Employee Termination? Discover Your Company’s Important Obligations Here!

In the context of Human Resources (HR) management, employee termination is a serious matter as it involves the continuity of the employment relationship between employees and the company. Proper procedures for employee termination must be followed.

Termination should not be done haphazardly. HR professionals need to understand this thoroughly, including the obligations that a company must fulfill towards both permanent and contract employees being terminated. Read on for a comprehensive guide.

Company Obligations for Terminated Employees

Generally, termination refers to the end of the employment relationship initiated by the company due to certain reasons, resulting in the conclusion of rights and obligations between the employee and the company.

When a company decides to terminate an employee, it must be based on specific reasons and follow established termination procedures. Termination cannot be done unilaterally or arbitrarily.

Common reasons for employee termination include:

• Company bankruptcy.
• Continuous financial losses over two years.
• Closure due to force majeure.
• Employee death.
• Employee absence for 5 consecutive workdays or more without valid written explanation and evidence, among others.

For permanent employees (PKWTT) being terminated, they are generally entitled to severance pay, compensation for years of service (UPMK), and other compensation. The rights of terminated permanent employees include:

• Unpaid Wages and Allowances: This includes monthly salary, holiday pay, and any special allowances that may have been unpaid up to the termination date.
• Pension and Other Compensations: If there are pension programs or other compensations like promised annual bonuses.

These rights must be honored according to applicable regulations. Failure to meet these obligations can result in severe penalties for the company, as it is seen as neglecting employee rights.

Company Obligations for Terminating Contract Employees

Regulations regarding the rights of contract employees whose contracts are not renewed are outlined in the Job Creation Law, which companies need to be aware of. Companies must provide contract employees with their entitled rights during termination or at the end of their contract, such as compensation.

The rights of terminated contract employees include:

• Settlement of Wages as Per Contract: This includes salary, bonuses (if any), and other allowances guaranteed in their contract.
• Additional Contract Components: Some contracts may include additional components like year-end bonuses or special incentives that must be paid according to the conditions specified.

It is important to note that additional components in the employment contract between contract employees (PKWT) and the company can vary. Thus, the company’s obligations regarding these additional components should align with the previously agreed contract.

Typically, the compensation amount for contract employees being terminated is as follows:

• For less than 1 year of service: 1 month’s salary.
• For 1 year but less than 2 years: 2 months’ salary.
• For 2 years but less than 3 years: 3 months’ salary.
• For 3 years but less than 4 years: 4 months’ salary.

If a company fails to meet these obligations and does not provide the rights due to terminated contract employees, the company may face government penalties, including written warnings, temporary business suspension, or even business license revocation.

Comparing Company Budgets

When it comes to expenses, companies often allocate a larger budget for terminating permanent employees than for contract employees. This is because permanent employees typically have more long-term benefits and allowances to consider in the final calculations.

In contrast, while contract employees might receive significant compensation in the form of salary or bonuses, they often do not have claims to the same long-term benefits as permanent employees. Nonetheless, companies must still meet their obligations to both permanent and contract employees being terminated.

Considerations

When budgeting for employee termination, companies need to consider legal aspects related to termination and the financial implications (both short-term and long-term) for each type of employee.

Understanding the differences in payment obligations between permanent and contract employees during termination is crucial. This will help companies plan their human resource expenditures more effectively and minimize legal and financial risks.

In summary, companies must be prepared to handle all aspects of employee termination, from fulfilling employee rights to budgeting appropriately.

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