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Indonesia scraps plans to cut severance pay in new bill

Tabita Diela
·2 mins read

By Tabita Diela

JAKARTA (Reuters) - Indonesia reversed earlier plans to cut severance pay, parliament's legislative committee said late on Sunday, ahead of the expected passing on Oct. 9 of a controversial "jobs creation" bill aimed at improving the investment climate.

Global investors are watching the bill closely to see that its terms have not been watered down in parliamentary debates, as Southeast Asia's largest economy tries to compete for manufacturing investment relocating from China.

"The severance payment scheme will stay as the existing, which is 32 times (of wages). Of the 32 times, 23 times will be borne by the employer and 9 times by the government," Firman Soebagyo, a lawmaker from Golkar Party - a member of the ruling coalition - told the committee in a meeting broadcast on national television.

Indonesia’s current rules on severance pay are among the most generous in the world and business say they deter formal hiring due to the expense of sacking underperforming employees.

A source who has been involved in drafting the bill told Reuters in February that it planned to cut maximum severance payments to 19 times monthly salary.

The proposals are included in so-called “omnibus” bills that President Joko Widodo has prioritised in his efforts to cut red tape and create jobs. The bills club together changes in unrelated legislation to allow parliament voting in a single swoop to speed reforms.

Government representatives and the committee members on Sunday also removed industry-specific minimum wages but kept city and provincial minimum payments in the bill unchanged.

Trade unions have held several rallies in protest of the bill, alongside farmers and green groups who protested the bill's provisions to create a land bank and relax environmental rules, including on Thursday when relatively small protests were held in several cities across the archipelago.

(Reporting by Tabita Diela, Writing by Fathin Ungku; editing by Emelia Sithole-Matarise)