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Comprehensive Guide to Employment Law in Indonesia
If you're looking to hire in Indonesia, it's essential to understand the local employment laws. These laws ensure fair practices throughout hiring, managing, and terminating employees. The main regulation to be aware of is the Manpower Law, which sets the fundamental rights and responsibilities for most workers in the country.

Employment Law in Indonesia

Indonesia's employment laws are mainly governed by Law No. 13 of 2003 on Manpower, often called the Manpower Law. This law outlines the key principles for managing employment relationships and safeguarding workers' rights.

Other essential guidelines are:
  • Legislation No. 11 Tahun 2020 (Omnibus Law on Job Creation) This comprehensive law aims to simplify various regulatory frameworks, including labor law. It introduces changes to manpower law, including employment contracts, outsourcing, working hours, and severance pay
  • Government Regulation No. 35 Tahun 2021 This regulation implements provisions of the Omnibus Law related to employment contracts, working hours, rest periods, and the termination process
  • Government Regulation No. 36 of 2021 on Wages) This regulation provides detailed provisions on wages, including minimum wage, payment structure, and wage components
In Indonesia, labor law ensures that all employees are entitled to essential rights that employers must meet. These include:
  • Receiving a minimum wage, which varies by sector and province
  • Being enrolled in social security programs that cover pensions, healthcare, life, accident insurance, and old-age benefits
  • Receiving a religious holiday allowance (typically one month's salary, depending on the length of employment)
  • Earning paid time off for statutory absences or getting compensated for unused annual leave
  • Receiving overtime pay for any extra hours worked=

Fixed Term Contracts

In Indonesia, there are three types of fixed-term contracts (FTC) that the government recognizes:

  • FTCs based on completing specific work
  • FTCs based on a set period
  • FTCs for non-permanent work

These contracts are designed for temporary roles that can be completed within a certain timeframe. Any extensions to these contracts can’t exceed a total of five years. If these rules aren’t followed, the employee may automatically be considered a permanent staff member.

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.
Type of work
FTC based on completion of work
Temporary work; or One-time work
FTC base on period
Work that can be completed in short time; Seasonal work; or Work related to new products that are in in trial or experimentation.
FTC related to non-permanent work
Work that is based on attendance; or Work that changes based on volume or time.
Contract period
FTC based on completion of work
There is no specific maximum period, however, the employment agreement must include provisions on the expected period for work completion.
FTC base on period
Maximum five years (including extension).
FTC related to non-permanent work
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

Employers are required to pay compensation to employees, even if the employee ends a fixed-term contract (FTC) early.

Compensation must be provided in the following situations:

  • When the FTC ends
  • If the FTC is extended
  • If the contract is terminated early, no matter who ends it

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

When a fixed-term contract (FTC) expires and is then extended, employers must pay compensation for the initial contract at the time of expiry.

Minimum Wages

The monthly minimum wage is calculated by the provincial or district wage council, with the local government setting the final figure. They consider factors like the state of the economy and employment rates. Key factors include:

  • Purchasing power in the region
  • Job availability and absorption rates
  • Median wages, which reflect the middle point between the highest and lowest salaries for similar roles

Working Hours

In Indonesia, the standard working hours are 40 hours per week, which can either be split into eight hours a day for five days or seven hours a day for six days.

However, some companies can offer shorter workweeks if they:

  • Have work that can be completed in less than 35 hours per week
  • Can provide flexible working hours
  • Allow work to be done outside a fixed location

Overtime

The regulation extends overtime to a maximum of four hours per day and 18 hours per week, excluding public holidays.

Overtime pay should be clearly stated in collective labor agreements, company regulations, or employment contracts. If it isn't mentioned, employees are automatically entitled to overtime pay.

However, some employees are exempt from overtime pay, including:
  • Those in roles like planners, decision-makers, or key executors
  • Employees in managerial positions where working hours are not fixed
  • Workers receiving high salaries

Termination of Employment

Employers are required to give employees a written notice at least 14 business days before termination, explaining the reasons for termination along with details of any payments and entitlements.

