How-to understand labors rights in Indonesia

Businesses would often benefit greatly from ensuring their employees are given their basic rights as employees tend to work more effectively and efficiently. Labor law regulates all matters relating to labor before, during and after work. Understanding labor rights is a vital aspect in conducting business in Indonesia as penalties can be imposed on businesses that do not comply with the labor law. This article explains several rights of employees that must be fulfilled in Indonesia.

Governing laws and regulation

• Law No. 13/2003 on Manpower as amended by Law No. 1/2020 on Job Creation along with quite a considerable of its implementation regulation on specific matters 
• Law No. 2/2004 on Industrial Relations Dispute Settlement 
• Law No. 21/2000 on Labor Unions
• Government Regulation (PP) No. 35/2021 concerning Work Agreements for Certain Time, Outsourcing, Working Time and Rest Time, and Termination of Employment
• Government Regulation (PP) No. 36/2021 concerning Remuneration

Company regulation and collective work agreement

Before hiring workers, it’s better for a company to have either Company Regulations or Collective Labor Agreements (PKB). The purpose of this document is for the certainty of working conditions in the company as well as clear rights and obligations of workers and employers. 

Employers who employ at least 10 (ten) workers are required to make a company regulation which come into force after being ratified by the manpower minister or an appointed official. The company regulation is made by the person who runs the company (Company Representative) and is the responsibility of his/her. The company regulation must be made by taking into account suggestions and considerations of the company’s representatives of workers. Workers’ representatives can be in the form of a labor union if there is one or if not, then a worker’s representative is a worker who is democratically elected to represent the interests of the workers in the company. The company regulation must at least contain the rights and obligations of the Company Representative, the rights and obligations of the worker, working conditions, company rules and regulations, as well as the validity period of the company regulation. The validity period of the company regulation is a maximum of 2 (two) years and must be renewed after that.

PKB is made by a labor union or several labor unions that have been registered with the agency responsible for manpower affairs with the Company Representative or several employers. In 1 (one) company, only 1 (one) collective work agreement can be made which applies to all workers/laborers in the company. The validity period of the PKB is a maximum of 2 (two) years. PKB can be extended for a maximum of 1 (one) year. The collective work agreement shall at least contain the rights and obligations of the Company Representative, the rights and obligations of the labor union as well as the workers, the period and date of entry into force of the collective work agreement, as well as the signatures of the parties making the collective work agreement. The work agreement made by the Company Representative and the worker may not conflict with the PKB that has been made.

Employers must submit an application for ratification of the company regulation or the PKB to the Regency/Municipal Manpower Agency if the company exists only in 1 (one) regency/city area. If the company is located in more than 1 (one) regency/city in 1 (one) province, then the application for approval is submitted to the Provincial Manpower Agency. The application for ratification is also accompanied by a company regulation text that has been signed by the Company Representative and evidence that the Company Representative has asked for advice and considerations from the labor union or workers’ representative.

Working agreements

Working agreement is an agreement between workers/labor and businesses or employers that contain working requirements, rights and obligations of parties. Employment relationships in Indonesia must be laid out in a work agreement. Working agreement shall be made in writing or verbally. It shall be made on the basis of bilateral agreement, capacity and capability of taking legal action, agreed jobs, and agreed jobs that do not contravene public order, morality and legislation in force. 

In general work agreements can either be for a definite time or an indefinite time (permanent employment).  

1. Definite Time

Definite Time Work Agreement (PKWT), is a work agreement between a worker and an employer to enter into an employment relationship for a certain period of time or for a particular job. PKWT cannot require a probation period. 

PKWT is based on: 

• period of time. This PKWT is made for certain jobs, namely jobs that are estimated to be completed in a not too long time which is a maximum of 5 (five) years, seasonal work that depends on the season/weather or certain conditions, or work related to new products, new activities, or additional products that are still under trial or exploration. This PKWT can be made for a maximum of 5 (five) years. If the PKWT is about to expire and the work carried out has not been completed, the PKWT may be extended for not more than 5 (five) years; or 
• completion of a particular job. This PKWT is made for certain jobs, namely work that is once completed or work that is temporary in nature. This PKWT must contain the scope and limits of a work that the PKB has completed and the length of time for the completion of the work. If the certain work agreed in the PKWT can be completed faster than the agreed length of time the PKWT is terminated by law at that time. But if the certain work agreed upon in the PKWT cannot be completed according to the agreed length of time, the period of PKWT shall be extended to a certain time limit until the completion of the work.

