The \'Hot Potato\' of the Severance Issue

KOMPAS/ALIF ICHWAN

Coordinating Economic Minister Airlangga Hartarto (center), accompanied by House of Representatives Speaker Puan Maharani (second right), meets the press after a closed-door meeting in February (12/2/2020) at the Senayan legislative complex in Jakarta. Accompanied by Agrarian and Spatial Planning Minister Sofyan Djalil, Law and Human Rights Minister Yasonna Laoly, Environment and Forestry Minister Siti Nurbaya, Manpower Minister Ida Fauziyah, Finance Minister Sri Mulyani Indrawati and House deputy speakers Azis Syamsuddin and Rachmat Gobel, the pair presented the President\'s Letter on the omnibus bill on job creation on Feb. 12.

Both workers and employers have responded strongly to the new severance scheme in the job creation omnibus bill. A middle ground must be found so that both parties can agree on matters regarding layoffs and severance pay.

There have been strong reactions to the new severance scheme in the job creation omnibus bill. On the one hand, the government wants to develop investment-friendly regulations to create more jobs. On the other, the bill loosens labor rules and compensation for workers and may negatively affect workers’ welfare.

The government is aiming to boost economic growth and attract foreign investment through the job creation omnibus bill, and targets creating 2.7 million to 3 million new jobs a year. It also believes that boosting investment will increase workers\' incomes and consumer purchasing power.

However, it will not be easy for the government to achieve this goal. Of the 11 clusters of laws in the omnibus bill, the cluster of laws on manpower has attracted the strongest resistance, especially from workers. Apart from wages and outsourcing, other widely debated issues are layoffs and severance pay.

The rules on severance for laid-off workers have been changed in the job creation omnibus bill, and appear under the severance pay calculation scheme of Article 156 in Chapter IV on manpower.

Kompas/Heru Sri Kumoro

President Joko Widodo, accompanied by Vice President Ma\'ruf Amin, presides over a limited Cabinet meeting to continue the discussions on the development of the omnibus bills on job creation and taxation at the Presidential Office in Jakarta in January (15/1/2020).

The article stipulates a different calculation scheme for layoff severance programs than Law No. 13/2003 on Manpower. The bill only mentions two components as the bases for calculating compensation packages, namely severance pay and financial rewards for years of service. Meanwhile, Law No. 13/2003 stipulates a package that consists of severance pay, long service reward and unemployment compensation.

This change in the package\'s components will affect the total amount of severance pay a worker receives on being laid off. The job creation omnibus bill stipulates that laid-off workers are to receive 17 times their salary, while the Manpower Law stipulates 27 times their salary for laid-off workers. Therefore, the amount of severance has decreased by ten points.

However, the job creation omnibus bill still stipulates that laid-off workers will receive additional pay based on their employment agreement and the government’s unemployment insurance program. This change is based on employee considerations in laying off workers and comparisons with severance pay packages in neighboring countries.

According to media reports, among the government\'s reasons for changing the severance calculation scheme was employees\' poor compliance in paying severance to laid-off workers.

According to media reports, among the government\'s reasons for changing the severance calculation scheme was employees\' poor compliance in paying severance to laid-off workers. Based on Manpower Ministry data, there were 536 layoff agreements in 2019.

Of these, only 147 agreements (27 percent) complied with the Manpower Law. The remaining 389 (73 percent) did not.

This corresponds with a World Bank report citing the Indonesian Statistics (BPS) 2018 National Workforce Survey (Sakernas): 66 percent of workers did not get any severance pay, 27 percent received severance below what is stipulated in Law No. 13/2003, and only 7 percent received severance packages that complied with the law. In other words, employees have poor compliance with the legal stipulations on severance pay.

Manpower Minister Ida Fauziyah said on 20 Feb. 2020 that, in the government’s view, the job creation omnibus bill would create certainty in workers\' severance compensation. Furthermore, it provided the additional benefit of unemployment insurance (JKP) for laid-off workers that included cash assistance, vocational training and access to new jobs. The scheme also did not impose additional premiums that would burden either employees or workers.

KOMPAS/TOTOK WIJAYANTO

Labor activists hold banners ahead of a protest on Wednesday (12/2/2020) at the House of Representatives in Senayan, Jakarta. The protesters objected to the omnibus bill on job creation, which they claimed would sacrifice workers’ welfare for the sake of investment. They say that the bill threatens workers’ rights and welfare by excluding detailed provisions on minimum wage and the hourly wage system, eliminating severance pay, reducing work hours and altering the labor system.

Workers vs. employers

The changes in the severance package have drawn strong response from both workers and employers. Workers deem the new stipulations on severance as harmful and benefiting employers at the expense of workers’ welfare.

In general, workers and labor unions believe that the clauses in the job creation omnibus bill support the interests of business owners. They also highlight that contractual workers would not receive severance when they are laid off.

