Background
Amidst months of nationwide protests and strong opposition from various stakeholders, President Joko “Jokowi” Widodo at last signed Law Number 11 of 2020 on Job Creation on 2 November 2020 (“Job Creation Law”). Job Creation Law, also coined as omnibus law, came into effect immediately upon its enactment. It amends and/or revokes number of laws with the aim of boosting investment and promoting ease of doing business in hope of creating and increasing employment and decreasing unemployment rate as well as encouraging the development of small, medium and micro-sized enterprises. One of the laws amended by Job Creation Law is Law Number 13 of 2003 (“Employment Law”). This will be the first amendment of the Employment Law in more than 17 years since its enactment on 25 March 2003.
Employment Law is amended under Article 80 of the Job Creation Law, along with other labor-related laws among others are law on national social security system, law on social security organizing body and law on protection of migrant workers in Indonesia. As is common with any other laws, most of the provisions under the Job Creation Law is set to be further regulated in separate implementing regulations, in this case in government regulation(s), which shall be enacted within maximum of three (3) months as of the enactment of Job Creation Law.
KEY CHANGES
- Work Training
Under Job Creation Law, work trainings are conducted not only by government or third-party private training institution but may also be conducted by training institution in a company, provided that such training institutions must register its activity to the authorized district/city labor agency. On the other hand, third-party private training institutions are no longer required to register its activity to the authorized district/city labor agency. Third-party private training institutions however are required to obtain business license issued by regional government, or
by the central government should there be foreign capitals participations in such institutions. It is also worth noting that there is no provision regarding the requirement to have third-party private training institutions established in the form of legal entity(s) or individuals as previously was provided under the Employment Law.
- Employment of Foreign Workers
As suggested in its elucidation, Job Creation Law pursues ease of licensing requirement for foreign workers in possession of certain skills needed for the production of goods or services. This is reflected in the provisions which notably provides broader exemptions and eliminates certain licensing process for the employment of foreign workers.
Pursuant to the Job Creation Law, there are several types of foreign workers who are exempted from the Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing/ RPTKA) requirement namely:
- Director or commissioners in possession of certain number of shares or foreign shareholders in accordance with the prevailing laws and regulations;
- Diplomatic and consulate employees at foreign state representative office;
- Foreign workers needed by a company whose production activity is halted due to emergencies, vocational company, technology-based start up company, foreign workers in business trip and foreign workers needed for limited-time research purposes.
Foreign workers are still restricted to occupy recruitment-related positions. Provisions regarding employment of foreign workers, including types of work that may be undertaken by foreign workers as well as time period of employment of foreign workers, are expected to be further regulated in a government regulation.
- Contract-Based Employment/ Temporary Work Agreement (Perjanjian Kerja Waktu Tertentu)
Akin to the Employment Law, Job Creation Law also requires a temporary work agreement to be made in writing using Bahasa Indonesia or with Bahasa Indonesia as the controlling language, however, unlike the Employment Law, Job Creation Law does not stipulate the consequence of violation of this requirement. Previously, under the Employment Law, any contract-based employment in violation of such requirement will subsequently be deemed as a permanent employment.
With regard to types of work for contract-based employment, previously, the Employment Law only provides four (4) types of work which qualifies for contract-based employment i.e.,:
- One-time works or temporary-in-nature works;
- Works expected to be completed in short period/ short-termed works or in maximum of three (3) years;
- Seasonal works; and
- Works related to new products, new activities, or additional product in trial.
Job Creation Law not only removes the three-year maximum period as quantifier for short-termed works, but also added one additional type of work i.e., works that is of temporary type or which activities are temporary in nature, thereby broadening the types of work that qualifies for contract-based employment. Job Creation Law also removes provisions regarding maximum time period for temporary work agreement, this provision however is expected to be regulated in the succeeding government regulation, along with further provisions regarding types and nature of works which qualifies for contract-based employment.
