Labour & Employment

The main statutes relating to employment are Law No. 13 of 2003 on Manpower (the Manpower Law), Law No. 2 of 2004 on Industrial Relations Dispute Settlement, Law No. 21 of 2000 on Labour Unions (the Union Law), Law No. 40 of 2004 on National Social Security System, and Law No. 1 of 1970 on Work Safety and Health (the Work Safety Law), along with a well-developed body of implementing regulations from the Minister of Manpower.

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The Manpower Law provides that every person has equal rights to obtain a job and receive equal treatment in the workplace without discrimination on the basis of sex, ethnicity, race, religion or political orientation, including equal treatment for disabled persons.

Indonesia has ratified the International Labour Organization (ILO) Conventions regarding discrimination in employment, as follows: ILO Convention No. 111 concerning Discrimination in respect of Employment and Occupation and ILO Convention No. 100 concerning Equal Remuneration.

With regard to harassment, the Manpower Law does not explicitly stipulate protection from harassment in the employment setting. However, a harassed employee may file a claim through criminal or civil law proceedings.

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Enforcement is under the jurisdiction of the Ministry of Manpower, Industrial Relations Courts (Labour Courts), and regional Manpower Services Offices.

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Yes. The Manpower Law acknowledges the right of workers to form a union in the workplace. Unions are further regulated under the Union Law.

A union may be established by any group of at least 10 employees. Following establishment, the union must register with the Manpower Services Office at the domicile of the union.

Whether or not there is a union, the Manpower Law requires that companies that employ at least 50 employees to establish a Bipartite Forum, consisting of employer and employee representatives, to serve as a communication and consultation forum regarding employment issues in the company.

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Under the Union Law, a union has the following functions:

• to negotiate a collective labour agreement (CLA) and represent the union and employees in industrial relations disputes;
• to represent employees in any cooperation arrangement with the employer;
• to create harmonious, dynamic, and fair industrial relations in accordance with applicable laws;
• to be the channel for aspirations in connection with any struggle for the right and interest of the union;
• to plan, organise and be responsible for any strikes in accordance with applicable laws and regulation; and
• to represent the employees in seeking share ownership in the company.

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There are no restrictions or prohibitions against background checks on applicants, whether conducted by an employer or by a third party.

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Minister of Manpower Regulation No. PER 02/MEN/1980 on Medical Examination for Employees in the Implementation of Work Safety allows employers to request job applicants to undergo a medical examination. There is no restriction or prohibition against employers imposing a medical examination as a condition of hire.

Companies in fields mentioned in the Work Safety Law (including high-risk work, mining, agriculture, forestry, construction, transportation, shipping, diving, extreme conditions, and others) must conduct medical examinations of candidates prior to hiring them.

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Minister of Manpower and Transmigration Regulation No. PER.11/MEN/VI/2005 on Prevention and Anticipation of Misuse and Illegal Distribution of Narcotics, Psychotropics, and any Addictive Substance in Work Places provides that an employer may request employees to take a drug test. There are no restrictions or prohibitions against employers imposing a drug test as a condition of hire.

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Other than the basic protections against discrimination mentioned above, there is no ‘affirmative action’ in Indonesia. However, employers that employ at least 100 persons must hire at least 1 per cent disabled persons from the total of employees in their company, as stipulated under Law No. 8 of 2016 on Disabled Persons.

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The Manpower Law recognises two types of employment: permanent and fixed-term. An agreement for permanent employment may be made in writing or orally. If orally, a letter of appointment must be drafted to address the basic terms of the arrangement.

Fixed-term employment agreements must be prepared in writing, stating at least the following:

• name, address and business line of employer;
• name, gender, age and address of employee;
• position or type of work;
• place of work;
• wage and payment mechanism;
• terms and conditions of work;
• effective date and term of employment;
• place and date of execution; and
• signatures of employer and employee.

All written employment agreements must be executed in the Indonesian language (or in a foreign language with Indonesian translation). In the event a written employment agreement is executed in a foreign language with an Indonesian translation, if there are any inconsistencies in the translation, the Indonesian version shall prevail.

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Fixed-term employment contracts may be based on a certain time period (time based) or completion of a certain work (work based). The Manpower Law provides that work based fixed-term employment agreements may only be used for certain types of work, which, because of the type and nature of the work, will finish in a specified time, namely:

• work to be performed and completed at once or work that is temporary by nature;
• work whose completion is estimated not to take longer than three years;
• seasonal work; and
• work that is related to a product or activity that is new or in the trial phase.

Regardless of the nature of the work, foreign employees may only be employed on a fixed-term basis.

