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Country snapshot

Key considerations

Which issues would you most highlight to someone new to your country?

At-will termination of an employment agreement does not exist, as dismissals can be challenged in the courts. Termination must be with cause and in accordance with the procedures set out by the Labour Law.

What do you consider unique to those doing business in your country?

The employer, employees, labour union (if any) and the government must make every effort to avoid employment terminations. There should be strong factual evidence in support of any termination, including poor performance, for presentation to the Labour Court. Ideally, there should be evidence of efforts by the employer to mitigate the poor performance (eg, training, coaching and mentoring programmes).

The negotiated termination in the form of a mutual agreement (perjanjian bersama) will avoid the complex, time-consuming and costly process of the termination of employment relationship.

Is there any general advice you would give in the employment area?

A foreigner may neither be the director of human resources nor hold any other position relating to human resources matters.

Emerging issues/hot topics/proposals for reform

Are there any noteworthy proposals for reform in your jurisdiction?

The retirement age is currently 56, rising to 57 from January 1 2019. The retirement age is expected to increase by one year every three years until it reaches 65.

What are the emerging trends in employment law in your jurisdiction?

In recent years, there has been a significant increase in negotiated termination in the form of a mutual agreement.

The employment relationship

Country specific laws

What laws and regulations govern the employment relationship?

Indonesian employment law is governed by Law 13/2003 (the Labour Law).

Who do these cover, including categories of worker?

All employment legislation applies equally to all employees. Indonesian employment law does not generally draw distinctions between different types of worker (eg, blue-collar and white-collar workers). 

Misclassification

Are there specific rules regarding employee/contractor classification?

Certain principles and factors are applied to distinguish employees and independent contractors. The following table distinguishes employees and independent contractors.

Employee

Independent contractor

Employee is an employee of a company

Independent contractor is not an employee of a company

To be hired based on employment agreement

To be retained based on independent contractor agreement

An employer and employee relationship is a relationship between superior and subordinate governed by labour laws

A company and independent contractor relationship is a relationship between contracting parties governed by contract law and other applicable legislation

Contracts

Must an employment contract be in writing?

Generally, a contract of employment need not be in writing except for fixed-term contracts, which are required by law to be in Bahasa Indonesia (Indonesian) and written using the Roman alphabet. However, if the employment relationship is entered into verbally, the employer is obligated to prepare a letter of assignment.

Are any terms implied into employment contracts?

No.

Are mandatory arbitration/dispute resolution agreements enforceable?

Arbitration clauses in employment contracts are not usually enforceable for termination of employment. Arbitration can be used as a forum of settlement only for dispute between labour unions in the company.

Any employment dispute requires the parties (employee, employer and, if applicable, labour union) to meet in an attempt to reach an amicable termination settlement. This meeting is known as ‘bipartite negotiation’. If the negotiations fail, the employer or employee may file the dispute with the relevant office of the Ministry of Manpower (MOM), along with supporting documents to show that bipartite negotiations have been attempted.  MOM will ask both parties whether the dispute should be resolved through non-binding conciliation with private conciliators or mediation with a MOM mediator. 

How can employers make changes to existing employment agreements?

Changes to an existing employment agreement are unproblematic if they are in the employee’s favour. However, the law provides that any amendments or changes must be in writing, in which case employee consent must be demonstrated.

Foreign workers

Is a distinction drawn between local and foreign workers?

Local and foreign workers are treated equally. However, distinctions may exist in terms of immigration and work permits. A foreigner may neither be the director of human resources nor hold any other position handling human resources matters. 

Recruitment

Advertising

What are the requirements relating to advertising positions?

In principle, before placing an advertisement in an Indonesian newspaper to hire Indonesian workers, the employer is required to notify the MOM local office of the proposed advertisement at least three days before the advertisement’s proposed publication date. 

The notification should state the number of employees required and the type of work concerned, along with the requirements with regard to education, skills and experience. However, if a vacancy needs to be filled immediately, the employer can publish an ad with less than three days’ notice before the vacancy is filled or advertised. When the vacancy is filled, the employer must notify the same to the MOM.

Background checks

What can employers do with regard to background checks and inquiries in relation to the following:

(a) Criminal records?

Employers may require prospective or existing employees to obtain a statement of good behaviour (surat keterangan catatan kepolisian or SKCKS) from the local district office of the Indonesian National Police. 