In addition to those two types, PKWT can also be carried out on certain other jobs whose types and nature or activities are not permanent. The work can be in the form of certain jobs that vary in terms of time and volume of work as well as payment of worker wages based on attendance. This PKWT can be done by means of a daily work agreement under the condition that the worker works less than 21 (twenty one) days in 1 (one) month.

The minimum provision that should be mentioned in PKWT are: 

• name, address of the company, and type of business; 
• name, gender, age, and address of worker; 
• position or type of work; 
• place of work; 
• the amount and method of payment of wages; 
• the rights and obligations of the Employer and worker in accordance with the provisions of the legislation and/or working conditions regulated in the Company Regulation (Peraturan Perusahaan)  or Collective Labor Agreement (Perjanjian Kerja Bersama)
• start and period of validity of the PKWT;
• the place and date the PKWT was made; and 
• the signatures of the parties to the PKWT.

PKWT must be registered by the employer at the Ministry of Manpower online no later than 3 (three) working days from the signing of the PKWT. If the online PKWT registration is not yet available, then the PKWT registration is carried out by the business actor in writing at the agency that administers government affairs in the district/city manpower sector, no later than 7 (seven) working days from the signing of the PKWT.  

2. Indefinite Time

An Indefinite work agreement (PKWTT), is a work agreement between a worker and an Employer to establish a permanent working relationship. PKWTT can require a probation period for 3 (three) months at the maximum. During the probation period, businesses shall be prohibited from paying wage below the minimum wage in force.

In a PKWTT, the agreement will end for the following reasons:

• The Company merges, consolidates, takes over, or separates the Company and the worker is not willing to continue the Employment Relationship or the Employer is not willing to accept the worker;
• The company performs efficiency followed by the closing of the company or not followed by the closure of the company due to the company experiencing a loss;
• The company closed due to the company experiencing continuous losses for 2 (two) years;
• The company closed due to force majeure;
• The company is in a state of suspension of debt payment obligations;
• Bankrupt company;
• There is an application for Termination of Employment submitted by the worker on the grounds that the Employer has committed the following actions:
  • mistreating, abusively insulting, or threatening the worker;
  • persuading and or ordering Worker to perform acts that are contrary to the laws and regulations;
  • does not pay Wages on time for 3 (three) consecutive months or more, even though the Entrepreneur pays Wages in a timely manner after that;
  • does not perform the obligations that have been promised to the worker;
  • instruct the worker to carry out work outside the agreement; or provide work that endangers the life, safety, health, and morals of the worker while the work is not stated in the Work Agreement;
  • there is a decision of the industrial relations dispute settlement institution stating that the Employer has not committed the act as referred to in letter g on the application submitted by the worker and the Employer decides to terminate the Employment Relations;
• Worker resign of their own accord and must meet the following requirements:
  • submit a written application for resignation no later than 30 (thirty) days prior to the start date of the resignation;
  • not bound in official ties; and
  • continue to carry out their obligations until the date of resignation;

• The worker is absent for 5 (five) consecutive working days without written information accompanied by valid evidence and has been summoned by the Employer 2 (two) times properly and in writing;
• Worker violate the provisions stipulated in the Employment Agreement, Company Regulations, or Collective Labor Agreement and have previously been given the first, second, and third warning letters respectively, each valid for a maximum of 6 (six) months unless otherwise specified in the Employment Agreement, Company Regulations, or Collective Labor Agreement;
• Worker are unable to work for 6 (six) months due to being detained by the authorities because they are suspected of committing a crime;
• The worker experiences a prolonged illness or disability due to a work accident and is unable to perform his/her work after exceeding the limit of 12 (twelve) months;
• Workers enter retirement age; or 
• Workers die.

Unlike PKWT, PKWTT does not need to be asked for approval from officials.

In PKWT, if one of the parties terminates the employment relationship before the completion of a certain period or work and in a PKWTT if one of the parties terminates the employment relationship ends for reasons other than as stated above then, that party shall pay compensation to the other party as much as the amount of workers until the expiration of the period of working agreements. 

