Contract Ending? Understanding Compensation for PKWT Employees

Introduction

The end of an employment contract is often understood as ending all company obligations once the final salary has been paid. Employees under a fixed-term employment agreement (PKWT) may still be entitled to statutory compensation if the requirements are met.

Employees, human resources managers, and business owners should pay attention to this entitlement. Errors can arise when a company waits until all contract extensions have ended or uses the wrong wage components.

Discussion

1. Who Is Entitled and When Is Payment Due?

Article 15 of Government Regulation No. 35 of 2021 requires employers to pay compensation when a PKWT ends to employees who have worked continuously for at least one month.

If the contract is extended, compensation for the initial period is paid when that period ends, before the extension. Compensation for the extension period is paid when the extension ends or is completed.

Continuing employment through an extension therefore does not justify postponing all compensation until the employee actually leaves the company.

2. How Is It Calculated?

Article 16 provides for one month’s wage for 12 months of continuous service. Eligible service periods shorter or longer than 12 months are calculated proportionately:

Compensation = months of service ÷ 12 × one month’s wage.

The wage basis generally consists of basic salary and fixed allowances. Where the company pays a wage without allowances, that wage is used. Where pay consists of basic salary and non-fixed allowances, the calculation is based on basic salary.

The amount credited to an employee’s account each month is therefore not necessarily the compensation calculation base. The wage structure should be checked against the employment agreement and payslips.

3. Calculation Example

As a hypothetical illustration, an employee completes a six-month PKWT. The employee receives a monthly basic salary of IDR5 million and fixed allowances of IDR1 million. Using a wage basis of IDR6 million, compensation is:

6 ÷ 12 × IDR6,000,000 = IDR3,000,000.

If the contract is then extended for six months with the same wage basis, the initial IDR3 million compensation is paid when the first period ends. Compensation of IDR3 million for the extension period is paid when that additional period ends.

This example assumes a valid PKWT, full service for the periods illustrated, and an employer that is not a micro or small enterprise.

4. Pay Attention to Special Provisions

Article 15(5) excludes foreign workers employed under a PKWT from the compensation payment under this provision. This exclusion should not be expanded into an assumption that all contractual rights of foreign workers also cease to exist.

For employees of micro and small enterprises, Article 16(6) provides that the compensation amount is determined by agreement between the employer and employee. The enterprise’s status must be examined; simply describing a company as a “small business” is insufficient to determine whether the special provision applies.

This article concerns contracts that run to the end of their agreed periods. Early termination requires separate examination because it may involve statutory compensation and distinct damages issues.

5. Practical Steps for Employees and Companies

Employees should retain contracts, extension documents, payslips, and payment records. If compensation has not been paid, they should request a calculation breakdown and a written explanation from the company.

Companies should record the end date of each contract period and prepare calculations before payment falls due. Payment breakdowns should distinguish final salary, PKWT compensation, and other entitlements to prevent double counting or underpayment.

Conclusion

PKWT employees who meet the requirements are entitled to compensation when their contracts end. The assessment should cover length of service, wage components, extensions, and any applicable special provisions.

For companies, compliance begins with accurate contract records and calculations. For employees, understanding the calculation basis helps ensure their entitlements are not overlooked when a contract ends.