If the employee accepts the termination, the employer can then inform the Ministry of Manpower. However, if the employee disagrees, they must provide their reasons in writing within seven business days of receiving the notice.

Grounds for terminating an employee in Indonesia

In Indonesia, employers can terminate an employee based on several grounds, including:
  • Violating the employment agreement (after receiving three written warnings)
  • Being absent due to illness for more than 12 months
  • Missing work for more than five days without a valid reason
  • Misconduct, such as harassment or damaging company property
  • Reaching retirement age
  • Conviction of a crime
Terminations can also occur due to company-related circumstances, like:
  • Business insolvency
  • Mergers or acquisitions
  • Downsizing due to ongoing financial losses
  • Bankruptcy

Unfair grounds for termination

In Indonesia, employers are not allowed to dismiss an employee under certain conditions, including:
  • The employee is sick for less than 12 months, based on a doctor's diagnosis
  • The employee gets married
  • The employee practices religious rites
  • The employee is related to another worker at the company, unless the employment contract says otherwise
  • The employee is unable to work because they're performing State duties
  • The employee reports the employer for a criminal act
  • Any form of discrimination
  • The employee becomes permanently disabled due to a work-related accident
  • A female employee is pregnant, miscarrying, giving birth, or nursing
  • The employee joins a labor union

Termination payments

Terminated employees in Indonesia are entitled to termination payments, which vary based on how long they've been with the company.

Indefinite term agreement (PKWTT)

These payments include four main components:
  • Severance pay: Calculated based on employee's tenure as Indefinite-term (PKWTT)
  • Long service pay: Calculated based on employee's tenure as Indefinite-term (PKWTT), minimum 3 years of service
  • Separation Pay: Amounts refer to Glints company regulations and minimum 3 years of service
  • Compensation of rights: covers any untaken annual leave and other costs like relocation.
Employees whose employment is terminated may receive severance pay, long service pay or long service pay, depending on their length of service and eligibility.

Severance Payment in Indonesia

Completed years of service
Severance payment
Less than 1 year
1 month wage
1 year or more, but less than 2 years
2 months wage
2 years or more but less than 3 years
3 months wage
3 years or more but less than 4 years
4 months wage
4 years or more but less than 5 years
5 months wage
5 years or more but less than 6 years
6 months wage
6 years or more but less than 7 years
7 months wage
7 years or more but less than 8 years
8 months wage
More than 8 years
9 months wage
Completed years of service
Severance payment
Less than 1 year
1 month wage
1 year or more, but less than 2 years
2 months wage
2 years or more but less than 3 years
3 months wage
3 years or more but less than 4 years
4 months wage
4 years or more but less than 5 years
5 months wage
5 years or more but less than 6 years
6 months wage
6 years or more but less than 7 years
7 months wage
7 years or more but less than 8 years
8 months wage
More than 8 years
9 months wage

Long Service Payment in Indonesia

Completed years of service
Severance payment
More than 3 years but less than 6
2 months wage
More than 6 years but less than 9
3 months wage
More than 9 years but less than 12
4 months wage
More than 12 years but less than 15
5 months wage
More than 15 years but less than 18
6 months wage
More than 18 years but less than 21
7 months wage
More than 21 years but less than 24
8 months wage
More than 24 years
10 months wage
Completed years of service
Severance payment
More than 3 years but less than 6
2 months wage
More than 6 years but less than 9
3 months wage
More than 9 years but less than 12
4 months wage
More than 12 years but less than 15
5 months wage
More than 15 years but less than 18
6 months wage
More than 18 years but less than 21
7 months wage
More than 21 years but less than 24
8 months wage
More than 24 years
10 months wage

Definite term agreement (PKWT)

These payments include three main components:
  • Indemnity: Calculated based on the remaining contract prior to the agreed employment period as stated in the definite-term employment agreement
  • Compensation: Calculated based on employee's tenure as definite-term (PKWT)
  • Compensation of rights: covers any untaken annual leave and other costs like relocation