An SKCK is a letter issued by, or on behalf of, the chief of police in the district in which an individual is domiciled confirming that the individual named in the letter is of good behaviour and not presently involved in any criminal investigation or proceedings. This statement is based on the information provided by the head of the village or sub-regency where the individual lives, and a review of the local criminal record. An SKCK does not indicate whether an individual has a criminal record, but rather confirms that the individual is not currently involved in criminal proceedings within that specific district only. Centralised/national criminal records are not available.

(b) Medical history?

An employer can require a potential employee to undergo a physical examination as a condition of employment. It is important that all potential employees be subject to the same conditions. The potential employee should give his or her written consent to both the examination and the release of the results to the employer. The employer can also require that prior medical records be made available to the employer, on a non-discretionary basis and with the potential employee's written consent.

(c) Drug screening?

The test can be carried out, but only in limited circumstances – for instance, where working under the influence of drugs or alcohol could give rise to health and safety considerations (eg, where employees drive or operate machinery) or serious damage to the employer's business. The applicant would need to consent to the test. Drug and alcohol testing should be carried out during employment only if justified, necessary and proportionate, and with the consent of the employee.

(d) Credit checks?

Information of this kind is seldom used in the recruitment process in Indonesia. However, Bank Indonesia produces comprehensive individual credit history reports, which are issued only upon the request of both financial institutions and the individual that the information concerns, as this information is considered confidential.

(e) Immigration status?

A local employer in Indonesia that wants to employ a foreign national must arrange for a work permit for the foreign national. ‘Work permit’ in this context involves an array of registrations and approvals. Foreign nationals may come into Indonesia under business visas to do business-related activities on behalf of their overseas employer, such as participating in meetings, and for investment purposes.

(f) Social media?

There is no prohibition on verifying information provided on public websites, such as news sources, Google searches or social network site searches. The only information that can be collected and retained by employers is information that can be accessed or obtained publicly, not private information.

(g) Other?

Employers in Indonesia frequently carry out background checks on applicants. Indonesian employment laws do not expressly regulate background checks. Certain background checks are in practice subject to the consent of the applicant.

Wages and working time

Pay

Is there a national minimum wage and, if so, what is it?

The applicable minimum wage varies, depending on the nature and location of the business.

Are there restrictions on working hours?

The Labour Law (13/2003) prescribes ‘normal working hours’ as no more than seven hours per day, 40 hours per week, and six days per week. With the written agreement of the employees (and the union, if the employees are unionised), a five-day, eight hours per day, 40 hours per week basis can be used. Wages of employees working on a five-day week basis must not be less than wages of employees working on a six-day week basis.

Hours and overtime

What are the requirements for meal and rest breaks?

After every continuous period of work of four hours, an employee is entitled to at least 30 minutes' rest time. Reasonable time to perform religious observances must also be given, especially for the Muslim prayer, which is to be carried out five times a day. An employee must be given a weekly rest day after every six consecutive days of work. The normal rest day is Sunday.

How should overtime be calculated?

Overtime is payable from either the seventh hour or the eighth hour, depending on the length of a company's normal workday. Overtime is payable at the rate of 1.5 times the hourly wage for the first hour and double the hourly wage thereafter. The calculation of overtime pay is based on monthly wages. The hourly wage is calculated as 1/173 of the monthly wage.

What exemptions are there from overtime?

Certain categories of employees are not entitled to receive overtime payment provided that they receive higher salaries. These employees are, literally translated, those with responsibilities as the thinkers, planners, executors and controllers of the company’s operations whose working hours could not be limited.

Is there a minimum paid holiday entitlement?

Each employee is entitled to one day of leave with pay for every 23 working days, up to a maximum of 12 days per year. Leave may be taken in parts, but one part must be a period of at least six uninterrupted workdays. These provisions also apply to contract employees.

What are the rules applicable to final pay and deductions from wages?

Beside income tax, two types of mandatory social security contribution are deducted from wages: one to fund the health security system (badan penyelenggara jaminan sosial or BPJS) and one to fund the employment BPJS (including work accidents, old age pension and death cover).

Record keeping

What payroll and payment records must be maintained?

The period for retaining non-financial documents (eg, employee files) is at the discretion of the employer. Tax-related documents in the personnel file must be kept for 10 years.

