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:
- PKWT based on period of time
- 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
|Maximum 5 years (including extensions)
|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.
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.
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.
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.
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.
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)
|Reason for termination
|Force majeure that does not result in the company closing down
|Compensation of Rights+ Separation Pay*
*The amount of separation pay must be stipulated in the employment agreement, company regulations or collective labor agreement.
|Long Service Pay + Compensation of Rights