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 and recently revoked by Government Regulation in Lieu of Law No. 2 of 2022 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 regulates all employment in Indonesia. Employers 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 - subject to the period of employment)
- Receive statutory absence or payment when the employee does not take annual leave; and
- Receive payment for overtime.
Fixed term contracts
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.
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 (5 years maximum in total). Failing to adhere to these rules will result in the employee being deemed to be on a permanent employment contract.
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Indonesia’s New Fixed-Term Contract System |
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FTC based on completion of work |
FTC base on period |
FTC related to non-permanent work |
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Type of work |
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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
The employer is obligated 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:
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Contract period |
Compensation amount |
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More than one month but less than 12 months |
(work period in months/12) x one month’s salary |
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More than 12 months |
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12 consecutive months |
One month’s salary |
When an FTC expires and is then extended, the compensation for the initial contract must be paid when the FTC expires.
Minimum wages
Calculations for the monthly minimum wage are carried out by the provincial or district wage council. The local government will determine the minimum wage based on economic and employment conditions. These comprise of the following variables:
- Purchasing power parity;
- Manpower absorption levels; and
- Median wage variables (the margin between 50 percent of the highest wages and 50 percent from the lowest 50 percent of the lowest wages from employees in the same position).
Working hours
Normal working hours in Indonesia are 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.
Working hours of less than 40 hours per week are recognized if the company has the following characteristics:
- Undertake work that can be completed in less than 35 hours per week;
- Can 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.
The collective labor agreements, company regulations, or employment agreements should 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 for employees who 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. The outsourcing company must be a legal entity and comply with the business license they were issued from the central government.
Hiring foreign workers
For a local company to employ a foreign worker, they must prepare a Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing (RPTKA)) — a document that details the specific work, position, and length of employment the foreign employee will undertake in Indonesia.
The RPTKA now also serves as the basis for the MOM to grant visas and stay permits.
It is the responsibility of the local company to apply for the RPTKA, which can be done through the online portal, under the Ministry of Manpower. The application is addressed to the Director of Foreign Manpower Utilization Management (Direktur Pengendalian Penggunaan Tenaga Kerja Asing).
Termination of employment
The employer must first notify the employee in writing, setting out the reasons for termination, and the termination payments and entitlements at least 14 business days before the date of termination.
If the employee has no objection to the termination, then the employer can notify the Ministry of Manpower of this notice. If, however, the employee objects to the termination, they must provide, in writing, the reasons for this within seven business days of receiving the termination notice.
