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Unions agree to support
final draft on severance
pay

Labor unions have agreed to support the final draft of a new severance pay regulation, in the hope that employers will stop evading the termination-of-work payment altogether.

"To ensure we are given our rights, we will support the draft, but there should be a guarantee that workers will get a minimum of 3 percent from our monthly salary as severance pay," Indonesian Prosperity Trade Union (KSBSI) president Rekson Silaban said at a workshop on the final draft of the regulation Wednesday.

The three percent of the monthly salary should be paid to appointed insurance companies so that the companies will have enough funds to pay the severance payment.

The draft also stipulates the minimum amount of severance pay is five times the non-taxable income (PTKP).

However, he said companies that already paid more than the minimum amount should not reduce their employees' severance pay after the regulation is introduced.

The regulation is expected to replace provisions in the current labor laws, which demand a maximum severance pay equivalent to nine times of the PTKP, a condition which has led to many employers neglecting severance payment altogether.

Indonesian Employers Association's industrial relations and advocacy head, Hasanuddin Rachman, told The Jakarta Post that although some workers had agreed to receive the minimum of 3 percent, employers still objected to the draft as they needed to pay more compensation than was required by other laws.

"It's a burden for us, and we want the draft to be annulled," he said, adding that there had been several companies which had allocated funds of up to 13 percent.

Director general of the industrial relations empowerment and social insurance at the Manpower and Transmigration Ministry, Myra M Hanartani, said the regulation would not burden companies' cash flows if they managed the fund separately from their operational costs.

"So when employers have to fire their workers, they will not refuse to hand out severance pay using a shortage of available funds as an excuse," she said.

She expected the draft to be endorsed next year.

The existing labor law is at the top of the government's investment climate reform agenda, which aims to improve Indonesia's global competitiveness.

However, analysts predict the deliberation is likely to resume after the 2009 election, saying it would be "political suicide" to push the process forward to this year.

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