In addition, Job Creation Law introduces payment of compensation for contract-based employment which previously was not stipulated under the Employment Law. Job Creation Law added Article 61A which determines that in the event that a contract-based employment has been terminated due to completion of certain work and expiration of work period, the employer is obligated to pay compensation to the employee in the appropriate amount by taking into account the working period of such employee. The implementation of this provision will also be further regulated in a government regulation.
- Outsourcing
Employment Law sets out the criteria of work that can be outsourced, namely (i) such work is conducted separated from the main activities; (ii) such work is undertaken by direct or indirect instruction from the employer; (iii) such work is an auxiliary activity of the company in its entirety; and (iv) such work will not directly hinder the production process. This requirement is entirely removed by the Job Creation Law thereby effectively eliminating the limitation imposes to company in undertaking outsourcing, subject to the provisions in the succeeding government regulation. Further, Job Creation Law also reaffirms the obligation of outsourcing company to ensure that protection, work requirements, dispute settlement, wages and welfare benefits enjoyed by outsourced workers at the very least are maintained in accordance with the prevailing laws and regulations.
- Working Hour
There is no change to the working hour i.e., (i) 7 hours per day and 40 hours per week for 6 working days per week; or (ii) 8 hours per day and 40 hours per week for 5 working days per week. However, the Job Creation Law extends the permitted overtime hours into maximum of 4 hours per day and 18 hours per week. The provision on working hour is also expected to be further regulated in a government regulation.
- Resting Period
The Employment Law determines that the employer is obligated to give resting period of 1 day per week for 6 working days and 2 days per week for 5 working days. The Job Creation Law however, only stipulates the resting period of 1 day per week for 6 working days thereby creating confusion with regard to the weekly resting period for employee with 5 working days. Job Creation Law also removes the provisions regarding long resting period, provided that companies who have given long resting period to its employees may not revoke and/or reduce it. Further clarity is expected to be provided in the upcoming government regulation.
- Wages
Employers are still required to observe minimum wage requirement in accordance with governor-stipulated provincial minimum wage or regency/city minimum wage (if any, existence of which was made optional under the Job Creation Law). Job Creation Law however provides exemption for small and micro-sized enterprises from the minimum salary policy, in which the wages of employees in a small and micro-sized enterprises is stipulated pursuant to agreement between the employer and the employee by taking into account certain percentage of average public consumption pursuant to data from authorized statistics agency.
Further, pursuant to Article 92, Job Creation Law requires companies to formulate companies’ structure and scales of wages by taking into account the ability and productivity of the company. This structure and scales of wages shall be referred to by the company in determining wages. The company is also required to conduct periodical assessment over calculation of wages.
Job Creation Law maintains the provisions regarding imposition of fine in the event of any intentional and/or unintentional error made by employee as well as in the event of late payment of wages by the employee, fine of which shall be calculated based on certain percentage of the employees’ wages. Job Creation Law also maintains imposition of criminal sanction in the form of jail time and fine against employers who stipulate wages below the prevailing minimum wage. Such wage stipulation will also be deemed null and void and subsequently the employer will be required to pay wages in accordance with the prevailing minimum wage.
In the event of bankruptcy or liquidation of employers, Job Creation Law has accommodated Constitutional Court decision in 2013 whereby payment of outstanding wages shall be prioritized over payment to any kind of creditors, saved for secured creditors.
- Employment Termination and Termination Benefits
In line with the Employment Law, Job Creation Law also recognizes that employers and employees alike are expected to exhaust all effort in order to prevent employment termination. In the event that termination is unavoidable, the employers are required to notify the employees, notification of which may be rejected by the employees. Notification of employment termination is not required if such termination occurred due to voluntary resignation, expiration of working period in accordance with temporary work agreement, the employee having reached retirement period, or death of employee. Should the termination resulted in dispute between the employer and the employee, the disputed parties are expected to undergo dispute settlement procedure in accordance with law on industrial relation dispute settlement.
