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In brief

On 2 February, the Indonesian government enacted a number of implementing regulations of Law No. 11 of 2020 on Job Creation (“Omnibus Law“), though many were only made available to the public on 21 February.

One of the enacted implementing regulations is Government Regulation No. 35 of 2021 on Definite Period Employment Agreements, Outsourcing, Working and Resting Hours and Termination of Employment (“Regulation 35“).

Definite period employment agreement

Regulation 35 categorizes Definite Period Employment Agreements (Perjanjian Kerja Waktu Tertentu or PKWT) into the following types:

  1. PKWT based on period of time
  2. PKWT based on completion of certain work

PKWT for certain other work that is not permanent in nature (this is referring to daily worker arrangements)


Type of work and contract period

The table below summarizes requirements on the type of work and contract period for each type of PKWT:

  PKWT based on period of time PKWT based on completion of work PKWT for other work that is not permanent in nature (daily worker)
Type of Work
  • Work that is estimated to be completed in in a short time
  • Seasonal work, depending on (i) season or weather or (ii) certain conditions to fulfil certain orders or targets
  • Work related to new products, new activities, or additional products that are still in trial or experiment

 

  • One-time completed work
  • Temporary work
  • Work that keeps changing based on its period and volume
  • Work where the payment is based on attendance at work
Contract Period Maximum 5 years (including extensions)
  • No specific maximum period. However, the employment agreement must include provisions on:
    • the scope and limit for declaring work completion
    • the expected period for work completion
  • Extension is possible until work is completed
Maximum 20 days in a month.

If the employee works for 21 days or more for 3 consecutive months, the employee is deemed as an indefinite period employee.

 

Registration

Regulation 35 requires employers to carry out online registration of a PKWT within three working days from the date of signing of the PKWT. If the online registration is not yet available, manual registration can be made at the Local Employment Office at the latest seven working days from the date of signing of the PKWT.

Compensation pay

The Omnibus Law requires employers to pay compensation to a definite period employee when the PKWT ends (“Compensation Pay“). The amount of Compensation Pay will depend on the employment period of the relevant definite period employee. As the implementation of this requirement, Regulation 35 stipulates the applicable formula for calculating the Compensation Pay as follows:

Completed contract period Amount of compensation pay
12 months consecutively 1 month salary
1 month or more but less than 12 months (work period in months ÷ 12) x 1 month’s salary
More than 12 months

 

In addition, under Regulation 35, the Compensation Pay must be paid at the expiry of the PKWT. If the PKWT is extended, the Compensation Pay for the initial contract period must be paid when the initial contract period expires. The Compensation Pay covering the period of extension must be paid when the extension expires.

If the work is completed earlier than the end of the intended contract period under the PKWT, the Compensation Pay is calculated based on the actual work period the employee has completed (not the intended contract period). If a party terminates the PKWT early, the employer must also provide the Compensation Pay calculated based on the employee’s period of employment until the early termination of the PKWT.

For ongoing PKWTs, the Compensation Pay will be calculated from 2 November 2020, which is the date the Omnibus Law became effective.

Outsourcing

In line with the Omnibus Law, in relation to outsourcing, Regulation 35 emphasizes that an employment relationship exists between the service provider and its employees. As the employer, the service provider is responsible for fulfilling all its obligations as an employer towards its employees, including if there is a change of service provider when the project (that the employers of the service provider are working on) still exists.

Working hours

Other than the normal working hours of 40 hours per week (which can be divided into seven hours per day for six working days in a week or eight hours per day for five working days in a week), Regulation 35 recognizes normal working hours that are less than 40 hours per week. These normal working hours of less than 40 hours per week can be implemented by companies that have one of the following characteristics:

  • They have work that can be completed in less than seven hours in a day and less than 35 hours in a week.
  • They implement flexible working hours.
  • They have work that can be completed outside a particular location.

In line with the Omnibus Law, Regulation 35 also recognizes businesses and work where the normal working hours can be more than 40 hours per week. Under Regulation 35, these include energy and mineral resources in certain areas, general mining, upstream oil and gas, horticulture agribusiness and fishery in certain areas. The implementation of these working hours will be further regulated in a ministerial regulation.

Overtime

The Omnibus Law extends the maximum overtime hours to four hours a day and 18 hours a week. Regulation 35 clarifies that this maximum overtime hours do not apply during weekly rest days and public holidays.

Regulation 35 also includes provisions on employees who can be exempt from overtime pay eligibility, i.e., employees in certain position classifications (golongan jabatan) that have responsibilities as the thinkers, planners, executors and/or controllers of the company’s operations whose working hours cannot be limited and who are paid higher salaries. While this is similar to the previous requirement on employees who are exempt from overtime pay eligibility, it is important to note that Regulation 35 requires employment agreements, company regulations or collective labor agreement to include provisions on position classifications in the employer that are excluded from overtime pay eligibility. If not specifically stipulated in the employment agreements, company regulations or collective labor agreement, the exemption will not be applicable and all employees will then be eligible to overtime pay.

