Understanding employment law in Indonesia.

Posted in
Understanding employment law in Indonesia

There are certain requirements and regulations employers in Indonesia must know before and after hiring staff. Therefore, we have put together a guide on understanding the labour law in Indonesia, which will include information on hiring foreign employees, types of contracts, entitled leaves, work hours and employment termination.

Let’s dive right in.

Hiring foreign employees

Employers who wish to hire foreign employees must prepare a Foreign Worker Utilisation Plan (Rencana Penggunaan Tenaga Kerja Asing ((RPTKA)).

There are four categories of the RPTKA, which are:

  • Temporary work – valid for six months and cannot be extended
  • Employment for more than six months – valid for two years with the possibility of extension
  • Employment that does not require payment to the Foreign Worker Utilisation Compensation Fund – valid for two years with the possibility of extension
  • Employment in special economic zones (SEZ) – valid for five years with the possibility of extension or SEZ RPTKA for directors and commissioners can be granted for a period as required by the employer

To apply for a foreigner’s employment, the employer must submit the RPTKA application to the Ministry of Manpower (MoM), which the MoM will conduct a feasibility study.

The following information and documents must be submitted to the foreign worker online application website:

  • Employer’s identity
  • Reason for hiring a foreign worker
  • The position of the foreign employee
  • Number of foreigners to be hired
  • Contract length of the foreign employee
  • Working location
  • Company business identification number
  • Company deed of establishment
  • Draft employment agreement
  • Statement letter confirming:
    • The designation of the Indonesia employees assigned as a co-worker to the foreign employee
    • Indonesian employees will receive training or education from the foreign employee
    • Ensure the foreign worker returns to their home country when the employment contract expires

RPTKA application exceptions apply to:

  • Directors or commissioners who are shareholders
  • Diplomatic or consular officers
  • Foreign employees in Indonesian tech-based startups

Types of employment contracts

Fixed-term employment contract

Under the fixed-term contract, employees are hired for a specific period of time. The maximum period is five years and does not include a probation period.

The fixed-term contract should be in both Indonesian and English, as stated by the new legislation related to the use of the Indonesian language in contracts.

Indefinite-term employment contract

An indefinite-term employment contract provides a probation period for up to three months and, after the probation period, the employer must issue a letter to permanently appoint the employer.

What leave are employees entitled to?

Annual leave

Employees are entitled to 12 days paid leave after working for 12 continuous months. Annual leave can be carried over for six months from when it was accumulated.

Paid leave

Employers must provide paid leave for the following reasons:

Reason Days of paid leave
Employee’s marriageThree days
Employee’s child marriageTwo days
Child’s baptismTwo days
Employee’s wife gives birth or has a miscarriageTwo days
Death of the employee’s spouse, child, parents or parents-in-lawTwo days

Sick leave

There is no specific number of days for sick leave in Indonesia; however, the employee’s salary will be decreased based on how long the employee will be away.

Percentage of salary to be paidSick leave period
100%First four months
75%Second four months
50%Third four months
25%Following four months

Maternity leave

Female employees are entitled to receive fully paid maternity leave for a period of three months, which include 1.5 months before giving birth and 1.5 after childbirth.

In the case of miscarriage, female employees are entitled to 1.5 months of paid leave or as specified by a doctor.

Working hours in Indonesia

Regular working hours

The regular working hours in Indonesia are 40 hours per week, either seven hours a day for six working days per week or eight hours a day for five working days in a week.

Overtime working hours

Employers must provide overtime pay if work hours exceed seven hours in six working days or eight hours in five working days and if employers require employees to work on weekends or public holidays.

Overtime working hours should not exceed four hours per day and 18 hours per week.

Overtime wage can be calculated by the following two methods:

Overtime work hoursOvertime pay calculation
Overtime on weekdays1.5 times the hourly wage* for the first hour and two times hourly way for the following hours
Overtime on weekly holidays or public holidays:1. Companies with five working days:
Two times the hourly wage for the first eight hours, three times hourly wage for the ninth hour, and four times hourly wage for the following hours

2. Companies with six working days:
Two times the hourly wage for the first seven hours, three times hourly wage for the eighth hour, and four times hourly wage for the following hours

* The hourly wage is calculated using the following formula: 1/173 * monthly wage

Probation period in Indonesia

Newly hired employees are placed on a probation period of no longer than three months, and employees must not be paid less than the minimum wage.

Termination of employment

Reasons of employment termination

According to Government Regulation No. 35 of 2021, employers can terminate employees for the following reasons:

