Indonesia to overhaul generous payouts for fired workers

Newly re-elected Indonesian president Joko Widodo has promised a major overhaul of labour laws to help revive factory output and boost jobs. One of the key targets will be to downgrade its severance pay rules, which are among the most generous in the world.

Currently, employers are forced to cough up compensation equal to six months for a worker who has been with the company for five years. A worker employed for 10 years can be eligible for about 95 weeks of severance pay. This is more than twice as much as workers in neighbouring countries.

Employers say such generous payouts are stopping them from taking on more staff and expanding their businesses.

The timing has been applauded, with foreign companies increasingly looking to Southeast Asia to diversify their supply chains away from China, which is caught in a trade war with the US.

President Jokowi hopes the labour law changes will be completed by the end of the year.

Businesses also want more certainty around the minimum wage and a less complex system. At the moment, regional governments and even city administrations get to set minimum pay rates, which can also vary from sector to sector, resulting in a highly-fragmented labour market.