A time based fixed-term employment agreement can be executed for an initial period of up to two years. The agreement may be extended once for up to one year upon seven days’ written notice to the employee. Subsequently, the agreement may be renewed once for up to two years, but there must be a 30-day interlude between expiry of the extension and commencement of the renewal period. If the procedures for extension or renewal are not observed, and the employee continues working past the expiry date, he or she will be deemed a permanent employee as of the date of the violation.

There is diversity of opinion as to whether this latter provision applies to foreigners, as, by law, they must not be considered permanent employees. Nevertheless, many foreign expatriates are employed in Indonesia on a long-term basis pursuant to a series of fixed-term employment agreements.

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The Manpower Law provides that a probationary period may be imposed for a maximum of three months and only in cases of permanent employment. The probationary period must be written in the work agreement or stated in the letter of appointment if the work agreement is made verbally. If the probationary period is not notified to the employee, or if the parties attempt to insert a probationary provision into a fixed-term employment agreement, the probation is deemed non-existent. Likewise, if an employee is not notified that he or she has failed probation prior to the end of the period, he or she becomes a permanent employee by operation of law.

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Under the Manpower Law, an employment relationship requires three elements: work, instructions, and wage. Although there is a large informal labour sector in Indonesia, meaning that many workers are de facto independent contractors, the laws define employment in the broadest sense in order to provide labour protections to the largest population possible.

An independent contractor is usually hired based on a service or consulting agreement, which does not meet the ‘wage’ element by virtue of the fact that the contractor receives payment for services or deliverables rendered based on an invoice (rather than an automatic wage payment). There are other factors that distinguish an independent contractor from an employee. Independent contractors are not bound by working hours, do not carry business cards bearing the employer’s name, and have certain deliverables to their employer. Those factors are not found in employees.

Service and consulting agreements are governed under the Indonesian Civil Code (ICC), which does not stipulate specific terms and conditions. Absent obligatory provisions, the general freedom of contract principle in the ICC applies, such that all legally executed agreements bind the parties thereto. Nevertheless, employers should be cautious in using service agreements for work that inherently falls under the employment umbrella.

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The Manpower Law provides that an employer may recruit employees by itself or through a recruitment agency, whether it is for temporary or permanent employees. However, subcontracting and outsourcing are strictly regulated, and workers procured through a third-party contractor or labour supply agency must not be used to perform ‘core’ work of an employer. The definitions of ‘core’ work may vary in different sectors.

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There is no general numerical limit on the number of foreign employee visas a company may sponsor, although limitations do apply in certain sectors, for example, law firms may hire a maximum of five foreign legal consultants.

All foreign employees must hold a valid work permit (IMTA), a limited stay visa (VITAS), and a temporary residency permit (KITAS). The VITAS and KITAS may be granted for periods of six months, one year, and two years; however, they are generally issued in line with the duration of the IMTA (which is only valid for one year at a time, even if the employment contract is for two years). The same requirements apply to secondees and employees who are transferred from a foreign office, as they are being employed in Indonesia.

For work of limited duration, including film making or entertainment, conducting quality control, inspection of Indonesian branch offices of foreign companies, and work relating to machinery installation, after-sales service, and market testing of new products, a temporary IMTA of up to six months may be obtained.

Foreigners who enter Indonesia for non-employment business purposes (eg, to attend meetings) may enter using a business visit visa, which is issued initially for 60 days, and may be extended up to four times, each extension for 30 additional days, and then convertible into a multiple-entry business visa, which is valid for up to five years.

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While spouses of authorised workers are eligible to reside in Indonesia based on a dependent KITAS (the duration of which is tied to the working spouse’s KITAS), they are not permitted to work unless they obtain a work permit.

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Foreign workers may be employed in Indonesia as long as the employer has obtained an approved Foreign Manpower Utilisation Plan and the IMTA, along with necessary immigration documents. Foreign workers may only be employed for limited periods and in certain positions. Foreigners are specifically prohibited from occupying positions of authority in human resources.

Pursuant to the Manpower Law, employing a foreigner without an IMTA may subject an employer to sanctions of one to four years’ imprisonment and a criminal fine of 100 million to 400 million rupiah.

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There is no specific labour market test requirement, although the Manpower Law states that foreign workers will not be granted a work permit if local employees can perform the job. Nevertheless, an employer may hire foreign workers in order to facilitate the transfer of technology, skills, and expertise to local employees, with the objective of increasing capacity to the point that the foreign employees can eventually be replaced by local employees.

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Under the Manpower Law a working week is 40 hours, with two possible arrangements: seven hours a day, six days per week and eight hours a day, five days per week.