Compensation

Every worker has the right to obtain income fulfilling humanely adequate sustenance. The wage policy in employment law consist of:

• a minimum wage
• wage structure and scale
• wages for overtime work
• wages do not come to work and/or do not do work for certain reasons
• form and method of payment of wages if things that can be calculated with wages
• wages as the basis for calculating or paying other rights and obligations.

Businesses must arrange the structure and scale of wage in the company in accordance with the company’s ability and productivity. Businesses must comply with the minimum wage standard. A minimum wage is determined by the regional government, thus, would vary depending on the location of the business. Wage given to employees or laborers must not be lower than the statutory regulations as mentioned in the PP No. 36/2021 even though there has been an agreement or written agreement regarding the nominal wage between the businesses and the worker. 

The no work no pay principle is applied to a certain extent in Indonesia. These circumstances would require businesses to pay employees’ wages despite their absence at work, which are:

• The employee is ill
• Female workers are ill on the first and second day of their menstruation period
• The employee is getting married, marry of their children
• Birth of employee’s children and miscarriages
• Circumcision or baptism of employee’s child
• Death of employee’s spouse, parent, parent-in-law, child, step-child, and other household members
• Employee is performing religious obligations
• Performing labour union duties with the permission of the employer
• Undergoing education program required by the employer

The paid leave time period would vary in accordance with the circumstances faced.

In the event that the company is declared bankrupt or liquidated under provisions based on the legislation, wages and other rights that have not been received by the worker are debts whose payment takes precedence. The wages of the workers/laborers are paid prior to payment to creditors, except for creditors holding material rights guarantees. In PKWT, compensation money is given at the end of the PKWT.

Working Hours

There are two schemes of work hours in Indonesia covered by the Law No. 13/2003:

1. For 6 workdays in a week, 7 hours a day and 40 hours a week;
2. For 5 workdays in a week, 8 hours a day, 40 hours a week. 

The working hours scheme is exempted from certain business sectors or certain types of work.

Overtime

Businesses that require their employees to work longer than the aforementioned working hours must meet the following requirements:

1. Consent from the relevant employee;
2. Maximum overtime work of 4 hours in a day and 18 hours in a week. 

In addition to such, employees who work overtime are entitled to receive overtime pay, get opportunities for adequate rest, and get food and drink at least 1,400 (one thousand four hundred) kilocalories, if overtime work is carried out for 4 (four) hours or more.

However, overtime pay is not mandatory for certain business sector and jobs, provided that they would obtain higher wages. These are employees who have the responsibility as thinkers, planners, implementers and controllers of the operations of a company, whose working hours cannot be limited.

Rest and leave

Businesses are obliged to allow their workers/ laborers to take a rest and leave. The period of rest and leave shall include:

• The period of rest or a break between working hours that is no shorter than half an hour after working for 4 (four) hours consecutively and this period of rest shall not be inclusive of working hours
• The weekly period of rest that is no shorter than 1 (one) day after 6 (six) workdays in a week or no shorter than 2 (two) days after 5 (five) workdays in a week
• The yearly period of rest that is no shorter than 12 (twelve) workdays if the worker works for 12 (twelve) months consecutively
• A long period of rest of no less than 2 (two) months, which shall be awarded in the seventh and eighth year of work each for a period of 1 (one) month to Worker who have been working for 6 (six) years consecutively at the same enterprise on the condition that the said workers/ labourers will no longer be entitled to their annual period of rest in 2 (two) current years. This ruling shall henceforth be applicable every 6 (six) years of work. 

Businesses are obliged to provide workers with adequate opportunity to pray to and or worship God as obliged by their religions. Businesses also must allow female workers who feel pain during their menstrual period to come to work on the first and second day of menstruation. Female workers that are about to give birth are entitled to a 1.5 month period of rest before the time and another 1.5 month period of rest thereafter. A female worker/laborer who has a miscarriage is entitled to a period of rest of 1.5 months or a period of rest as stated in the medical statement. Female workers whose babies still need breastfeeding for their babies should be provided an opportunity to breast-feed if that must be performed during working hours. 

Social security

Based on Law No. 13/2003, employees have the right to receive social security benefits for themselves and their family. The employee social security benefit is administered by BPJS, which consists of the BPJS health program and the BPJS employment program. 