With regard to termination benefits, Job Creation Law in principle determines the same formula for calculation of termination benefits which shall encompass (i) severance payment; (ii) reward payment and (iii) compensation payment. Job Creation Law however removes one composition of compensation payment which previously was available under the Employment Law i.e., compensation for housing allowance, medical and health care allowance in the amount of 15% (fifteen percent) of the severance pay and/or reward money. In addition, Job Creation Law also removes provisions which granted multipliers of termination benefits depending on the reasons of employment termination. Further clarity on employment termination is also expected to be given in the succeeding government regulation.
For ease of reference, please refer to the following table to identify the key changes as elaborated above.
| Key Changes | Employment Law | Job Creation Law |
| Work Training | Work training may be conducted by (i) government training institution as well as (ii) third-party private training institution. | Work training may be conducted by (i) government training institution, (ii) third-party private training institution as well as (iii) training institution in a company. |
| A third-party private training institution shall be established in the form of Indonesian legal entity or individuals. | There is no provision regarding the requirement of a third-party private training institution to be established in the form of legal entity or individual. | |
| A third-party private training institution will be required to obtain licensing or register to the authorized district/city labor agency, whilst a government training institution will only be required to register to the authorized district/city labor agency. | Third-party private training institutions are required to obtain business license issued by regional government, or by the central government should there be foreign capitals participations in such institutions. Whilst government training institutions and training institution in a company are required to register its activity to the authorized district/city labor agency. | |
| Employment of Foreign Workers | Any employer employing foreign workers are required to possess a legalized Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing/RPTKA) with the exemption of (i) government institutions; (ii) international agencies; and (iii) diplomatic and consulate employees at foreign state representative office. | Any employer employing foreign workers are required to possess a legalized Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing/RPTKA) with the exemption of (i) Director or commissioners in possession of certain number of shares or foreign shareholders in accordance with the prevailing laws and regulations; (ii) diplomatic and consulate employees at foreign state representative office (iii) foreign workers needed by a company whose production activity is halted due to emergencies, vocational company, technology-based start-up company, foreign workers in business trip and foreign workers needed for limited-time research purposes. |
| Contract-Based Employment/Temporary Work Agreement | A temporary work agreement shall be made in writing using Bahasa Indonesia or with Bahasa Indonesia as the controlling language. Any work agreement in violation of this requirement shall be deemed as a permanent work agreement. | A temporary work agreement shall be made in writing using Bahasa Indonesia or with Bahasa Indonesia as the controlling language. However, there is no provision on the consequence of any work agreement in violation of such requirement. |
| There are four (4) types of work which qualifies for contract-based employment i.e.,:one-time works or temporary-in-nature works;works expected to be completed in short period/ short-termed works or in maximum of three (3) years;seasonal works; andworks related to new products, new activities, or additional product in trial. | There are five (5) types of work which qualifies for contract-based employment i.e.,:one-time works or temporary-in-nature works;works expected to be completed in short period/ short-termed works;seasonal works;works related to new products, new activities, or additional product in trial;works that is of temporary type or which activities are temporary in nature. | |
| The time period of a temporary work agreement shall be maximum of two (2) years and may be extended once for the period of one (1) year. Following thirty (30) days as of the end of such time period, such temporary work agreement may be renewed once for another two (2) years. | There is no provision regarding maximum time period for temporary work agreement. | |
| There is no provision regarding payment of compensation for contract-based employee. | In the event a temporary work agreement has been terminated due to the termination period and/or due to the completion of certain work, the employer is obligated to provide a compensation payment to the worker in accordance with the working period of such worker. | |
