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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.  

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