Navigating Indonesian Employment Laws: A Complete Overview for Employers and Employees

Navigating Indonesian Employment Laws: A Complete Overview for Employers and Employees

Discover the essential employment laws and regulations in Indonesia. From wage laws to holidays, sick leave, contractual employment, and permanent employment agreements, understanding these guidelines is crucial for employers and employees. Learn how compliance with Indonesian labor laws fosters a positive work environment and explore talent sourcing platforms for global workforce needs.

The Omnibus Law, which comprises various amendments to the Manpower Law, was introduced by Indonesia in 2020.

Wage Laws and Regulations

  • For The 1st year of employment, all employees are entitled to the minimum wage. Wages are determined by both the employer and the employee after the first year.
  • There is no national minimum wage; instead, the applicable minimum wage is determined by the type of business and its location. Indonesia has 33 provinces, and the governor of each province sets a monthly wage rate based on recommendations from the Provincial Council on Wages. It is also possible for a regency (a region within a province) to set its own minimum wage, as long as it is not higher than the provincial minimum wage. A 2018 regulation (the Minister of Manpower and Transmigration Regulation) established an official formula for calculating this wage in Indonesia based on inflation and GDP growth (Refer Table1Monthly Minimum Wages Across Major Regions in Indonesia 2021 in Annexure 1 for more details.)
  • There are also sector-specific minimum wages. These wage rates are set by business groups within a province or regency and cannot be lower than the provincial or regional wage.
  • Employers are required to make two types of social security deductions in addition to income tax deductions: they must contribute to the badan penyelenggara jaminan sosial (the health security system or BPJS) and to the employment BJPS, which covers work accidents and the old age pension.

Holidays and paid leave

Workers are entitled to all public holidays under the Manpower Law. The Joint Ministerial Decree determines public national holidays each year. Indonesia, for example, will observe 16 national holidays in 2022.

Employers who require employees to work on federal holidays must pay overtime.

Every employee is entitled to 12 days of paid annual leave, with one day accruing for every 23 days worked. Employees must use their minimum paid vacation entitlement within 6 months or risk losing it. Paid leave is taken at the discretion of the employee, with the exception of one 6-day consecutive leave per year, which is required.

Employees who have worked for the same company for 6 years would be entitled to at least 2 months of paid leave in their seventh or either year of employment.

Companies, on the other hand, have the right to postpone employees’ annual leave, but the reason must be obvious (for example peak season, or mandatory attendance days). These requirements are detailed in the PP/Company Regulations.

Sick Leave

Workers are entitled to sick leave with medical documentation at the following pay rates:

  • Full pay for the first 4 months of sick leave;
  • 3-quarters pay for the next four months;
  • Half pay for the next 4 months; and
  • 1-quarter pay until the employer terminates employment.

Women are also entitled to 2 days of paid leave during menstruation.

Contractual Employment – PKWT

PKWT (Perjanjian Kerja Waktu Tertentu, or Fixed Time Employment Agreement) is a relatively new employment policy. According to the PKWT regulation, Law Number 35, Year 2021, PKWT is an employment agreement between workers and employers to establish a working relationship within a specific time or for a specific job.

Workers who do permanent work in companies, in contrast to those who are on a temporary role, have the status of PKWTT (Perjanjian Kerja Waktu Tidak Tertentu or Indefinite Time Employment Agreement).

There are several pointers for PKWT employees:

  1. A PKWT contract must be in writing.
  2. Workers must keep the original documents after signing the PKWT.
  3. The contract requires that all workers’ rights be respected.
  4. Try to value all wage components in a single wage value.
  5. The salary must be in accordance with the rules.

Permanent Employment Agreement- PKWTT-: Indefinite Employment Agreement

A PKWTT (Perjanjian Kerja Waktu Tidak Tertentu), also known as an Employee Agreement for an Indefinite Period, is a permanent employment agreement or contract. Unlike PKWT (Perjanjian Kerja Waktu Tertentu), PKWTT may require a probation period of no more than 3 months, during which the employer is required to pay the employee’s wages.

PKWTT can be made verbally or in writing. If the PKWTT is made verbally, the clauses between employer and employee are those specified in the applicable labor law. Employers are not required to register PKWTT with the Manpower Office or any other related labor institution/agency in Indonesia required.

Fixed Term Contract (PKWT)Permanent Contract (PKWTT)
Applies to the following types of work:
Temporary JobsSeasonal JobsTrial Stage Related JobsDaily Freelance Jobs
Applies to the type of work not stipulated for PKWT, mostly work not stipulated with characteristics of permanence
No Probation PeriodProbation Period max. 3 months
Made in WritingMade in Writing or verbal
Registered to manpower office located in employers regency/cityNo registration needed
Required in Bahasa (Bi Lingual)Required in Bahasa (Bi Lingual)

In conclusion, understanding employment laws in Indonesia is crucial for employers and employees. From wage regulations to holidays and leave, the country prioritizes fair treatment and work-life balance. Adhering to minimum wage requirements and providing benefits fosters a positive work environment.

Holiday entitlements and paid leave promote employee welfare, enhancing productivity. Obligatory paid sick leave supports a compassionate work culture.

Contractual employment offers flexibility, while permanent agreements provide stability. Complying with these laws safeguards employee rights and attracts talented individuals. Workforce sourcing platforms connect businesses with skilled professionals, streamlining hiring and accessing diverse talent.

The views expressed in this article are the author’s own and do not reflect Talent’d’s views, opinions or policies.

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