Termination payment calculation

Reason for termination
Severance payment
Long service payment
Compensation of rights
Separation pay
Long-term Illness (12 months)
2x
1x
1x
No
Employee death
2x
1x
1x
No
Retirement
1.75x
1x
1x
No
Merger, Acquisition, or Separation
2x
1x
1x
No
Force Majeure (No Closure)
0.75x
1x
1x
No
Acquisition/Bankruptcy/Employer's Loss
0.5x
1x
1x
No
- Court Decision/Employee Voluntary Exit - Absence Without Notice (5 Days)
0
0
Yes
Yes
Detention (6 months, with Losses)
0
0
Yes
No
Detention (6 months, No Losses)
1x
0
Yes
No
Reason for termination
Long-term Illness (12 months)
Severance payment
2x
Long service payment
1x
Compensation of rights
1x
Separation pay
No
Reason for termination
Employee death
Severance payment
2x
Long service payment
1x
Compensation of rights
1x
Separation pay
No
Reason for termination
Retirement
Severance payment
1.75x
Long service payment
1x
Compensation of rights
1x
Separation pay
No
Reason for termination
Merger, Acquisition, or Separation
Severance payment
2x
Long service payment
1x
Compensation of rights
1x
Separation pay
No
Reason for termination
Force Majeure (No Closure)
Severance payment
0.75x
Long service payment
1x
Compensation of rights
1x
Separation pay
No
Reason for termination
Acquisition/Bankruptcy/Employer's Loss
Severance payment
0.5x
Long service payment
1x
Compensation of rights
1x
Separation pay
No
Reason for termination
- Court Decision/Employee Voluntary Exit - Absence Without Notice (5 Days)
Severance payment
0
Long service payment
0
Compensation of rights
Yes
Separation pay
Yes
Reason for termination
Detention (6 months, with Losses)
Severance payment
0
Long service payment
0
Compensation of rights
Yes
Separation pay
No
Reason for termination
Detention (6 months, No Losses)
Severance payment
1x
Long service payment
0
Compensation of rights
Yes
Separation pay
No

Severance payment for fixed term contract workers

In Indonesia, there are three types of fixed-term contracts (FTC) that the government recognizes:

  • FTCs based on completing specific work
  • FTCs based on a set period
  • FTCs for non-permanent work

These contracts are designed for temporary roles that can be completed within a certain timeframe. Any extensions to these contracts can't exceed a total of five years. If these rules aren't followed, the employee may automatically be considered a permanent staff member.

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.
Type of work
FTC based on completion of work
Temporary work; or One-time work
FTC base on period
Work that can be completed in short time; Seasonal work; or Work related to new products that are in in trial or experimentation.
FTC related to non-permanent work
Work that is based on attendance; or Work that changes based on volume or time.
Contract period
FTC based on completion of work
There is no specific maximum period, however, the employment agreement must include provisions on the expected period for work completion.
FTC base on period
Maximum five years (including extension).
FTC related to non-permanent work
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.

Employers are required to pay compensation to employees, even if the employee ends a fixed-term contract (FTC) early.


Compensation must be provided in the following situations:


- When the FTC ends

- If the FTC is extended

- If the contract is terminated early, no matter who ends it


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

Conclusion

Hiring an HR manager is a great way to ensure your company policies are set up right and kept up-to-date. It's crucial to have standard contracts like offer letters or employment agreements in place to protect both your business and your employees. Plus, regularly reviewing these contracts helps make sure everything stays compliant with Indonesia's employment laws.

But why not make it even easier for yourself? With Glints, the leading expert in Southeast Asia, you can take the stress out of managing HR and compliance across the region. Our on-the-ground expertise means we understand the local regulations and nuances of each SEA market, ensuring that every aspect of your HR operations runs smoothly.

Book a schedule with our team to start!

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