The sources of law dealing with employment and labour matters in Indonesia are widely dispersed among a number of national laws and regulations, namely:
• Law No. 13 of Year 2003 concerning Manpower (“Law 13/2003”)
• Law No. 2 of Year 2004 concerning Industrial Relations Dispute Settlement (“Law 2/2004”)
• Regulation No. 12 of 2013 by Minister of Labor and Transmigration on Procedures for Recruiting Foreign Workers (“2013 Regulation”)
The labour law protects and generally applies to all employees. An employee being a person working for a salary or compensation in any form.
Do employment contracts have to be in writing?
Only fixed-term employment contracts have to be in writing, and in the Indonesian language.
Fixed-term employment
A fixed-term employment is the employment of a worker for a certain period of time. Employment for a definite period can only be made for certain work, which by its nature and type will be completed within a certain period. A fixed-term employment cannot be for a longer period than three years. As a general rule, the maximum validity of an initial fixed-term employment is two years and the contract may be extended only once for up to one year. Subsequently, new fixed-term employment is only possible after a break of at least 30 calendar days after the previous employment has expired.
A fixed-term employment may not include a probationary period. If a fixed-term employment contract is terminated by the employer before its expiration, the employer is generally obliged to pay to the other party compensation in the amount of the employee’s salary until the end of the agreed employment period.
Permanent employment
Unless employment is entered into as a fixed term contract, the employment is for an indefinite period. For permanent employment contracts a probationary period of maximum three months may be imposed in writing. During the probationary period, an employer may terminate the employment relationship without cause and without having to pay any termination package provided the probation period was in writing.
Specific contents of an employment contract
Although it is not generally required by law (unless for a fixed-term employment) to have a written employment contract, it is generally recommendable to regulate the employment relationship in written form. If no written contract is made, all statutory rights pursuant to the prevailing labour and manpower laws and regulations are effectively considered to be implied into the employment relationship.
A written contract should include the following:
• Name and details of employer and employee
• Work position, place of work and hours
• Commencement date of employment and probationary period or employment period for a fixed-term employment
• Salary & additional benefits, if any, and method of payment
• Employment conditions and employee’s rights and obligations
• Place and date of execution of employment agreement and signatures of the parties
Termination of employment
Termination of employment is governed by Law 2/2004. As a first principle, employers, employees, labour unions (where applicable), and the government are obliged to make every effort to avoid termination of an employment. Efforts in this regard include positive actions aimed at avoiding termination, such as scheduling work hours, taking cost-efficiency measures, altering working methods and providing development programs to employees. In order to terminate an employment contract, the general rule is that the employer must first obtain a favourable decision on the termination from the industrial relations dispute settlement agency.
The requirement to obtain prior decision for termination does not apply, if the termination occurs:
• During probation
• Due to the employee’s voluntary resignation, with no indication of any pressure or intimidation from the employer
• Due to expiry of the employee’s contract for a fixed-term employment
• Due to the employee reaching retirement
• Due to the employee’s death
Business sale
An important regulation under Indonesian labour law and regulation is that termination of employment by the employee can occur in the event of a business sale.
Employees have the right to resign together with the right of receiving certain termination benefits if there is a change of control of more than 50% of the shares in the employer. Indonesian corporate law provides that the employees must be provided with written announcement 30 days prior to the general shareholders’ meeting with regard to the proposed business sale. Any objections would be settled by the general shareholders’ meeting.
The employer, however, has no right to terminate in the event of a business sale, as the identity of the employer technically remains the same.
Termination benefits
Termination generally triggers a termination benefits including three elements, namely severance pay, long service pay and compensation of rights. The components and amounts of the termination benefits generally depend on the length of the employment relationship and are based on the monthly salary and any additional fixed allowances granted to an employee.
The statutory minimum termination ts are generally not payable to an employee who is also a shareholder (excluding employees holding shares due to employee stock benefit plans).
Employing foreign workers
The Minister of Labor and Transmigration has recently issued a new regulation concerning the requirements of employing foreign workers (Regulation No. 12 of 2013). Regulation 2013 replaces the previous regulation issued in 2008.
The requirements of hiring a foreign employee are that the employee:
• Must have educational qualifications suitable for the work position
• Possesses the relevant competence, supported by competency certificates or has at least five years work experience relevant to the position
• Provides a written declaration of willingness to transfer his/her skills and knowledge to fellow Indonesian workers; and
• Must be able to communicate in Indonesian
• Foreign workers who are hired as a member of a company’s board of commissioners or board of directors, workers in the entertainment and tourism services industry (usaha jasa impresariat), or positions that are temporary by nature, are excluded from the above requirements. Temporary employment in this context means for a maximum of six months.
A business wanting to employ a foreigner must have its work recruitment plan (Rencana Penggunaan Tenaga Kerja Asing or RPKTA) approved by the Directorate General of Manpower Placement Oversight.
Restricted work positions for foreigners
Certain position are generally restricted for foreign employees as regulated under Minister of Labor and Transmigration Decree No. 40 of 2012 on Restricted Positions for Foreign Workers, which was issued to implement Article 46 (2) of Law No. 13/2003.
This article was co-written by Ingo Müller (Partner) and Gerry Purba (Senior Associate) based in the Bali office of Limcharoen (www.limcharoen.com; Email to )
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