ReasonsSeverance paymentMoney paid as reward for service rendered (UPMK)Compensation pay for rights (UPH)Detachment money
1. Merger, fusion or separation of companies and workers/labourers are not willing to continue working relations or employers are not willing to accept workers/labourers. (Article 41 of PP 35/2021)1x1xV*
2. Takeover of companies and PHK’s initiative are carried out by employers. (Article 42 Paragraph 1 of PP 35/2021)1x1xV
3. Takeover of a company results in a change of working conditions, and the worker/labourer is unwilling to continue working relationships. (Article 42 Paragraph 2 of PP 35/2021)0.5x1xV
4. Efficiency caused by the company that is experiencing losses. (Article 43 Paragraph 1 of PP 35/2021)0.5x1xV
5. Efficiency to prevent company losses. (Article 43 Paragraph 2 of PP 35/2021)1x1xV
6. The company is closed because the company has suffered a continuous loss for two years of has experienced a loss not for continuously in two years. (Article 44 Paragraph 1 of PP 35/2021)0.5x1xV
7. The company closed not because it suffered a loss. (Article 44 Paragraph 2 of PP 35/2021)1x1xV
8. The company closes due to force majeure. (Article 45 Paragraph 1 of PP 35/2021)0.5x1xV
9. Force majeure but did not cause the company to close. (Article 45 Paragraph 2 of PP 35/2021)0.75x1xV
10. The company is in the suspension of debt payment (PKPU). (Article 46 Paragraph 1 of PP 35/2021)0.5x1xV
11. The company is not in the suspension of debt payment (PKPU). (Article 46 Paragraph 2 of PP 35/2021)1x1xV
12. The company is declared bankrupt. (Article 47 of PP 35/2021)0.5x1xV
13. There is an application to terminate the employment that is submitted by the workers/labourers with reasons that the employers commit the following actions in Article number 154A paragraph (1) letter g in UUK. (Article 48 of PP 35/2021)1x1xV
14. There is a decision of the industrial relation dispute settlement (PPHI) agency that declares that businesses do not commit actions as referred to in Article number 154A paragraph (1) letter g in UUK. (Article 49 of PP 35/2021)VV
15. Workers/labourers resign based on their own initiative and shall fulfil the following conditions in Article number 154A paragraph (1) letter l in UUK. (Article 50 of PP 35/2021)VV
16. Workers/labourers are absent for five business days or more without written information that is equipped with valid evidence and have been summoned by the business two times in an appropriate manner and in writing. (Article 51 of PP 35/2021)VV
17. Workers/labourers violate provisions that are regulated in the employment agreement, company regulation or collective employment agreement and previously have been given the first, second and third warning. (Article 52 Paragraph 1 of PP 35/2021)0.5x1xV
18. Workers/labourers commit to urgent violations that are regulated in the PK/PP/PKB. (Article 52 Paragraph 2 of PP 35/2021)VV
19. Workers/labourers are unable to work for six months because they are detained by the authorities due to allegedly committing criminal acts related to company losses. (Article 54 Paragraph 1 of PP 35/2021)VV
20. Workers/labourers are unable to do work for more than six months because they are detained by the authorities due to allegedly committing criminal acts that is not related to company losses. (Article 54 Paragraph 2 of PP 35/2021)1xV
21. Workers/labourers are unable to do work for more than six months because they are detained by the authorities due to allegedly committing criminal acts that are related to company losses, and workers/labourers are found guilty. (Article 54 Paragraph 1 of PP 35/2021)VV
22. Workers/labourers are unable to do work for more than six months because they are detained by the authorities due to allegedly committing criminal acts that are not related to company losses, and workers/labourers are found guilty. (Article 54 Paragraph 2 of PP 35/2021)1xV
23. Workers/labourers experience prolonged illness or disability due to occupational accidents and are unable to do their work after exceeding 12 months. (Article 55 of PP 35/2021)2x1xV
24. Workers/labourers reach pension age. (Article 56 of PP 35/2021)1.75x1xV
25. Workers/labours pass away. (Article 57 of PP 35/2021)2x1xV

*V = component is payable

Invalid reasons for employment termination

Pursuant to article 153, employers are prohibited from terminating employees because of the following reasons:

  • The worker is absent from work because of sickness, according to a doctor, as long as the period does not exceed 12 months
  • The employee is absent because he or she is fulling their obligations to the State in accordance with the laws and obligations
  • The employee is performing worship ordered by their religion
  • The employee is absent from work because they are getting married
  • Female workers are giving birth or have a miscarriage
  • The employee reports a crime committed by the employer to the authorities
  • Different understanding or belief, religion, political orientation, ethnicity, colour, race, sex, physical condition or marital status

How much notice must be given in advance?

The employee must submit a written notice of resignation at least 30 days before their last day.

The employer must notify the employee of termination in writing at least 14 working days or seven working days if the termination is made during the probation period.

Termination compensation

There are four types of termination compensation:

1. Severance pay

Severance pay is calculated by the following:

Years of serviceAmount with severance pay
Less than one yearOne month’s wage
One year or more but less than two yearsTwo month’s wage
Two years or more but less than three yearsThree month’s wage
Three years or more but less than four yearsFour month’s wage
Four years or more but less than five yearsFive month’s wage
Five years or more but less than six yearsSix month’s wage
Six years or more but less than seven yearsSeven month’s wage
Seven years or more but less than eight yearsEight month’s wage
Eight years or moreNine month’s wage

2. Long service pay

According to article 156(3), long service pay should be paid as follows:

Years of serviceAmount with long service pay
Three years or more but less than six yearsTwo month’s wage
Six years or more but less than nine yearsThree month’s wage
Nine years or more but less than 12 yearsFour month’s wage
12 years or more but less than 15 yearsFive month’s wage
15 years or more but less than 18 yearsSix month’s wage
18 years or more but less than 21 yearsSeven month’s wage
21 years or more but less than 24 yearsEight month’s wage
24 years or moreTen month’s wage

3. Compensation rights pay

Compensation rights pay include:

  • Compensation for annual leaves which have not yet been used or expired
  • Compensation for travel expenses

4. Separation pay

Article 162(2) states that the amount of separation pay will be organised by the employer and employee in the employment agreement, company regulation or labour agreement.

Conclusion

Employers are expected to follow the regulations of the Indonesian labour law. Feel free to contact Acclime for more information on human resources in Indonesia.

 

Share this article

Need business support in Indonesia?

Get a free 30-minute consultation on operating and growing your business in Indonesia.


© Acclime | Privacy policy