Terms of employment in Indonesia are governed by Law No. 13 of 2003 regarding Manpower (also referred to as 'Labour Law') and employment-related issues (See Labour Pains in Indonesia). This law covers, among other things, issues regarding wages, dismissal due to resignation, termination or sickness, working hours, health and safety, welfare, and labour agreements. The law is also separate from the Law on National Social Security ‘BPJS’ that governs health and social security services.

Article 5 of Law No. 13 establishes the rights for individuals as being entitled to equal opportunities to obtain work without discrimination on the basis of race, sex, religion, disability or political affiliation. Furthermore, under Law No. 21 of 2000, employees can join or form trade unions that must be registered with the Department of Manpower’s district office.

Employment Contracts in Indonesia

Employment contracts in Indonesia can be executed in writing or orally. However, only fixed-term contracts can be in writing, whereas if specific circumstances prevent the formation of a written agreement, the contract can be executed orally. Law No. 13 of 2003 divides employees into the following two categories:

Definite Term Employees (Pekerja Waktu Tertentu)

A definite term employee is also known as a contract worker and is employed under a definite term employment agreement. The types of works for employees under this contract are as follows:

• The work is temporary or work that can be completed once;
• The work can be accomplished within three years;
• The work is seasonal;
• Work that is related to a new product or activity still in the experimental stage.

The initial definite term employment agreement is two years and can be extended once for up to one year. It is possible to extend a definite term employment agreement by two years, but only after a break of 30 calendar days and the original agreement has expired.

Indefinite Term Employees (Pekerja Waktu Tidak Tertentu)

An indefinite term employee is also known as a permanent worker and is employed for an indefinite period. An employer usually imposes a probation period of maximum 3 months (as defined by Article 60 of the Labour Law). The employee must be paid at or above the minimum wage and the employer can terminate the employment relationship during the probation period without notice and without obligation to pay a severance package.

Daily Workers

A daily worker receives his or her wage based on daily presence at the job site and volume and period with which the job is performed. The daily worker is also categorised as a definite term employee. The work must be completed within three months with a maximum of 20 working days per month.

For more information about the Employment Law in Indonesia or finding a local partner in Indonesia, contact GBG Indonesia.

Global Business Guide Indonesia - 2017

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)

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