company regulation, or collective labor agreement remain enforceable and are not capped by the statutory table.

It is also important to note that termination of employment for definite-term employees (Perjanjian Kerja Waktu Tertentu or “PKWT”) is subject to a different regime. Under Articles 61A and 62 of the Manpower Law, early termination of a PKWT requires the terminating party to compensate the other party for the PKWT's remaining term. In terms of the applicable procedure, the Manpower Law does not provide a different set of requirements for terminating a PKWT as opposed to a PKWTT. Consequently, termination of a PKWT will only result in an entitlement to (i) compensation payment and (ii) indemnity fees (calculated based on the remaining months of the PKWT).

Employers planning a rightsizing exercise should model the cost of each available ground carefully, since the choice of ground (and its evidentiary support) directly drives the severance multiplier, not merely the headline narrative used internally.

1.4. Deployment as an Alternative to Termination

Because the Manpower Law and GR 35/2021 require that termination of employment be genuinely unavoidable before it may proceed, internal redeployment (i.e., reassigning affected employees to other roles, business units, or, with consent, other group entities) is not merely good practice but a component of demonstrating that termination of employment could not be avoided. A documented deployment strategy (mapping affected roles against open positions, retraining needs, and redeployment timelines) strengthens the employer's position both in bipartite negotiation and in any subsequent industrial relations dispute proceeding, and should be developed and evidenced before termination of employment notices are issued.

1.5. Non-Discrimination in Redeployment and Selection

The Indonesian manpower framework establishes the principle of equal opportunity and non-discriminatory treatment. The Ministry of Manpower Circular Letter No. M/6/HK.04/V/2025 on Discrimination Prohibition in the Recruitment Process (“Anti-Discrimination Circular”) further reflects the government's current emphasis on non-discrimination and objective employment criteria. Although the Anti-Discrimination Circular is directed specifically to recruitment, it restates the underlying statutory principle that no employer may discriminate on any basis, and that age-based criteria are permissible only where there is a specific, demonstrable link between age and the ability to perform the role, provided the criteria do not result in loss or reduction of employment opportunity, with the same standard applying equally to persons with disabilities.

In a rightsizing exercise, selection criteria (e.g., position elimination, performance ranking, skills-matching) should be documented on objective, role-related grounds to avoid exposure to a discrimination claim layered on top of the termination of employment dispute itself.

2. The Role of Technology in Rightsizing

2.1 Using AI or Analytics Tools to Plan Workforce Reductions

As technology continues to develop, particularly in the area of employment management, employers increasingly use workforce analytics, scoring models, or AI-assisted tools to identify redundant roles, rank employees, or model severance costs across scenarios.

The Ministry of Communication and Informatics (currently, the Ministry of Communication and Digital) Circular Letter No. 9 of 2023 on Artificial Intelligence Ethics, while addressed primarily to businesses whose core activity is AI programming and to public and private electronic system operators, sets out ethics principles of general application to any organization deploying AI, including inclusivity, humanity, security, accessibility, transparency, credibility and accountability, personal data protection, sustainable development, and intellectual property protection.

2 (two) principles are particularly relevant to a rightsizing exercise. First, the requirement that AI implementation ensure security of user data and privacy. Second, the express responsibility that AI must not be used as the determinant of policy and/or decisions concerning humanity, together with the further responsibility to prevent racism and any conduct harmful to people.

A rightsizing decision, by its nature a decision directly affecting people's livelihoods, should accordingly retain meaningful human decision-making at the point where an individual employee's role or continued employment is actually decided, with any AI or analytics tool treated as a decision-support input rather than the decision-maker itself, and with the process, criteria, and outcomes documented and explainable to the affected employee.

2.2. Personal Data Protection Implications of Workforce Analytics

Any workforce analytics or AI tool used to plan or execute redundancy necessarily processes personal data of the employees being evaluated. Under Article 34(1) of Law No. 27 of 2022 on Personal Data Protection (“PDP Law”), certain processing activities involving high risk to the data subject require a personal data protection impact assessment. The types of processing treated as high-risk include, among others, automated decision-making with a legal or significant effect on a data subject, systematic evaluation or scoring, large-scale processing, and the use of new technology (Article 34(2) of PDP Law). Accordingly, a rightsizing exercise may warrant heightened governance, and employers should assess whether the processing falls within the high-risk categories and whether an impact assessment is required. Employers should treat any AI-assisted or algorithmic workforce reduction tool as falling within this high-risk category and apply corresponding data protection governance (e.g., data minimization, defined retention, and documented accountability for the processing) even where the strict statutory threshold for mandatory DPO appointment is not met.

