Enactment of New Government Regulation
Sheds Clarities on Employment Issues
On 2 February 2021, Indonesian government enacted Government Regulation Number 35 of 2021 on Contract-Based Employment, Outsourcing, Working Time and Resting Period, and Employment Termination (“GR 35/2021”). Enactment of GR 35/2021 is mandated under Law Number 11 of 2020 on Job Creation (“Job Creation Law”) as one of the implementing regulations of the Job Creation Law, specifically, GR 35/2021 serves as the implementing regulation for Article 81 of the Job Creation Law on the amendment of Law Number 13 of 2003 on Employment (“Employment Law”), which we have covered in our previous newsletter.
GR 35/2021 provides clarity on the provisions under Law Number 13 of 2003 on Employment as amended by Job Creation Law (“Amended Employment Law”), mainly provisions on certain employment issues which can be sum up as follows:
- Contract-Based Employment/ Temporary Work Agreement (Perjanjian Kerja Waktu Tertentu)
In line with Article 56 of the Amended Employment Law, GR 35/2021 provides that temporary work agreement may be entered into on the basis of (i) time period; or (ii) the completion of certain work, for certain types of work as previously determined in Article 59 of the Amended Employment Law. GR 35/2021 however provides clarity on provisions applicable for temporary work agreement for each type of work, as follows:
- Temporary Work Agreement Entered Into on the Basis of Time Period
Such temporary work agreement, along with its extension(s), may be entered into for maximum of five (5) years. In the event of extension, working period of such employee shall be calculated from the commencement of initial contract-based employment.
- Temporary Work Agreement Entered Into on the Basis of Completion of Certain Work
Such temporary work agreement shall stipulate (i) scope of work and the indicator for such work to be deemed as completed; and (ii) time period required for the completion of such work. Unlike temporary work agreement entered into on the basis of time period, GR 35/2021 does not stipulate certain maximum time period for such temporary work agreement. GR 35/2021 provides that such temporary work agreement and its extension may be entered into for as long as required for the completion of the work.
- Temporary Work Agreement Entered Into for Other Types of Temporary-in-Nature-Work
GR 35/2021 provides clarity on the implementation of this type of contract-based employment wherein temporary work agreement for types of work which are inconsistent in terms of time and work volume and payment of which are made based on attendance shall be implemented in the form of day-to-day work agreement. Such day-to-day work agreement may be implemented provided that such employee may only work for less than 21 days each month, any contract-based employment in violation of such limitation for 3 consecutive months will subsequently be deemed as a permanent employment.
Employee under contract-based employment in the form of a day-to-day work agreement is entitled to receive employee rights as provided under the prevailing laws and regulations including employee rights regarding wages, religious holiday allowance, resting period, leaves, as well as workers and health social security program. A day-to-day work agreement may be made collectively and at least shall include the following provision:
- Name/ address of the company or employer;
- Name/address of the employee;
- Types of work to be conducted; and
Despite requiring employers to register any temporary work agreement to the Ministry of Manpower within three (3) days as of the execution of such temporary work agreement for online registration, or within seven (7) days for registration through local manpower government agency, GR 35/2021 imposes no sanction for violation of such requirement.
One of the most anticipated provision to be stipulated under GR 35/2021 is provision regarding compensation payment which was introduced for the first time through Amended Employment Law. Under the Amended Employment Law, employer is obliged to grant compensation payment to contract-based employee upon termination and/or expiration of the temporary work agreement. GR 35/2021 reaffirms this obligation and further regulates the implementation and calculation of compensation payment.
Pursuant to Article 15 of GR 35/2021, compensation payment shall be granted to employee with minimum working period of one (1) month consecutively. Compensation payment shall be made upon the termination/expiration of the relevant temporary work agreement, meaning in the event where a contract-based employee is granted an extension, employer is obliged to settle the compensation payment as required for the expiration of the previous temporary work agreement whilst the compensation payment for the extension shall be made upon the termination/expiration of such extension.
Compensation payment shall be calculated as follows:
- Contract-based employment for twelve (12) months consecutively, shall be granted compensation payment amounting to one (1) month wages;
- Contract-based employment of more than one (1) month or more which are less than twelve (12) months as well as contract-based employment of more than twelve (12) months, shall be calculated proportionately as follows:
working period X one (1) month wages
The calculation of working period for compensation payment is to be counted as of the enactment of Job Creation Law on 2 November 2020, meaning for one-year contract-based employment which will be terminated in May 2021, the working period would only be calculated as six (6) months as opposed to twelve (12) months. Wages referred to as the basis for the calculation of compensation payment shall encompass base wages and fixed allowance, not including non-fixed allowance. It is important to note that GR 35/2021 also offers leniency to micro and small-sized enterprises wherein the compensation payment may be undertaken pursuant to agreement between the employer and employee.
