Can Companies Extend Employees at Pension Age?

In Indonesia, the retirement of employees at pension age in the private sector is regulated by law. Government Regulation (PP) No. 45 of 2015 on the Implementation of the Pension Program initially set the retirement age at 56. However, pension age increases by one year every three years, up to a maximum of 65 years. Thus, by 2024, the retirement age for private-sector employees is set to be 58. Despite this, many companies still wish to extend the employment of employees at pension age. Is this possible?

Regulations on Extending Employees at Pension Age

Generally, companies follow regulations concerning employees at retirement age. However, there is flexibility for contract employees. Companies can often continue employing employees who have reached retirement age as long as they are on a contract basis. In contrast, permanent employees who reach retirement age according to the regulations must change their status to a contract role to continue working.

Why Companies Choose to Extend Employees at Pension Age

Several factors drive companies to retain employees who have reached retirement age, including:

Experience and Knowledge

Long-serving employees possess in-depth knowledge that is difficult to replace with new hires.

Trust and Loyalty

Senior employees often have high levels of trust with management and clients.

Strategic Roles

Senior positions, such as directors or commissioners, are frequently filled by long-serving employees who may then be given annual contracts.

Maintaining Security and Complicity for Employees at Pension Age

Companies can provide additional compensation to employees working beyond retirement age, such as annual performance bonuses or special compensation. This is to maintain the enthusiasm and motivation of senior employees.

To ensure the security and engagement of employees who have surpassed retirement age, companies can:

Follow Regulations

Ensure all procedures and policies comply with government regulations.

Communicate Clearly

Provide one-year notice if a contract is ending, allowing employees to prepare.

Develop Skills

Offer training to update their skills to remain relevant and productive.

Challenges of Extending Employees at Pension Age

Companies may face several challenges in retaining senior employees, such as:

Decreased Performance

As employees grow older, it is possible that their performance may gradually decline.

Health Risks

Older employees may encounter increased health risks, which can subsequently affect their overall productivity and work performance.

Difficulty Adapting to New Technology

Senior employees from older generations may find it more challenging to familiarize themselves with modern technologies that are essential for today’s work.

Opportunities in Extending Employees at Pension Age

However, retaining senior employees also presents advantages, such as:

Stability and Continuity

Senior employees can provide stability and continuity in company operations.

Mentorship

They can act as mentors to younger employees, sharing valuable knowledge and experience.

Strong Relationships and Networking

Senior employees usually have established close relationships with other employees and a broader network. This can benefit the company in terms of collaboration with external parties to achieve business success.

Comprehensive Understanding of Regulations

The long tenure of senior employees means they are very familiar with the company, especially in relation to regulations. Consequently, they are more likely to comply with existing laws and policies.

Reducing Recruitment Costs

By retaining senior employees, the company can minimize expenses that might be incurred in hiring and training new employees. Companies looking to leverage the experience and expertise of senior employees should consider regulations, compensation, and strategies for maintaining engagement and security. With the right approach, businesses can maximize the potential of senior employees while ensuring efficient and productive operational continuity.

As an outsourcing company, we can help you optimize the contract for employees at pension age. Contact us now and find the best solutions for managing your employees’ tenure. WIth the experiences and expertise of RecruitFirst Indonesia, we will ensure that the transition process runs smoothly and according to your company’s needs.