Indonesia gives employers until October 2027 to pay severance reserves into state fund

A senior official at Indonesia's Ministry of Manpower (Kemnaker) told employers on Friday, 13 November 2026, that they must account for severance obligations from the start of employment for permanent staff. She said they have until October 2027 to hand that money to a government-run reserve fund.

Indah Anggoro Putri, the ministry's Director General of Industrial Relations and Workers' Social Security, spoke at a public briefing on Law No. 27 of 2026 on Labour Protection, broadcast on the ministry's YouTube channel. Liputan6 and Harian Jogja, a Bisnis Indonesia group title, each carried her remarks as direct quotes. The law took effect on 28 October 2026, according to CNBC Indonesia.

The change affects any domestic or foreign-owned company with permanent employees in Indonesia, apart from micro and small businesses. Severance, known locally as pesangon, has until now been paid when a worker is dismissed. Under the new law it becomes money employers must set aside in advance with a state body. Contribution rates have not been published, so the cost to companies is not yet known.

What the official said about the reserve fund

Indah said the reserve fund, known as Dana Cadangan Pesangon (DCP), requires companies to factor in severance from the first day of employment for workers on permanent contracts (PKWTT, or indefinite-term agreements), Harian Jogja reported.

"The money must be clear and paid to a government institution," she said, according to both outlets. She added that the managing body would be appointed "before long" but did not name it.

She described a one-year transition. "By October 2027, all severance funds must be handed over" to the reserve fund, she said, as quoted by Liputan6 and Harian Jogja.

Pension funds excluded from managing the money

Many Indonesian companies already set aside severance money through employer pension funds (Dapen) or pension funds run by financial institutions (DPLK). Indah said the new fund is separate from those arrangements. "The law says the manager is a government institution, appointed by the government," she said, according to Harian Jogja. She told DPLK managers to start preparing now.

What happens to reserves companies built up before the law is less clear. Indah indicated such reserves might stay with DPLK or Dapen but said "saya tidak janji" (I make no promises), adding that technical rules could still require a transfer. That sits uneasily with her broader statement that all severance funds must be handed over by October 2027. Harian Jogja reported that the treatment of pre-existing reserves has not been settled and that the transfer mechanism awaits a government regulation (PP).

Harian Jogja's headline and opening paragraph name Daya Anagata Nusantara (Danantara) as the fund manager. Indah's quoted remarks in the same article do not name any institution, and no official confirmation of Danantara's role appears in the material reviewed for this article.

Penalties under the law

Liputan6 reported that Indah warned of criminal sanctions. In the remarks reported, the warning concerned companies that fail to pay severance, not specifically those that miss reserve contributions. CNBC Indonesia's summary of the law says violations can bring sanctions up to revocation of a business licence. The law also contains a chapter of criminal provisions.

What the law sets for severance

According to CNBC Indonesia's summary of the official text:

• Severance pay ranges from one to nine months' wages, depending on length of service.
• Long-service pay ranges from two to 10 months' wages and starts after three years of service.
• Compensation for entitlements covers unused leave, the cost of travel home and other items set by the company.
• Employers must provide a severance reserve fund managed by a government institution. Micro and small businesses are exempt.

The law repeals Law No. 13 of 2003 on Manpower and parts of the labour provisions of Law No. 6 of 2023, the Job Creation law. It has 313 articles in 23 chapters, CNBC Indonesia reported.

Deadlines and what to watch

Article 312 requires implementing regulations to be issued within one year of the law's enactment on 28 October 2026, according to CNBC Indonesia. That puts the regulatory deadline in the same window as the October 2027 transfer deadline. The government regulation on the reserve fund is expected to name the managing body, set contribution levels and decide how existing reserves are treated.

The law also changes other workplace rules. Under Article 118(6), collective leave days set by the central government no longer reduce workers' annual leave, detikTravel reported. Article 137(2) requires governors to set provincial and provincial sectoral minimum wages, and the central government involves regional governments and wage councils in wage policy, according to CNN Indonesia.