GR 35/2021 sets out several requirements which shall be fulfilled by an outsourcing company among others:
- Outsourcing company shall be established in the form of legal entity and shall fulfil licensing obligations as required by the central government;
- Employment relationship between an outsourcing company and its employees shall be based on a temporary work agreement or an indefinite work agreement made in writing by observing workers protection, social security and welfare and working requirements as stipulated under the prevailing laws and regulations;
- In addition, in the event that the employment was based on a temporary work agreement, such temporary work agreement shall include a clause wherein outsourced workers shall be guaranteed protection of rights should changes of outsourcing company occurs, provided that the relevant work is still available.
- Working Time and Resting Period
With the exception of companies having business in certain sector or undertaking certain type of work, GR 35/2021 obligates employer to implement working time and weekly resting period encompassing:
- Seven (7) hours per day forty (40) hours per week with one (1) resting day for six (6) working days a week;
- Eight (8) hours per day forty (40) hours per week with two (2) resting day for five (5) working days a week.
As provided under the Job Creation Law, GR 35/2021 also stipulates that overtime work may be undertaken for maximum four (4) hours a day and eighteen (18) hours a week. Such overtime limit does not include overtime work conducted during weekly resting period and/or public holiday. There are several requirements which must be fulfilled by an employer in the event of overtime, which can be sum up as follows:
- Employer must provide instruction for overtime work which shall be approved by the employees. Such instruction and approval shall be made in the form of list, which may be in written or digital form, stipulating the names and the overtime hours;
- Employer shall provide opportunity to the employees for resting sufficiently;
- In the event where the overtime hours exceed four (4) hours, employer shall also provide meals with minimum calories of 1400 kcal;
- Employer must pay overtime wages in accordance with the terms and conditions as set out in details under GR 35/2021.
- Employment Termination
GR 35/2021 reaffirms components of employment benefits granted by employer in the event of employment termination encompassing (i) severance payment; (ii) reward payment; and (iii) compensation payment, including the terms and conditions applicable for each benefit.
Further, one of the amendments on the Employment Law made by the Job Creation Law is the removal of provisions granting multipliers of termination benefits depending on the reasons of termination, amendment of which gave raise to strong opposition and was subjected to heavy scrutiny by public. GR 35/2021 clears the air by stipulating further provisions on the termination benefits which shall be granted by the employer in accordance with termination reasons, such as requiring the granting of 1x severance payment, 1x reward payment and compensation payment in the event the employer terminates employment on the basis of company efficiency in order to prevent loss, the granting of 0.5x severance payment, 1x reward payment and compensation payment in the event of employment termination due to the occurrence of force majeure events and so on. It is advisable for the employer to observe the applicable termination package in accordance with the corresponding termination reasons.
GR 35/2021 offers leniency to the employer in the payment of termination benefits wherein GR 35/2021 allows employer who register its employees in pension program in accordance with the prevailing laws and regulations in the field of pension fund, to calculate contributions made for such program as part of fulfilment of termination benefits. In the event where the contributions are less than the required termination benefits, the employer however is still obligated to make payment for such deficit to the employee.
In addition, GR 35/2021 also grants exception to employers categorized as micro and small-sized enterprises wherein such employer may grant termination benefits in the amount stipulated based on mutual agreement with the employee.
- Quick Checklist
We understand that navigating employment regulatory compliance can be tedious especially with the surge of new regulations and its amendments in these past months. For your ease of reference, herewith we provide you with a quick checklist on some main employment issues pursuant to the Amended Employment Law and GR 35/2021.
|Employment Issues||Contract-Based Employment||Permanent Employment|
|Time Limit||Five (5) years including any extension(s) or as required for the completion of certain work||None|
|Probation Period||None||Maximum three (3) months of probation period|
|Working Hours||Seven (7) hours per day forty (40) hours per week with one (1) resting day for six (6) working days a week; orEight (8) hours per day forty (40) hours per week with two (2) resting day for five (5) working days a week.|
|Overtime||Maximum four (4) hours a day and eighteen (18) hours a week.|
|Employee Benefits||Employee rights as provided under the prevailing laws and regulations including employee rights regarding minimum wages, religious holiday allowance, resting period, leaves, as well as workers and health social security program.|
|Wages||Must observe minimum wage requirement in accordance with governor-stipulated provincial minimum wage or regency/city minimum wage. Except for small and micro-sized enterprises from the minimum salary policy, in which the wages of employees are stipulated pursuant to agreement between the employer and the employee.|
|Termination Benefits||Compensation payment.||Termination benefits consisting of severance payment, reward payment and compensation payment.|
|Amount of compensation payment depends on the work period.||Amount of termination benefits depends on work period and reasons for termination.|