In addition to salary and other allowances, employees are entitled to receive post-employment benefits if they meet certain criteria. The government has regulated this through Law Number 13 of 2003 on Manpower, which states that this type of benefit will be given once the employee has stopped working.
What Are Post-Employment Benefits?
As the name suggests, post-employment benefits are types of compensation provided to employees after they stop working, whether due to retirement, termination of employment, or voluntary resignation.
These benefits are a form of the company’s responsibility towards its employees. Post-employment benefits are intended to help employees meet their living needs after their employment with a company ends—whether due to retirement, the end of a contract, accidents preventing them from working, termination of employment, or other reasons.
Why Are Post-Employment Benefits Important?
There are several reasons why post-employment benefits are essential. Some of these reasons include:
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Fulfilling Legal Obligations
In Indonesian labor law, companies are required to provide post-employment benefits. This is explained in Law Number 13 of 2003 on Manpower.
Within the law, several articles cover post-employment benefits. For example, Article 95 on severance pay, Article 96 on replacement wages, and Article 167 on pension benefits. Additional explanations regarding wage components and their calculations can be found in other sections of the law.
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Supporting Employees to Meet Their Living Needs After Retirement or Termination
Beyond fulfilling legal obligations, providing post-employment benefits is a way to help employees sustain their livelihoods after retirement or termination.
With post-employment benefits, employees can use the funds to cover living expenses or even start a business. As a result, job termination does not necessarily lead to difficulty in meeting basic needs, especially food.
- Encouraging Employee Productivity During Their Employment
Post-employment benefits give employees a sense of security that their welfare will be ensured after retirement. They can also feel that, during their working life, they have saved for their old age. As a result, employees tend to be more productive and loyal to the company.
- Enhancing the Company’s Competitiveness
Companies that offer competitive post-employment benefits are more attractive to job seekers. The more attractive the benefits offered, the greater the chance of attracting high-quality candidates, increasing the likelihood of securing talented employees.
Types of Post-Employment Benefits Based on Law No. 13 of 2003 on Manpower
Employee wages are regulated under Law Number 13 of 2003 on Manpower. Various articles in this law discuss post-employment benefits, such as pension benefits, severance pay, long service awards, and compensation for lost rights.
Pension Benefits
Pension benefits are funds received through a pension program. A pension program is defined as an employer (company) funding an employee’s post-service life in recognition of their contribution during their working years.
Pension benefits can either be managed by the employer or through a financial institution dedicated to pension programs. Based on whether employees contribute, pension programs are divided into two types:
- Contributory: In this program, employees contribute by paying a portion of their income to increase their pension fund, typically deducted from their monthly salary.
- Non-contributory: In this program, the company covers the entire pension benefit cost.
The discussion on pension benefits can be found in Article 167 of Law No. 13 of 2003.
Severance Pay
Severance pay is different from pension benefits. Severance is compensation given to employees when their employment is terminated before they reach retirement age. This is regulated in Article 156 of Law No. 13 of 2003, with additional details provided in Article 157.
These articles outline the amount of severance pay to be given and its components.
Long Service Awards
Long service awards are sometimes confused with severance pay. Although they have similar calculations, the purpose of long service awards is different.
Long service awards are given to employees to recognize their dedication and loyalty, while severance pay is provided when an employee is terminated.
This award can be given either during employment or after termination. However, giving long service awards during employment is not regulated by law, so the amount and method of delivery depend solely on company policy (Article 156, Law No. 13 of 2003).
Compensation for Lost Rights
Compensation for lost rights is a type of post-employment benefit given to employees upon termination to compensate for losses they experience.
The regulation for compensation for lost rights can be found in Article 156, Paragraph 4 of Law No. 13 of 2003. The article outlines the components of compensation for lost rights, which include:
- Unused annual leave;
- Transportation costs for the employee and their family from the workplace to their place of origin;
- Housing compensation, and medical and healthcare costs, calculated at 15% of the severance pay and/or long service award for those who qualify;
- Other entitlements as specified in the collective labor agreement or company regulations.
The Role of Actuaries in Determining Post-Employment Benefits
Determining the amount of pension, severance pay, long service awards, and compensation for lost rights requires careful planning. In addition to adhering to the law, companies can enlist the help of actuaries to develop, calculate, and manage post-employment benefits programs.
Actuaries are professionals skilled in actuarial science, which focuses on financial risks and uncertainties. In the context of post-employment benefits, the role of an actuary includes:
- Helping companies determine appropriate employee benefits that align with both employee needs and the company’s budget, such as calculating pension costs.
- Assisting companies in selecting the right funding method for pension programs—whether it’s fully funded by the company (non-contributory) or partially funded by the employee (contributory).
- Estimating and managing risks associated with pension funds and investments.
With the assistance of actuaries, companies can establish appropriate post-employment benefits in line with legal and financial constraints, ensuring employees receive fair compensation without straining the company’s finances.
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