2.3. Practical Recommendations for Technology-Assisted Rightsizing

Employers using technology in a rightsizing exercise should, in line with the principles above:

1. maintain a documented, human-reviewed decision trail for every individual termination of employment or redeployment decision, even where a tool generated an initial recommendation;
2. ensure the underlying data set and scoring methodology do not encode age, disability, gender, union membership, or other protected characteristics as direct or proxy variables, consistent with the Anti-Discrimination Circular;
3. limit access to, and retention of, the personal data processed by the tool to what is necessary for the exercise; and
4. be prepared to explain, in plain terms, the basis for an affected employee's selection if challenged in bipartite negotiation or before the industrial relations dispute settlement

Employers should retain clear oversight of how recommendations are generated and applied, and ensure that the final decision can be supported by objective, documented, and legally defensible considerations. This can help mitigate challenges arising from opaque decision-making, discriminatory outcomes, or an inability to explain the basis for an employee’s selection.

3. Job Loss Security (Jaminan Kehilangan Pekerjaan or “JKP”) Interaction

3.1. JKP Eligibility for Redundancy-Affected Employees

Employees terminated for redundancy-related reasons (including efficiency measures and company closure) are, subject to eligibility, entitled to the JKP program administered by the employment social security agency (Badan Penyelenggara Jaminan Sosial Ketenagakerjaan or “BPJS Kt”).

Under the prevailing framework, eligibility requires the employee to hold at least 12 months of contribution history within the 24 calendar months preceding the termination of employment, to be willing to work again (including through self-employment), and the termination of employment must not fall within the excluded categories of resignation, permanent total disability, retirement, or death (Articles 19 (3) and 20 (1) of GR No. 37 of 2021 on Job Loss Security Program Implementation, as amended by GR No. 6 of 2025 (“GR 37/2021”)). JKP benefits comprise a cash benefit of 60% of wages, capped by reference to an upper wage limit of IDR 5 million for up to 6 (six) months, access to labor market information, and job training, and may be claimed up to three times over a person's working life, subject to a further 5 (five)-year contribution requirement between successive claims (Articles 21 to 35 of GR 37/2021).

3.2. Employer Obligations Where JKP Is Not in Place

Generally, enrolling employees in the JKP program is an obligation of the employer pursuant to Article 2(1) of GR 37/2021. If an employer, however, has not enrolled an employee in the JKP program and that employee is subsequently terminated, the employer becomes directly liable to pay the employee the equivalent of the JKP cash benefit as a lump sum and to provide the job training benefit itself, except for micro enterprises (Article 37 of GR 37/2021). This makes JKP enrollment a material compliance and cost-mitigation step for any employer planning a rightsizing exercise, since non-enrollment may subject the employer to administrative sanctions and converts a social-security-funded benefit into a direct employer liability layered on top of statutory severance.

3.3. Employer Contribution Arrears During a Redundancy Event

Where an employer is in arrears on the underlying Work-Accident Security (Jaminan Kecelakaan Kerja or “JKK”) contribution, which partly funds JKP, for up to 3 (three) months at the time of a termination of employment, BPJS Kt must still pay the JKP cash benefit, and the employer remains liable to settle the arrears. Where the arrears exceed 3 (three) months, the employer must pay the cash benefit directly in the first instance and may seek reimbursement from BPJS Kt once the arrears and any penalties are settled (Article 39 of GR 37/2021). Employers should reconcile their JKP/JKK contribution status before initiating a rightsizing exercise to avoid this direct payment obligation arising mid-process.

4. Dispute Resolution Exposure

4.1 Post-Dispute Exposure and Limitation Period

As set out in Section 1.2 above, the mandatory sequencing and dispute resolution requirements must be followed before a termination of employment can be implemented. However, the completion of that process does not necessarily end the employer’s legal exposure. According to MK Decision No. 132/PUU-XXIII/2025, which amends Article 82 of Law 2/2004, an employee’s claim arising from a termination of employment may be filed within 1 (one) year from the date the employee received notification from the employer.

For rightsizing exercises, this is particularly relevant where multiple employees are affected or different criteria are applied. Employers should therefore preserve relevant records and remain able to substantiate the business rationale, selection methodology, employee correspondence, and termination of employment entitlements throughout the relevant period.

4.2. Documentation Discipline as Risk Mitigation

Across every stage described above, the decision to pursue efficiency rather than a lesser measure, the redeployment assessment, any technology-assisted scoring, the bipartite negotiation record, and the JKP/severance calculation, the common risk-mitigation thread is contemporaneous documentation. Given that termination of employment without the required determination is void by operation of law under the Manpower Law framework, and that MK Decision 168/2023 has tightened the bipartite-to-dispute-resolution pathway, employers should treat the paper trail for a rightsizing exercise as itself a compliance deliverable, not an afterthought to the business decision.

Concluding Remarks

Rightsizing in Indonesia sits at the intersection of a closed-list, ground-specific termination of employment regime, a bipartite-first dispute resolution pathway now reinforced by constitutional interpretation, a job loss security program with real cost consequences for non-enrollment, and an emerging expectation, reflected in soft-law ethical guidance, that technology-assisted workforce decisions retain meaningful human oversight and data protection discipline. For employers, the practical objective should be to identify these issues before implementation rather than address them after the dispute arises. A rightsizing plan that is supported by a clear business rationale, objective selection criteria, appropriate employee consultation, accurate entitlement calculations, and a documented decision can help mitigate the legal risk associated with workforce restructuring.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.