Discrimination, harassment & family leave

What is the position in relation to:

Protected categories

(a) Age?

The Labour Law (13/2003) contains specific provisions regarding the employment of minors. In general, an employer is prohibited from employing children under 18 years of age. However, a child between the ages of 13 and 15 years may perform light work, provided that such work does not interfere with his or her physical, mental or social welfare and development.

(b) Race

Indonesia has not enacted any specific employment laws protecting employees from race discrimination. The prevailing Indonesian labour laws reflect anti-discrimination principles. Article 153(1) of the Labour Law stipulates that termination of an employment relationship shall not be permitted if it is based on the ideology, religion, political inclination, ethnic group, race, social group, gender, physical condition or marital status of the employee.

(c) Disability?

Under the new disability law enacted in 2016, disabled employees are entitled to equal treatment without discrimination including, without limitation, as to wages, title and position.

(d) Gender?

Indonesia has not enacted any specific employment laws protecting employees from gender discrimination. The prevailing Indonesian labour laws reflect anti-discrimination principles. As mentioned above, Article 153(1) of the Labour Law stipulates that termination of an employment relationship shall not be permitted if it is based on the ideology, religion, political inclination, ethnic group, race, social group, gender, physical condition or marital status of the employee.

(e) Sexual orientation?

Indonesia has not enacted any specific employment laws protecting employees from sexual orientation discrimination .The prevailing Indonesian labour laws reflect anti-discrimination principles. Article 153(1) of the Labour Law stipulates that termination of an employment relationship shall not be permitted if it is based on the ideology, religion, political inclination, ethnic group, race, social group, gender, physical condition or marital status of the employee.

(f) Religion?

Indonesia has not enacted any specific employment laws protecting employees from religion discrimination. In practice, an employee who intends to perform a pilgrimage (Haj) shall be given leave one time during the term of employment with the company as regulated in the employment agreement, company regulation or collective labour agreement.

(g) Medical?

Industries specifically listed in the Work Safety Law are required to give employees a pre-employment medical examination. Annual medical examinations should also be performed. However, every person has the right to privacy in relation to his or her personal health. Under the Health Law, this right can be disclosed in certain conditions (ie, upon obtaining the consent from the person concerned).

(h) Other?

None.

 Family and medical leave

What is the position in relation to family and medical leave?

The following are the leave entitlements granted to employees by the Labour Law, and during which the employee is entitled to his or her salary:

  • The employee’s own wedding (three days);
  • Circumcision of the employee’s children (two days);
  • Baptism of the employee’s children (two days);
  • Marriage of a son or daughter (two days);
  • Death of a spouse, parent, parent-in-law or child (two days);
  • Birth of a child or the miscarriage of the employee’s wife (two days); and
  • Death of a family member living in the same house (one day). 

Harassment

What is the position in relation to harassment?

Harassment may be regulated in the company regulation or work rules.

Whistleblowing

What is the position in relation to whistleblowing?

Under Law 13/2003, whistleblowers cannot be discriminated against. Based on the principle of equality before the law, witnesses and victims in a court proceeding must be given a guaranteed legal protection.

Privacy in the workplace

Privacy and monitoring

What are employees’ rights with regard to privacy and monitoring?

There is no specific legislation governing employee data protection in Indonesia. However, all persons have a broad constitutional right to privacy and there is various industry-specific legislation concerning data privacy.

Law 11/2008 regarding electronic information and transactions (the ITE Law) prohibits the use of information acquired through electronic media containing personal data related to an individual without the consent of such person. The ITE Law further provides that anyone with intent and without valid rights shall be prohibited from changing, adding, reducing, transmitting, destroying, eliminating, transferring or hiding electronic information and/or electronic documents owned by another person or owned by the public.

In practice, employers in Indonesia regulate the privacy and data protection rights of their employees by way of unilateral employee consents, employment agreements, company regulations or collective labour agreements (each hereinafter referred to as ‘consents’). Such consents permit the collection, retention, disclosure and use of the employee’s personal data or other confidential information. Such consents are justified by the freedom of contract principle under the Indonesian Civil Code. Based on the foregoing, employers should obtain a written consent from each employee regarding the use of personal data.

To what extent can employers regulate off-duty conduct?

This comes under the company regulation or work rules.

