Law No. 13 on Manpower of 2003 (the Labour Law) creates the legal framework for employment in Indonesia, and applies to both local Indonesians and foreigners employed in Indonesia. It is not possible do contract out any terms of the employment legislation, although practically many contracts does not comply. In the case of conflict between a contract and the law, the law overrides the terms of the contract. For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Indonesia.
Key Factors to Consider When Employing in Indonesia:
There are several key areas to be aware of within Indonesia’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.
In Indonesia, parties are usually free to negotiate and document their own employment contracts, so long as they contain key information such as employee names, the type of work and wage amount. The terms of employment (such as minimum regional wage and leave entitlements) may not less favourable than those prescribed by law.
Working on Sundays
Time Off Work
An employee is entitled to paid 12 days annual leave.
Employees are entitled to both paid sick leave as well as extended paid sick leave. Workers who are ill and unable to perform their work are entitled to receive full pay for the first four months, then 75% for the next four months, and 50% for the following four months. From that point onwards, employees are entitled to 25% of their wages until termination of their employment contract.
Annual Leave Accrual Entitlement
All employees are entitled to 12 working days of paid leave each year after one year of continuous work.
Maternity Leave in Indonesia
Female employees are entitled to not less than 4 months of maternity leave.
Termination of Employment
Employment contracts are considered to have terminated if:
- The employee dies
- A fixed term contract expires
- There is a court ruling, or decision of the institute responsible for settling industrial relations disputes, which ends the contract
- There is a certain situation or incident as prescribed in the contract, enterprise’s rules and regulations, or enterprise’s collective work agreements that may effectively result in the termination of the employment.
Outside of the probationary period, termination of an indefinite term employment contract requires bipartite negotiations and settlement – this can be achieved through conciliation, mediation or proceedings before the Industrial Relations Courts.
If a fixed term contract terminates for a reason other than one of the above, the party terminating the contract is required to pay compensation to the other party. This compensation must be equivalent to the amount of wages the employee is entitled to receive from the point of termination to the date of contract expiration.
In Indonesia, employees under a definite term contract cannot be employed on a trial or probationary basis, although employees under indefinite term contracts may be employed on a probationary basis for a maximum period of up to three months.
In Indonesia, the employer is the prime provider of social welfare. Employers with more than 10 employees or paying a monthly salary exceedings IDR1,000,000 must register with the Jaminan Sosial Tenaga Kerja (Jamsostek), which is state-owned company provided the Worker’s Social Security Programme. There are requirements for both employee and employer contribution rates based on a percentage of salary.
The categories of Welfare Contributions include:
- Working accident protection: Employer contributes between 0.24-1.74% and employee does not contribute.
- Death insurance: Employer contributes 0.3% and employee does not contribute.
- Pension: Employer contributes 3.7% and employee contributes 2%.
- Healthcare: Employer contributes 3% and employee does not contribute