Termination of employment

Regulation 35 confirms a significant change to the termination procedure in Indonesia. Previously, the general rule was that termination of employment required prior court approval (except in certain circumstances and if the termination is mutually agreed). The Omnibus Law then introduced a requirement where an employer has to notify the employee (and the union, if there is one) in writing if the employer wants to terminate the employee.

Regulation 35 further requires the notice of termination to be issued at the latest 14 days before the effective date of termination. If the employee is still on probation, the written notice must be issued at the latest seven days before the effective date of termination. A written notice of termination must include at least:

  • the reason for termination
  • the termination payment and other entitlement for the impacted employees

The notice of termination is not required if the termination is due to the employee committing a violation that is considered urgent under the employment agreement, company regulations or collective labor agreement.

After receiving the notice of termination from the employer, the employee has the right to object to the termination by submitting an objection letter to the employer at the latest seven days after receiving the notice. If there is a difference of opinion about the termination, the employer and the employee (or the union, if any) will need to settle this through bipartite negotiations. If no agreement is reached, the matter can be brought for settlement through the applicable industrial relations dispute settlement mechanism. This means that the matter will need to be brought to the Local Employment Office for mediation/conciliation, and eventually, if a settlement is still not reached, to the Industrial Relations Court.

If the employee has no objection to the termination, the employer must report the termination to the Local Employment Office.

Termination Payment Formula (For Indefinite Period Employees)

Regulation 35 includes provisions setting out the reasons for termination and the termination payment formula applicable for that reason for termination. Generally, the termination payment formula is less than the formula previously set out in Law No. 13 of 2003 on Labor (note that provisions in Law No. 13 of 2003 on Labor that set out the termination payment formula have all been removed by the Omnibus Law).

The table below summarizes the reasons for termination and the corresponding termination payment formula under Regulation 35.

Termination payment formula
(for indefinite period (permanent) employee)
Formula Reason for termination
2xFormula

  • 2x Severance Pay
  • 1x Long Service Pay
  • 1x Compensation of Rights
  • Long-term illness or disability due to work accident (after being unable to work for 12 months)
  • Employee’s death
1.75xFormula

  • 1.75x Severance Pay
  • 1x Long Service Pay
  • 1x Compensation of Rights
       Retirement
1xFormula

  • 1x Severance Pay
  • 1x Long Service Pay
  • 1x Compensation of Rights
  • Merger, consolidation, separation of company
  • Acquisition (termination initiated by employer)
  • Efficiency to prevent losses
  • Closure of the company not due to the company’s losses
  • The company being in suspension of payment (penundaan kewajiban pembayaran utang or PKPU) not due to its losses
  • Employee’s self-termination due to proven violations committed by the employer
0.75xFormula

  • 0.75x Severance Pay
  • 1x Long Service Pay
  • 1x Compensation of Rights
Force majeure that does not result in the company closing down
0.5xFormula

  • 0.5x Severance Pay
  • 1x Long Service Pay
  • 1x Compensation of Rights
  • Acquisition resulting in changes to terms of employment  where the employee does not want to continue the employment relationship
  • Efficiency due to the company’s losses
  • Closure of the company due to losses for two years continuously or not continuously
  • Closure of the company due to force majeure
  • The company being in suspension of payment (penundaan kewajiban pembayaran utang or PKPU) due to losses suffered by the company
  • The company’s bankruptcy
  • Employee’s violation of the employment agreement, company regulations or collective labor agreement (after being served warning letters)
Compensation of Rights+ Separation Pay*

 

*The amount of separation pay must be stipulated in the employment agreement, company regulations or collective labor agreement.

  • A court decision finding the employee’s allegation against the employer (which is used by the employee to initiate self-termination) not proven
  • Employee’s voluntary resignation
  • Employee’s absence without leave for five continuous working days or more, having been summoned twice by the employer
  • Urgent reason
  • Employee cannot work for six months due to detention by the authorities for a suspected crime that resulted in losses for the company
  • Employee being found guilty of a crime that resulted in losses for the company before the end of the six-month period
Long Service Pay + Compensation of Rights
  • Employee cannot work for six months due to detention by the authorities for a suspected crime that did not cause losses for the company
  • Employee found guilty of a crime that did not cause losses for the company before the end of the six-month period

 

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Author

Andi Yusuf Kadir is a partner in the Dispute Resolution Practice Group. He has extensively represented multinational corporations and local companies in domestic and international arbitration, complex litigation proceedings, court-sanctioned debt restructuring processes (PKPU), and bankruptcy/insolvency litigation. He has represented both lenders and companies in PKPU and bankruptcy/insolvency matters. He is also well experienced in employment litigation, corporate crimes, compliance and regulatory issues in the context of investigation, and administrative law disputes with government departments and agencies (including judicial review to annul the Government's regulations). He is named as Indonesian Dispute Resolution Lawyer of the Year by Asian Legal Business Indonesian Law Awards (2017 and 2018).

Author

Alvira Wahjosoedibjo is an Associate Partner in Baker McKenzie Jakarta office.

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Rinaldo Aditya is a Senior Associate in Baker McKenzie Jakarta office.

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Yesi Samosir is an Associate in Baker McKenzie Jakarta office.