An employer and an employee may agree to have longer working hours. Overtime is allowed up to three hours per day and 14 hours per week, subject to employee consent.

The Manpower Law prohibits employers from employing female workers aged below 18 years, as well as pregnant employees who, based on a physician’s statement, are at risk of damaging their health or safety, between 11pm and 7am.

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All employees working outside normal working hours are entitled to overtime pay, as follows.

Overtime on working days

• first hour: 1.5 times the hourly wage (based on prorated monthly salary); and
• subsequent hours: twice the hourly wage.

Overtime on weekends or national holidays

• For a six-day work week:
• first seven hours: twice the hourly wage;
• eighth hour: three times the hourly wage; and
• ninth and tenth hours: four times the hourly wage.
• For a five-day work week:
• first eight hours: twice the hourly wage;
• ninth hour: three times the hourly wage; and
• tenth and eleventh hours: four times the hourly wage.

Managerial or professional employees and workers in certain sectors (oil and gas production, mining and fisheries) are exempted from overtime requirements due to the nature of their work schedules.

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Overtime pay is a statutory right, but it may be waived under the terms of the employment agreement or company regulation.

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In addition to statutory public holidays (which are determined annually by the government), the Manpower Law provides for 12 working days of paid annual leave after an employee has worked for 12 consecutive months.

An employee who has been working for the same employer for six consecutive years may also be entitled to statutory leave of at least two months, which can be taken for one month in the seventh and eight year of work.

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Employers must provide paid sick leave to workers based on a physician’s statement, without limit as to the number of days per year. Employers are permitted to limit the number of sick days in employment agreements or company regulations or CLA. The Manpower Law provides for reduction of salary during long illnesses, as follows:

• first four months: 100 per cent salary;
• second four months: 75 per cent salary;
• third four months: 50 per cent salary; and
• subsequent months: 25 per cent salary until the employer terminates the employment.

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Under the Manpower Law, employees are entitled to paid leave under the following circumstances:

• marriage of employee: three days;
• marriage of employee’s child: two days;
• circumcision or baptism of employee’s child: two days;
• live birth or miscarriage by employee’s wife: two days;
• death of employee’s spouse, parent or parent-in-law, child or child-in-law: two days;
• death of other family member living in employee’s household: one day;
• miscarriage by female employee: one-and-a-half months; and
• maternity leave for female employee: one-and-a-half months before and one-and-a-half months after delivery.

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Wage

All employers must comply with the minimum wage applicable in their region and industry. In addition, many employees receive allowances for meals, transportation or housing. If the salary is composed of basic wage and fixed allowances, the amount of the basic wage must not be less than 75 per cent of the total amount of compensation.

In addition, employers must pay religious holiday allowance of one month’s salary to employees who have worked for at least one month, pro rated for employees who have worked less than 12 months.

Social security

Every employee, including foreigners working in Indonesia for at least six months, must be enrolled in the national Social Security Programmes (BPJS), consisting of the Manpower BPJS, and the Health BPJS.

Contributions are as follows:

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Part-time employees

The Manpower Law regime reflects the government’s policy of formalising the labour sector by promoting full permanent employment for all citizens. The Manpower Law does not specifically regulate part-time employment (nor does it cover domestic employment).

Fixed-term employees

Requirements for fixed-term employment are discussed in questions 10-12. Generally, fixed-term employees are entitled to the same rights and benefits enjoyed by permanent employees, including all provisions on wages and benefits.

If one party to a fixed-term contract terminates the agreement prior to its natural expiry, the terminating party is liable to pay the non-terminating party the total of all wages that would be owed under the remaining period of the contract.

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An employer is required to submit an annual manpower report every year to the relevant local manpower offices. The annual manpower report consists of, among others, the number of employees employed by the employer, the amount of the highest and lowest salaries of employees, the total salary paid to all employees and the benefits received by employees. As of the end of 2017, the manpower reporting is conducted online.

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Non-competition and non-solicitation agreements are enforceable in accordance with the terms stipulated in the agreement, and there is no statutory maximum period, although standards of reasonableness should apply. However, a court may revoke a post-termination covenant at the request of an employee if such a covenant harms the employee.

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Not unless specifically stated in an agreement between the parties.

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An employer is liable for all acts of its employees conducted within agreed working hours, provided that the employee has performed his or her work in accordance with instructions or standard procedures stipulated by the employer.

Article 1367 of the Indonesian Civil Code provides respondeat superior liability for civil matters, as long as the employee is acting for the interests of the employer.