Are there rules protecting social media passwords in the employment context and/or on employer monitoring of employee social media accounts?

None.

Trade secrets and restrictive covenants

Intellectual Property

Who owns IP rights created by employees during the course of their employment?

With the passage of Law 30/2000 on trade secrets, employers enjoy protection of their trade secrets regarding methods of production, methods of processing, methods of sale and other information in the area of technology and/or business that has economic value and is not otherwise available to the general public. To enjoy such protection, employers must actively take certain steps to identify and protect such secrets.

Restrictive covenants

What types of restrictive covenant are recognised and enforceable?

Given the constitutional right to work, the enactment of anti-trust legislation and the lack of judicial guidance, the enforceability of non-competition agreements is unclear (ie, whether there are geographic or time limitations, or compensation requirements). In practice, the enforcement of such an agreement would likely depend on the particular factual context.  An Indonesian court may view such an agreement as contrary to public policy if it prevented an individual from earning a living or if it would prevent an individual with valuable skills from contributing to the nation’s development. Considering this uncertainty, we recommend that a non-competition agreement provide geographic and time limitations, as well as compensation. 

Non-compete

Are there any special rules on non-competes for particular classes of employee?

None.

Discipline and grievance procedures

Procedures

Are there specific laws on the procedures employers must follow with regard to discipline and grievance procedures?

The discipline and grievance procedures are regulated by company regulation or work rules. If a dispute occurs, the employer or employee may file the dispute with the relevant office of the Ministry of Manpower.

Industrial relations

Unions and layoffs

Is your country (or a particular area) known to be heavily unionised?

By global standards, Indonesia has a relatively low level of unionisation.

What are the rules on trade union recognition?

A group of at least 10 workers may establish a labour union. The basic legislation governing labour unions in Indonesia is Law 21/2000.

What are the rules on collective bargaining?

If a company has a registered labour union, the labour union can enter into a collective labour agreement with the management of the company. A labour union can be established by at least 10 employees in any business industry. The collective labour agreement is valid for two years, but can be extended. Only a duly registered trade union with a registration number has the right to negotiate a collective labour agreement with the employer's management.

Termination

Notice

Are employers required to give notice of termination?

No. However, in practice a 30-day notice must be given to terminate an employment contract.

Redundancies

What are the rules that govern redundancy procedures?

The Labour Law does not expressly permit redundancy or downsizing a part of the workforce. Redundancy or layoff would be treated as dismissal without cause. An employer should provide evidence as grounds for the redundancy. In particular, evidence is needed if the case is brought to the Ministry of Manpower.

Are there particular rules for collective redundancies/mass layoffs?

No. Termination of one employee will be similar to collective redundancies.

Protections

What protections do employees have on dismissal?

Indonesia does not recognise termination at will. Termination must be with cause and must be in accordance with the procedures under the Labour Law.

Courts/tribunals

Jurisdiction and procedure

Which tribunals or courts have jurisdiction to hear complaints?

Indonesia has specialist labour courts that exclusively handle employment law disputes located in each province.

What is the procedure and typical timescale?

Before terminating an employment relationship, the parties (employee, employer and, if applicable, labour union) are required to meet in an attempt to reach an amicable termination settlement. This meeting is known as ‘bipartite negotiation’. Such negotiations should be completed within 30 days, and minutes of each negotiation must be drafted and signed by all parties.

If a settlement is reached, a mutual termination agreement should be executed and then registered at the relevant labour court. A settlement that is documented as a resignation does not require registration.

If the negotiations fail, the employer or employee may file the dispute with the relevant office of the Ministry of Manpower (MOM), along with supporting documents to show that bipartite negotiations have been attempted. The manpower official will ask both parties whether the dispute should be resolved through non-binding conciliation with private conciliators, mediation with a MOM mediator or arbitration. The parties should respond within seven days; if they do not, the dispute will automatically go to mediation.

If either party rejects the non-binding written recommendation of the mediator, then that party must bring the matter to the labour court. In case the plan to terminate an employee is disputed, then the termination process, in theory, may take up to approximately 140 working days to complete, from bipartite negotiations through to a Supreme Court decision (ie, if the labour court decision is appealed). However, in practice it takes approximately one to two years after the labour court decision.

Appeals

What is the route for appeals?

If the labour court decision is appealed, the case goes to the Supreme Court in Jakarta.