Indonesia is a country composed of an archipelago in Southeast Asia that is home to over 300 ethnic groups. It is currently the largest economy in that region and is also the world’s fourth most populous. What makes the country stand out is its economic growth and ability to develop as a middle-income country by implementing a 20-year economic development plan. This has helped the country raise its GDP per capita from $857 in 2000 to $3847 in 2017. These economic plans directly target the poor who constitute about 10% of the population. Indonesia’s GDP is comprised of sectors that include about 46 percent services, 40 percent industry, and 14 percent agriculture; the country produces rubber, palm oil, poultry, beef, forest products, marine products, and other farm products. Indonesians are mostly Javanese, Sundanese, Malay and Batak. Bahasa is the official language, with English, Dutch and Javanese also spoken widely. Muslims make up to 87 percent of the population.
Indefinite term (permanent) employment contracts are allowed under Indonesian law. Additionally, for jobs that are permanent in nature (generally defined as non-seasonal and non-project-based work), an employment agreement must be indefinite.
Indefinite work agreements can be made either orally or in writing. However, a work agreement for a fixed period must be concluded in writing in the Indonesian language (with the Latin alphabet). The Indonesian wording will prevail if the contract is bilingual.
The Indonesian labor law requires the written employment contract to include at least the following information:
The name, address, and line of business
The name, age, sex, and address of the employee
The occupation or the type of job
The place where the job will be carried out
The amount of wages and how they shall be paid
Job requirements stating the rights and obligations of the employer and the employee
The date at which the work agreement starts and the period during which it is effective
The date and the place where the work contract is made
The signatures of the parties of the work agreement
An employer must fix a stamp duty on all copies of the employment contract for submission before an administrative or judicial authority using the Seal Electronic portal used by entities. Registration to Seal Electronic is free, but if the employer wishes to use physical duty stamps, each party is responsible for the cost of their own copies' stamps unless agreed otherwise.
Under Indonesian law, a temporary employment relationship (Perjanjian Kerja Waktu Tertentu, or PKWT) is defined as an employment agreement for a specified period of time or for the completion of a certain job.
Temporary employment relationships, regardless of whether they are through an outsourcing company or not, must be made in writing or orally, but if in writing, must comply with the law, and the contract must clearly specify whether it is time-based or job‐based. A time-based temporary employment relationship may be used for work estimated to be completed in a relatively short time, seasonal work, or new/experimental work, and may run up to 5 years, including any extension.
The same rules apply to outsourcing arrangements. A business entity that supplies employees (“outsourcing company”) must be a legal entity, and the agreement must address employee protection, wages, welfare, and conditions of employment.
A work agreement for a specified period (i.e., a fixed-term employment contract) cannot stipulate a probation period. If any fixed-term contract includes a probationary period, the latter is considered null and void by the law.
In case of employment for an unspecified length of time (i.e., an indefinite employment contract), the labor code limits the probationary period to a maximum of 3 months. It cannot be renewed or extended. During the probationary period, the employer has to pay at least the minimum wage to the employee. However, an employer has the right to terminate employment without notice or severance during the probationary period.
The regular workweek is 40 hours, and employees who work over 40 hours a week are eligible for overtime. Employers can distribute the 40 working hours in a week in the following ways:
No more than 7 hours a day for 6 working days in a week, or
No more than 8 hours per day for a 5-day week
The employee can work overtime if they agree to do so. This agreement must be made in writing. The maximum amount of overtime the employee is allowed to make is 4 hours a day and 18 hours a week. The employee is entitled to a rest of 1 day after 6-day working week and 2 days after a 5-day working week.
Employees who have worked for 12 consecutive months are entitled to annual paid leave of 12 days.
Some companies in Indonesia are required to give employees an extended rest period known as long rest leave. Long service leave is at least 2 months of paid leave, provided in the 7th and 8th years of employment for 1 month each year. In these cases, the employees are not entitled to their annual leave in addition to their long service leave. Long service leave is granted after every 6 consecutive years of service with the same employer. During the month-long leave granted in the 8th year, the employee is entitled to his full wage.
Employers are obliged to pay an employee's wages if the employee cannot perform work because of an illness. Employees must provide a letter from a physician who treats them, stating that they are sick. The amount of wages payable to an employee who cannot perform work because of an illness is determined as follows:
For the first 4 months of illness, employees are entitled to receive 100% of their wages.
For the next 4 months of illness, employees are entitled to receive 75% of their wages.
For the following 4 months, employees are entitled to receive 50% of their wages.
For the subsequent months until termination, employees are entitled to receive 25% of their wages.
Under Indonesia's Maternal and Child Welfare law, female employees are entitled to at least 3 months of maternity leave following birth. Maternity leave may be extended with a doctor's certificate. An employee who suffers a miscarriage has a right to a paid period of rest of 1.5 months or the period stated in the letter issued by the treating medical professional. Employees are entitled to 100% of their normal wage during the 3-month leave, 100% of their normal wage during the first month of the extended leave, and 75% for the last 2 months.
Working mothers are entitled to receive their full wages during maternity leave. Employers are prohibited from terminating an employee because they are pregnant, giving birth, or miscarrying.
Under Indonesia's Maternal and Child Welfare Law, an employee is entitled to 2 days of paid leave during delivery and up to 3 additional upon agreement with the employer. Employees are also entitled to 2 days of paid leave for miscarriages and sufficient time to accompany the mother and/or children on various grounds, such as health complications or death.
Indonesian labor regulations require employers, workers and laborers, trade and labor unions, and the government to make every effort to prevent the termination of an employment relationship.
An employer wishing to terminate an employee must give at least 14 days' written notice. This period is shortened to 7 days if the employee works under an indefinite employment contract during the probationary period. An employee who wishes to terminate the employment relationship must give 30 days notice in writing to the employer.
Severance benefit entitlements in Indonesia vary according to any applicable employment agreement provisions, applicable company regulations, applicable collective bargaining agreement, time of service, and the situation regarding the termination.
Statutory severance pay is determined as follows:
1 month's wage for less than 1 year of employment
2 months' wage for 1 to 2 years of employment
3 months' wage for 2 to 3 years of employment
4 months' wage for 3 to 4 years of employment
5 months' wage for 4 to 5 years of employment
6 months' wage for 5 to 6 years of employment
7 months' wage for 6 to 7 years of employment
8 months' wage for 7 to 8 years of employment
9 months' wage for 8 or more years of employment
The calculation of the sum of money paid as the long-term service benefit is determined by the number of years of employment. It ranges from 2 months of wages for individuals with 3 to 6 years of service to 10 months of wages for employees who have worked 24 years or more.
The wage components to be used for calculating the severance benefits and the service reward pay include the basic wage that the employee received and all forms of fixed allowances provided to employees and their families. For severance agreements that include compensation over IDR 5,000,000 (Indonesian rupiah), a duty stamp is required. The stamp costs IDR 10,000. The stamp must be affixed to the signed agreement by the employer upon receipt from the employee.