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Employees are obligated to pay taxes on all salary and income earned in Indonesia (including bonuses and religious holiday pay). Employers are required to withhold the appropriate amount of income tax and convey it to the State Treasury.

Law No. 7 of 1983 on Income Tax (as amended) applies progressive tax rates on resident taxpayers (5 per cent-30 per cent, depending on income), with 20 per cent added to the income basis for taxpayers who do not possess a taxpayer identification number. Non-resident taxpayers are taxed at 20 per cent.

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Law No. 28 of 2014 on Copyright provides that even if a work is made under an employment relationship or made based on an order from the employer, the employee who creates the work will be deemed the creator and copyright holder, unless specified otherwise in the employment agreement.

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Law No. 30 of 2000 on Trade Secrets requires employers to use all necessary efforts to keep the confidentiality of their trade secrets, including limitation of the people with access to such information and implementing internal regulations that hold workers responsible for the trade secrets.

Sanctions imposed on employees who violate confidentiality agreements depend on the terms of the agreements.

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There is no specific regulation on employee privacy. At the time of writing, a Draft Bill on Protection of Private Personal Data had been circulating for some time, which if promulgated, would strengthen employees’ rights to protection of ‘sensitive information’, which is any information associated with religion, personal or political beliefs, physical or mental health, marital life, financial position or any other information that may cause an individual to suffer discrimination.

Private data stored in electronic systems is subject to Minister of Communication and Informatics Regulation No. 20 of 2016 on Protection of Private Data in Electronic Systems. Although not specifically dealing with employee data, if an employer obtains employee data through electronic systems (including through email servers and electronic documents), the employer will be subject to this regulation.

Any private data that is to be saved must first be verified and encrypted, and stored for at least five years, unless stipulated otherwise by a more specific regulation.

Further, under Law No. 11 of 2008 on Electronic Systems and Transactions, which was amended by Law No. 19 of 2016, usage of an individual’s private information contained in any electronic medium is subject to prior consent from the person in question.

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The Manpower Law provides separate rules depending on the nature of the business transfer event.

In case of merger or consolidation, employers are entitled to terminate redundant employees’ contracts subject to mandatory severance payments.

In case of acquisition, the employer is not allowed to terminate employment, so it is common practice for acquiring parties to negotiate resignations (or to require the selling party to do so) prior to takeover. Employees of an acquired company have three options at their disposal:

• continue employment under the same terms;
• discontinue employment, in which case employees are entitled to enhanced severance pay, service pay and compensation for accrued allowances; or
• constructive termination and rehiring, in which case employees receive standard severance and resume employment under new terms and conditions, forfeiting any tenure accrued to date.

The Manpower Law is silent on transfer of assets.

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In general, Indonesia does not recognise termination-at-will. Therefore, employers may not dismiss employees without cause. Termination of employment is subject to the approval of a Labour Court. Theoretically, fixed-term employees’ contracts may be terminated without cause, provided the employer pays all wages remaining under the fixed-term agreement.

Other than for legitimate business necessity (permanent closure due to two years’ consecutive losses, efficiency, merger, reorganisation or force majeure, change of status of the company (IPO or delisting), or bankruptcy) or prolonged illness lasting longer than one year (all of which requires a Labour Court’s approval), employers may only terminate employment for specifically stipulated reasons:

• the employee violated a work agreement or company regulation;
• the employee engaged in gross misconduct resulting in a final and binding verdict from the criminal court;
• the employee is unable to work after six months of criminal proceedings (not related to violations in the workplace) or the employee is convicted of a crime before the six-month period ends; or
• the employee is absent from work for five or more consecutive working days without notice, after the employer has sent two written warnings to the employee’s house.

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As termination of employment requires approval from a Labour Court, neither notice of termination nor pay in lieu of notice is recognised under the Manpower Law.

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None, save as noted in the answer to question 36, termination of employment requires approval of a Labour Court.

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The Manpower Law stipulates elaborate provisions on severance (one to nine months’ pay) and long-term service pay (two to 10 months’ pay) based on length of employment, as well as compensation for accrued allowances and repatriation or return to the place of recruitment. Multipliers are imposed based on the reason for termination.

The concept of ‘separation pay’ is also mentioned, but not regulated in any detail, as it would be contractually determined.

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All employment dismissals must be approved by a Labour Court, except:

• during the probationary period, if expressly stated in writing in advance;
• voluntary and unconditional resignation in writing;
• expiry of a fixed-term employment agreement;
• if the employee dies or reaches the retirement age stipulated in the employment agreement, company regulation or CLA; or
• if the employee is unable to work for six months during a criminal proceeding, or is convicted of a crime before the six-month period ends.

