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The main sources of employment and labor laws in Indonesia are:

  • Labor Law of 2003 on Manpower as recently amended by Law No. 11 of 2020 on Job Creation;
  • Law No. 21 of 2000 on Labor Union; and
  • Law No. 2 of 2004 on Industrial Relations Dispute Settlement.

The Labor Law (Law No 13 of 2003) regulates all employment in Indonesia. Employer’s must fulfil the following rights for employees: 

  • Receive the minimum wage, this varies depending on sector and province;
  • Receive social security, which includes pension, healthcare, life insurance, accident insurance, and old-age benefits;
  • Receive religious holiday allowance (1 month’s salary)
  • Receive statutory absence or payment when the employee does not take annual leave; and
  • Receive payment for overtime. 

Fixed Term Contracts

One of the amendments made through the Job Creation Law, also known as the Omnibus Law, is changes to fixed-term employment contracts. Under implementing regulation 35 of 2021 (GR35/2021), the government recognizes three types of fixed-term contracts (FTC):

  • FTC based on the completion of work;
  • FTC based on the period of time; and
  • FTC related to non-permanent work.

GR 35/2021 states that all FTC types are for work that is temporary and can be completed within a set time period, therefore any contract extensions cannot be for prolonged periods (for example, 10 years). Failing to adhere to these rules will result in the employee deemed to be on a permanent employment contract.

Indonesia’s New Fixed-Term Contract System

 

FTC based on completion of work

FTC base on period

FTC related to non-permanent work

Type of work

  • Temporary work; or
  • One-time work
  • Work that can be completed in short time;
  • Seasonal work; or
  • Work related to new products that are in in trial or experimentation.
  • Work that is based on attendance; or
  • Work that changes based on volume or time.

Contract period

There is no specific maximum period, however, the employment agreement must include provisions on the expected period for work completion.

Maximum five years (including extension).

Maximum 20 days per month.

If the employee works for 21 days per month or more for three consecutive months, then they will be considered permanent workers.

 

Compensation for FTC workers

Prior to the Omnibus Law, any party terminating the FTC was required to pay the other party compensation equivalent to the employee’s salary for the remaining time of the FTC. If an FTC expired naturally, then neither party would have to pay compensation.

This has changed with GR 35/2021, which now obligates the employer to pay compensation to the employee, even if the employee terminates the FTC prematurely.

The employers must pay compensation upon:

  • The expiry of an FTC;
  • Each extension of the FTC; and
  • Early termination of the contract, irrespective of who terminates the contract.

How is it calculated?

Compensation is calculated using the following formula:

Contract period  Compensation amount
More than one month but less than 12 months  (work period in months/12) * one month's salary
More than 12 months 
12 consecutive months  One months salary

When an FTC expires and is then extended, the compensation for the initial contract must be paid when the FTC expires.

[tips title="Important Tip"]For any ongoing FTCs, the compensation payment will be calculated from November 2, 2020, the date from which the Omnibus Law came into effect. Further, foreign workers are not entitled to the aforementioned compensation.[/tips]

Working hours

Normal working hours in Indonesia is 40 hours per week, which can be divided into eight hours per day for five working days or seven hours per day for six working days.

GR 35/2021 recognizes working hours of less than 40 hours per week if the company has the following characteristics:

  • Undertake work that can be completed in less than 35 hours per week;
  • Are able to implement flexible working hours; and
  • Undertake work that can be completed outside a particular location.

Overtime

The regulation extends the overtime working hours to four hours per day and 18 hours per week, which does not apply to public holidays.

GR 35/2021 requires that collective labor agreements, company regulations, or employment agreements specifically state which roles are entitled to overtime pay. If this is not expressed, then the employee will automatically be entitled to receive this payment.

The regulation does include provisions on employees that are exempt from overtime pay eligibility. These are:

  • Employees that hold certain positions with responsibilities as thinkers, controllers, planners, executors, etc.;
  • Workers whose working hours cannot be capped, such as those in managerial roles; and
  • Workers that are paid high salaries.

Outsourcing

The new regulation makes it clear for employers to include the provisions of transfer of rights protection in the contract in the event of a change in an outsourcing company.

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