| Outsourcing | The criteria of works that are allowed to be outsourced, are (i) such work is conducted separated from the main activities; (ii) such work is undertaken by direct or indirect instruction from the employer; (iii) such work is an auxiliary activity of the company in its entirety; and (iv) such work will not directly hinder the production process. | There is no stipulation regarding the criteria of works that are allowed to be outsourced. |
| Working Hour | Permitted overtime hours are maximum of three (3) hours per day and fourteen (14) hours per week. | Permitted overtime hours are maximum of four (4) hours per day and eighteen (18) hours per week. |
| Resting Period | Mandatory weekly resting period is one (1) day for six (6) working days per week and two (2) days for five (5) working days per week. | Mandatory weekly resting period is one (1) day for six (6) working days per week. |
| Long resting period of two (2) months on the seventh and eighth working year, each for a period of one (1) month, shall be given to an employee who has worked in such company for six (6) consecutive years. | There is no requirement for employer to grant long resting period, provided that employers who have given long resting period to its employees may not revoke and/or reduce such policy. | |
| Wages | Minimum wage shall be consisted of (i) territorial-based minimum wage i.e., provincial or regency/city minimum wage; (ii) sectoral-based minimum wage within the province or regency/city. | The governor is required to stipulate provincial minimum wage. Governor may also stipulate regency/city minimum wage with certain requirements which shall be higher than the provincial minimum wage. |
| The employer shall formulate wages structure and scale by taking into account class, position, working period, education and competency. | The employer shall formulate wages structure and scale by taking into account company’s ability and productivity. Such structure and scale shall be referred to as the guidelines for the employer in determining employees’ wages. | |
| There is no exemption given with regard to the obligation to satisfy minimum wage requirement. | Small and micro-sized enterprises are exempted from the minimum salary requirement in which case it shall be stipulated pursuant to agreement between the employer and the employee by taking into account certain percentage of average public consumption pursuant to data from authorized statistics agency. | |
| Provision regarding the prioritization of payment of outstanding wages against payment to other creditors in the event of bankruptcy or liquidation of employers in the Employment Law was only stipulated in a Constitutional Court Decision. | Payment of outstanding wages shall be prioritized over payment to any kind of creditors, saved for secured creditors. | |
| Employment Termination | Any employment termination must be preceded by a discussion between the employer and the labor union or with the relevant employee should such employee is not a member of the labor union. In the event that no agreement was made, an employer may only terminate the employment of such employee by virtue of a stipulation from industrial relation court. | Employer give notification regarding the purpose and reason of employment termination to the relevant employee and/or the labor union. In the event that the employee has been notified and subsequently refused such termination, the employment termination shall be undertaken through a bipartite discussion between the employer and the relevant employee and/or labor union. Should no agreement was reached in such discussion, the employment termination shall be carried out in accordance with the settlement mechanism in industrial relation court. |
| Termination Benefits | Termination benefits shall encompass (i) severance payment; (ii) reward payment and (iii) compensation payment, which shall consist of (a) reimbursement of valid and available annual leave; (b) cost of transportation for the employee and his/her family for returning to the place where he/she was recruited; (c) others as stipulated in the work agreement, company regulation or joint work agreement; as well as (d) housing allowance, medical and health care allowance in the amount of 15% (fifteen percent) of the severance pay and/or reward money. | Termination benefits shall encompass (i) severance payment; (ii) reward payment and (iii) compensation payment, which shall consist of (a) reimbursement of valid and available annual leave; (b) cost of transportation for the employee and his/her family for returning to the place where he/she was recruited; (c) others as stipulated in the work agreement, company regulation or joint work agreement. |
| Depending on the reasons of termination, the Employment Law sets out the calculation formula for payment of termination benefits, some of which provides higher termination benefits for the employee e.g., pursuant to article 166, in the event that an employment was terminated due to death of the employee, the calculation of termination benefits shall be as follows: two (2) times severance payment + one (1) times reward payment + one (1) times compensation payment. | Job Creation Law removes the provisions regarding the calculation formula of payment of termination benefits depending on the reasons of termination. |
Written by Ahmad Jamal Assegaf and Caroline Ignes Tando. Please click on the download button below to read this publication.