If an employee violates the employment agreement, company regulation or CLA, the employer must first issue three consecutive warning letters (except for violations subject to ‘first and final’ notice). If the violation continues, the parties must attempt informal resolution. If the parties fail to reach mutual agreement, a case can be filed with the Labour Court, which will prescribe a series of escalating proceedings (mediation, conciliation, trial) until a final resolution can be reached. The employer must continue to pay the employee’s salary until a final and binding decree is issued by the highest court of appeal sought by the parties.

Because termination procedures are so onerous, employers often attempt to reach a ‘negotiated resignation’ rather than pursue formal termination.

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In addition to the procedural protections noted above, under the Manpower Law, employees are protected from dismissal for the following reasons:

• long-term illness (validated by a physician) of less than 12 months;
• fulfilment of religious obligations or obligations to the state;
• marriage of employee or employee’s child;
• pregnancy, delivery, miscarriage or breastfeeding;
• relation by blood or marriage to another employee, unless specifically prohibited under the work agreement, company regulation or CLA;
• participation in labour union activities;
• reporting a crime committed by the employer;
• discrimination based on religion, political view, race, gender, physical condition or marital status; and
• permanent disability or illness owing to a work accident with undetermined period of recovery.

Dismissal owing to the above-mentioned circumstances is deemed null and void, and the employer is obligated to reinstate the employee with full back pay and benefits.

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Pursuant to Circular Letter No. SE-907/MEN/PHI-PPHI/X/2004 on Prevention of Mass Termination, before mass termination employers must first attempt the following:

• reduce the salary and work facilities (perks) of top-level employees;
• reduce shifts;
• limit or eliminate overtime;
• reduce working hours;
• reduce working days;
• suspend employees internally for limited periods;
• not extend or renew fixed-term employees; and
• offer pensions to qualifying employees.

Employers must engage in discussion or negotiation with the employees or labour union prior to pursuing mass termination. If mass termination is inevitable, the employer must obtain prior approval from the Labour Court.

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Collective actions through a labour union are permitted in addition to asserting claims on an individual basis. Class action lawsuits are recognised in Indonesia, although they would be rare in the employment field.

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An employer and employee may agree on the retirement age in work agreement, company regulation, or collective labour agreement.

Government Regulation No. 45 of 2015 on Implementation of the Pension Security Programme stipulates a retirement age of 56. However, the retirement age referred to in this regulation is the age at which employees are entitled to receive termination benefits. Although the employer may impose a different retirement age under company regulations or CLA, employees have the right to retire at age 56.

As of 1 January 2019, the retirement age changes to 57.

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The Industrial Dispute Law acknowledges arbitration as an alternative method of settlement only for union-employer disputes over interests or disputes between labour unions within a single company. By law, individual employment disputes are under the jurisdiction of the Labour Court; therefore, although employer and employee may agree to private arbitration, the right to resort to the Labour Court remains.

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There is no restriction on an employee waiving his or her contractual or statutory rights in a written agreement, although it is arguable whether a Labour Court would defer to a contractual waiver of statutory rights.

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An employee whose employment is terminated due to voluntary resignation or due to a criminal proceeding may file a claim with the Labour Court within one year from the date of termination. The Manpower Law originally stipulated a two-year statute of limitations to bring claims for payments arising out of the employment relationship, but a 2013 Constitutional Court decision nullified the two-year limit.

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The Constitutional Court previously ruled that a provision in the Manpower Law that allows a company to ban marriages between its employees is in violation of the 1945 Constitution. Previously, an employer could terminate the employment of its employee who was married to a co-worker if such prohibition was written in a work agreement, company regulation or CLA. After the ruling of the Constitutional Court, employers may no longer terminate the employment of employees who are married to a fellow co-worker.

The government is introducing a national public housing savings programme. Employees whose salary is equivalent to the minimum wage requirement are obligated to be registered as a participant in the programme and pay a certain amount of contributions. The registration of employees in the programme is conducted by employers. Law No. 4 of 2016 on the Public Housing Savings (the Public Housing Savings Law) requires employers and employees to pay a certain amount of contributions for the programme.

The fund will be used for house financing (meaning buying, building or renovating the participant’s first house) and will then be returned when they reach 58 years of age or have retired from work.

The Public Housing Savings Law mandates that an implementing regulation that further regulates the programme in detail (including the stipulation of the contribution amount) has not been further regulated by the government. The implementing regulation must be enacted within two years of the enactment of the Public Housing Savings Law and is expected to be issued in 2018.

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