Through the health program, BPJS manages the health insurance of employees, while under the employment program, it consists of work-related accident insurance, pension benefits, old-age insurance, and life insurance.

Employers are obligated to register their employees in both BPJS programs. However, contributions are made by both employers and employees, except for work-related accident insurance and life insurance, where payments are fully burdened on the employers.

Labor unions

A labor union is formed by at least 10 employees. Unions in Indonesia must be registered at the local government agency responsible for employment matters.

A registered union has the right to:

• Negotiate collective work agreements with employers;
• Represent employees in resolving industrial disputes;
• Establish institutions or carry out activities related to the improvement of workers’ welfare; 
• Plan, implement and take responsibility for workers’ strikes; and
• Carry out other activities in the field of employment that are in conformity with the applicable laws and regulations.

Employers are prohibited from union busting by performing these activities:

• preventing employees from forming a union, becoming members of a union, or conducting union related activities;
• terminating employment, suspending employment, demanding office, or mutating employees involved in labor unions;
• does not pay or reduce workers’ wages for engaging in union activities;
• intimidating in any form;
• campaigning against the formation of labor unions.

Sanctions will be imposed if employers are proven to conduct union busting.

Termination

Law No. 13/2003 provides that the termination of an employee should be prevented at all costs, in some cases, terminations are even prohibited. When employers unavoidably have to terminate their employees, authorities must approve such termination. Exceptions to such include, among others, termination during a probationary period or the voluntary resignation of the employee.

Referring to Law No. 13/2003, an employer does not have the power to unilaterally terminate employees under any circumstances. Nevertheless, employers are able to negotiate and settle a separation benefits package with the employee and sign a mutual termination agreement.

Termination of employment in PKWTT will give the worker’s right to:

• severance pay;
• appreciation pay;
• compensation pay; and
• if applicable, separation pay.

Procedure

In Indonesian regulations, there are no specific procedures for recruiting workers. However, in opening vacancies and recruiting workers, employers must do so without contradicting the provisions of the legislation in Indonesia, such as avoiding fraud, violence, crime and other unlawful acts that can harm the workers. After going through the worker recruitment process the employer will go through the following stages to hire the employee:

1. Make a formal offer letter

Once you agree to hire a candidate, the offer is formalized with an offer letter. Although an offer letter is not legally regulated, it sets clear expectations for both parties and is the basis for an employment contract. The standard elements of An offer letter in Indonesia usually consists of:

• Position (title, division, direct supervisor)
• Job description
• Performance metrics
• Start date
• type of contract
• Salary and other benefits

2. Determine the type of work agreement to be used

Once the employer agree to hire a candidate, they must specify what type of work agreement they are offering either PKWT or PKWTT as already explained in this article. Work agreement is legally binding and must adhere to the Indonesian Manpower Law. 

After determining the type of contract, the entrepreneur will make the contract which contains the terms of employment, rights and obligations of the parties and any other minimum provisions that should be mentioned. The contents of the contract must also be adjusted to the company regulation or PKB that the company has. Because if the provisions in the work agreement conflict with the PKB or the work agreement does not contain the rules stipulated in the PKB, then the provisions in the work agreement are null and void and the provisions in the collective work agreement apply. If the company has not had company regulation or PKB and has already met the requirements as a company that must make company regulation or PKB, the company should make and register the company regulation or PKB to the Work Unit for Manpower Affairs. 

It should be noted that in determining the amount of salary in the work agreement, the employer must understand the People’s Minimum Wage (UMR) based on the province or district/city. At this stage, the employer must ensure that their obligations are already stated and in accordance with the provisions of the law, both in compensation, working hours, rest and leave provision, termination, the social security facility, and others.

3. Signed the work agreement

After the agreement is completed, the agreement will be given to the employee to be signed. At this stage, the worker must ensure that their rights are not harmed and in accordance with the provisions of the law, both in compensation, working hours, rest and leave provision, termination, the social security facility, and others. 

For PKWT, the employer must register the PKWT to the Ministry of Manpower online no later than 3 (three) working days from the signing of the PKWT. If the online PKWT registration is not yet available, then the PKWT registration is carried out by the business actor in writing at the agency that administers government affairs in the district/city manpower sector, no later than 7 (seven) working days from the signing of the PKWT. Once the parties have agreed to the work agreement, the worker can start working based on the time when work starts as stated in the contract.