The Job Creation Law (UU Cipta Kerja) and its implementing regulation, Government Regulation No. 35 of 2021, reshaped severance calculations and outsourcing arrangements more than four years ago. Yet in our termination-related caseload, the same avoidable errors keep surfacing — usually because HR teams are working from templates drafted before the regulation changed, or applying the pre-2020 severance multiples out of habit.
The most common issue we see is miscalculation of the severance package itself. PP 35/2021 restructured the formula into three distinct components — severance pay (uang pesangon), long-service pay (uang penghargaan masa kerja), and compensation for rights (uang penggantian hak) — with adjusted multipliers depending on the reason for termination. Applying outdated multipliers, or omitting the compensation-for-rights component entirely, remains the single most frequent basis for a successful challenge before the Industrial Relations Court (PHI).
On outsourcing, the Law removed the prior restriction limiting outsourcing to five specific types of work, but employers still bear the burden of documenting that outsourced workers receive protection equivalent to permanent employees — a requirement that is easy to state and, in practice, easy to under-document.
Our recommendation to clients undertaking any workforce restructuring is straightforward: run the severance calculation and the outsourcing documentation past counsel before notice is given, not after a dispute is filed. The cost of a pre-review is a fraction of the cost of relitigating a termination at the PHI.