They worry that this will enable business owners to lay off workers unilaterally, considering the "easy hire easy fire" principle of the omnibus bill, which means that workers can be hired and fired easily in the guise of facilitating investment. Amid the global economic slowdown and economic disruptions in many sectors, workers will be left more vulnerable to job loss.

Article 154A of the omnibus bill’s manpower chapter stipulates that layoffs are permissible in cases of workers with prolonged illnesses and disability/injury due to workplace accidents who cannot work for more than 12 months, even though workers are to be compensated for work-related accidents.

Victims of workplace accidents must be given fair and humane protection and treatment, instead of being fired. This clause has, understandably, sparked widespread concern among workers.

The omnibus bill is seen to explicitly support economic liberalization through deregulation that curtails the basic rights of workers.

This is also reflected in the statement from Indonesian Institute of Sciences (LIPI) political researcher Fathimah Fildzah Izzati (Kompas, 27/2/2020) that the job creation omnibus bill, especially in its manpower rules, is harmful towards workers. The omnibus bill is seen to explicitly support economic liberalization through deregulation that curtails the basic rights of workers.

Workers took it to the streets on 20 Jan. to voice their objections to the omnibus bill. The protest involved thousands of workers from Greater Jakarta and various labor unions, including the Worker Unions Confederation (KSPI), the Federation of Labor Unions (FSP), the Indonesian Metalworkers

Federation (FSPMI) and the All-Indonesian Workers Union Confederation (KSPSI). Beyond Jakarta, simultaneous protests took place in several regions across Indonesia.

In stark contrast from the workers\' views, employers see the new regulation on severance pay as a breath of fresh air for businesses. Members of the Indonesian Employers Association (Apindo) and the Indonesian Chamber of Commerce (Kadin) see the prevailing severance rules as a burden, especially for those in labor-intensive sectors. Employers have found it difficult to lay off workers, as the financial burden is too much.

The large costs of severance have also made investors reluctant to invest in Indonesia, thereby hampering job creation. Under the current regulations, Indonesia’s severance package is among the highest in the region, and as a result, companies often prefer to hire contractual workers instead of permanent workers.

Created 16 years ago, the current rules have made many business owners afraid to enter the formal business sector, preferring to remain in the informal sector instead. This is because the regulations for the informal sector are not as strict as those for the formal sector.

KOMPAS/ALIF ICHWAN

Long lines of police officers block the road to the State Palace during a workers’ demonstration on Jl. MH Thamrin and the Monas area near the Horse Statue in Jakarta on International Labor Day, May 1, 2019 (1/5/2019).

Tug-of-war

The tug-of-war in the layoff and severance rules is inseparable from the history of Indonesia\'s manpower regulations. The rules on layoffs have been amended at least five times, including three times before the Reform Era and twice since.

Before the Reform Era, amending manpower regulations was relatively smooth and problem-free. This is because Indonesia had a single union system back then, with the All-Indonesian Workers Union (SPSI) being the only labor organization that was recognized by the government. It was the only labor organization for workers across the nation.

The SPSI was seen as an extension of the government and often supported the government’s policies. The government could thus dominate the labor discourse in setting working requirements and conditions.

Manpower regulations prior to the Reform Era include Labor Ministerial Regulation No. 9/1964 on severance, service rewards and compensation, the Labor Ministerial Regulation No. 11/1964 and Manpower Ministerial Regulation No. 04/Men/1986 on layoffs and severance, service rewards and compensation.

In the Reform Era, in line with the growing strength of labor unions under the multiple union system, manpower regulatory amendments often led to public debate and labor protests. In this era, making any changes to labor conditions and requirements must involve employers and labor unions and is no longer dominated by the government.

With regard to severance pay, the amount and calculation scheme are based on a formal agreement between stakeholders as per the employment agreement.

With regard to severance pay, the amount and calculation scheme are based on a formal agreement between stakeholders as per the employment agreement.

While regulatory amendments were relatively smooth and problem-free during the era of the single union system, they have never been smooth under the multiple union system. Labor protests take place nearly every time the government tries to amend the labor rules.

Goodwill

The tug-of-war in manpower regulations seems to reaffirm that manpower issues must be resolved collectively to prevent them from becoming a counterproductive "hot potato". The government, employers and workers must find a middle ground that benefits all.

However, regardless of the debate on the severance scheme, the most important thing is for employers to be committed to setting aside funds for severance pay.

Setting up a special fund will assure that workers will receive severance pay. The fact remains that many workers do not receive severance pay when they are laid off, or receive severance that is lower than the legal stipulation. A special severance fund will also mitigate the moral hazard of business owners\' noncompliance with the severance requirement.

As many employers are unwilling to pay severance packages, employers often make workers so uneasy that they eventually resign. If this happens, the goodwill between employers and workers is irreparably tainted. (KOMPAS R&D)