Employment and HR

In Indonesia, the legal status of an employee is defined by the nature of their employment contract and the work they perform. There are two primary types of employment contracts: fixed-term and indefinite-term. Fixed-term contracts are used for specific periods, up to a maximum of five years, and do not include a probation period. Indefinite-term contracts may include a probation period of up to three months. After the probation period, employers must issue a letter to permanently appoint the employee.

The legal status of an employee also dictates their entitlements, such as minimum wage, working hours, overtime compensation, and annual leave. Employers must adhere to the regulations set forth in the Manpower Law, which is the main source of employment law in Indonesia. This law covers the terms and conditions of employment relationships, including the benefits and rights of employees, and the obligations of employers.

For foreign employees, there are additional considerations. Employers looking to hire foreign staff must prepare a Foreign Worker Utilisation Plan and obtain the necessary permits. Foreign workers are typically employed under fixed-term contracts and must have a valid work permit to be legally protected under Indonesian employment law.

Employee management in Indonesia is governed by a comprehensive set of laws that establish the framework for employment relationships. The Manpower Law, which has been amended by the Job Creation Law, sets forth the terms and conditions of employment, including the classification of workers, the necessity of written contracts for fixed-term employment, and the requirement for employers to issue an appointment letter for permanent employees.

The Industrial Relation Dispute Law and the Labour Union Law regulate employee representation and industrial relations. These laws provide the legal basis for the formation of labor unions, collective bargaining, and the resolution of industrial disputes, ensuring that employees have the right to form and join trade unions and engage in collective bargaining.

Employment contracts in Indonesia must comply with the Manpower Law and should not contradict it. They must observe minimum employment terms and conditions such as working hours, overtime pay, and annual leave entitlements.

When hiring foreign employees in Indonesia, HR professionals must navigate a series of legal requirements to ensure compliance with local regulations. The process begins with obtaining a work permit for the foreign worker, which is managed by the Ministry of Manpower through the TKA Online system. Employers must apply for the work and immigration permit, ensuring that the foreign employee has the appropriate educational qualifications and work experience relevant to the position.

Additionally, foreign workers are required to participate in the National Social Security system or have certain insurance policies. It’s also essential for employers to prepare a Foreign Worker Utilisation Plan (RPTKA), which outlines the positions that foreign workers will fill and demonstrates the necessity of hiring from abroad.

The legal framework for hiring foreign employees is designed to protect the interests of both the Indonesian workforce and foreign workers. It ensures that foreign employees are hired for their expertise in areas where there may be a shortage of local talent and that they receive the same protections and benefits as Indonesian workers.

The minimum wage in Indonesia is a critical aspect of employment law, ensuring that workers receive fair compensation for their labor. It is set by the provincial governments and can vary significantly across the country’s 34 provinces, reflecting the diverse economic conditions. For example, in 2023, Jakarta, the capital city, has set its minimum wage at IDR 4,901,798 per month, which is among the highest in the country. In contrast, West Java has set a lower minimum wage of IDR 1,986,670 per month.

These figures are not arbitrary but are carefully calculated based on regional economic growth, inflation rates, and the contribution of employees to economic growth. The goal is to balance the need for a living wage for workers with the economic realities of each region, ensuring that businesses remain competitive and workers are compensated fairly.

Employee rights in Indonesia encompass a range of entitlements and protections that are guaranteed by law. These rights are designed to ensure fair treatment in the workplace and cover various aspects of employment, including hours of work, rest breaks, holiday and holiday pay, parental rights, part-time and fixed-term work, outsourcing, transfers of undertakings, and data protection.

The main sources of employment law in Indonesia are the Manpower Law (Law No. 13 of 2003), the Industrial Relation Dispute Law (Law No. 2 of 2004), and the Labour Union Law (Law No. 21 of 2000). These laws provide the legal framework for employment contracts, which can be either verbal or written, though fixed-term contracts require a written agreement. The terms of employment contracts must align with the Manpower Law and should not contradict it.

Employees in Indonesia have the right to a minimum wage, which varies by sector and province, and are entitled to social security benefits, including pension, healthcare, life insurance, accident insurance, and old-age benefits. Working hours are regulated to a standard 40-hour workweek, and employees are entitled to overtime pay if they work beyond these hours. Additionally, employees have the right to 12 days of paid annual leave after 12 continuous months of service.

Parental rights, such as maternity leave, are also protected, and there are specific provisions for part-time and fixed-term workers to ensure they are not disadvantaged compared to full-time, permanent employees. In cases of business sales or transfers, employees’ rights are safeguarded, and they cannot be dismissed solely due to the transfer of the company.

Understanding and upholding employee rights is crucial for HR professionals to maintain a compliant and ethical workplace. It’s recommended that HR departments regularly review their policies and practices to ensure they are in line with current laws and regulations, and seek legal advice when necessary to navigate complex employment issues.

In Indonesia, the procedures and rules for terminating an employee are strictly regulated to protect the rights of workers and ensure fair labor practices. The process is governed by the Manpower Law (Law No. 13 of 2003), which outlines acceptable grounds for termination and the required severance payments. Employers are discouraged from terminating employees and are encouraged to make every effort to avoid it.

The general grounds for terminating an employment contract related to the employee include violations of the employment agreement after being given three written warnings, prolonged absence due to sickness or without a valid reason, and misconduct. Other grounds include the employee reaching retirement age or being convicted of a crime.

Termination can also occur due to circumstances related to the company, such as insolvency, mergers or acquisitions, downsizing due to financial loss, or bankruptcy. However, there are unfair grounds for termination that are prohibited, such as discrimination, dismissal due to illness for less than 12 months, marriage, performing religious rites, and others.

The termination process requires the employer to notify the employee in writing of the reasons for termination and the entitlements at least 14 days before the termination date. If the employee agrees to the terms, the employer can notify the Ministry of Manpower. If the employee disagrees, they must write their objections within seven days from receiving the notice. Disagreements may lead to mediation at the local Ministry of Manpower office.