Indonesia’s new Manpower Protection Law aims to help workers receive severance pay after layoffs, even when their employers go bankrupt.
The law introduces a severance reserve fund and new rules on employment contracts, outsourcing and workplace protection.
The House of Representatives passed the law on 6 October. It follows a Constitutional Court order to separate labour rules from the Job Creation Law, as reported by Jakarta post.
The legislation covers several stages of employment. These include recruitment, training, wages, workplace safety and dismissal.
The reform comes as job losses rise. According to Manpower Ministry data, Indonesia recorded 105,658 layoffs in 2025. This was a 35.5% increase from the previous year.
When companies collapse, workers can wait years for their severance pay. Company assets often go first to secured creditors.
The proposed reserve fund aims to reduce this uncertainty and help workers receive the money they are owed.
Contract reforms
The law also introduces new rules for employment contracts and outsourcing.
Fixed-term contracts will be capped at four years. This includes an initial two-year period and extensions of up to one year each.
Outsourcing will be limited to support services. Internships will be capped at six months.
Employers must also provide interns with an allowance and social security coverage.
Minimum wages will be based on a living-cost survey. Statistics Indonesia (BPS) will conduct the survey with the national wage council.
These measures aim to reduce long-term reliance on temporary contracts. They also seek to improve working conditions and strengthen oversight.
Informal workers
However, the law may not reach all workers. Indonesia has a large informal workforce, many of whom lack formal employment protections.
Of the country's 148.2 million employed people, 40.7% work in formal jobs. The remaining 59.3%, or around 88 million people, work informally.
This group includes self-employed people, small business owners, casual labourers and unpaid family workers.
Many lack access to minimum wage protections, formal contracts and severance pay.
Youth unemployment is another challenge. Statistics Indonesia reported that 7.2 million people, or 4.65% of the labour force, were unemployed in May 2026.
Unemployment among people aged 15 to 24 stood at 17.4%. Vocational high school graduates had the highest unemployment rate among education groups.
For young people seeking their first job, finding employment is the immediate priority. Skills training and job-matching services could help them enter the workforce.
Implementation priorities
The law sets out a framework for stronger worker protection. Its impact will depend on how the government implements it.
The rules governing the severance reserve fund will be particularly important.
One option is a pooled fund supported by transparent contributions and independent management.
This could help workers receive severance pay more reliably after losing their jobs.
The existing Job Loss Insurance programme could also be strengthened. Better retraining and job-matching services could help unemployed workers find new roles.
The government has indicated a one-year transition period before the law takes effect. This gives authorities time to develop the necessary systems and clarify employers' responsibilities.
Extending social security to workers in tourism, food services, logistics and digital platform businesses will also be important. Informal employment is common in these sectors.
The new law aims to give formal workers greater financial security after layoffs.
However, its wider impact will depend on how well the government addresses gaps in worker protection and supports people outside formal employment.