Key Points of Employment Law in Indonesia

by Afia Cita Fitriana


An Overview:

In order to fulfill the rights and obligations of Employee in Indonesia, Employer shall comply to the law number 13 of 2003 concerning Manpower Law ("Manpower Law"). The Manpower Law stipulates several important points as listed below.

Types of Employee and its Employment Agreement:

Types of Employee in Indonesia are distinguished according to the length of service, the nature of job, abd the type of employment agreement. Where the length of service is distinguished by the type of its employment agreement as below:

(A) Specified Period of Time or PKWT (Perjanjian Kerja Waktu Tertentu) ("Temporary Employment")

Temporary Emloyment may only be made for a certain job, which, because of the type and nature of the job, will finish in a specified period of time, that is:

  1. Work to be performed and completed at one go or work which is temporary by nature (freelance);

  2. Work which completion is estimated at a period of time which is not too long and no longer than 3 (three) years or project based;

  3. Seasonal work; or

  4. Work that is related to a new product, a new activity or an additional product that is still in the experimental or try-out phase.


The maximum period of time for this type of employment agreement is 2 (two) years and may be extended for once with maximum period of 1 (one) year. Probation period is not applicable for this type employment agreement.  Any Employer who is extending the period as stipulated above, shall prepare the new employment agreement of the Employee to become Permanent Employment or else; such employment automatically shall be deemed as Permanent Employee under the Manpower Law and other prevailing laws and regulations.

In the event where the Employer wishes to employ Expatriate, Employer shall only be employed under Temporary Employment agreement only. To employ Expatriate in long term period, Employer may renew the employment agreement.  

(B) Unspecified Period of Time or PKWTT (Perjanjian Kerja Tidak Tertentu) ("Permanent Employment")

Permanent Employment shall be made for jobs that are permanent by nature, meaning the jobs shall be continuous, uninterrupted jobs that are not confined by a timeframe, and are part of production process in an enterprise or jobs that are not seasonal. Jobs that are not seasonal are jobs that do not depend on the weather or certain conditions.

A requirement for a probation period must be stated in a Permanent Employment. The period shall be no longer than 3 (three) months. During the probation period, the Employer and/or the Employee may terminate the Agreement/employment at any time unconditionally with prior written notice before the effective date of termination.

The Termination of Employment Agreement under the Prevailing Laws and Regulations:

Employment Agreement shall be deemed terminated if: 

  1. Employee passed away;

  2. Employment agreement has meet expiration;

  3. By judicial decisions and/or any dispute resolution from industrial relations dispute institutions which carry binding legal force;

  4. Any event stipulated in employment agreement, company regulation, or collective labor agreement that may cause termination.

(A) Early Termination of Temporary Employment

In the event one of both sides (Employer or Employee) terminate the Temporary Employment (due to reasons other than the provisions above) prior to the expiration of the agreement, the party that terminates the agreement is obliged to pay compensation to other Party. The amount of the compensation pay shall be the payable amount of salary stipulated in Temporary Employment from the date of termination until the expiration of the Temporary Employment. 

(B) Early Termination of Permanent Employment

In the event where the Employer wish to terminate the Permanent Employment, Employer obliged to pay the dismissed Employee severance pay and or a sum of money as a reward for service rendered during his or her term of employment [“reward-for-years-of-service pay”] and compensation pay for rights or entitlements that the dismissed Employee has not utilized.

The Compensation Pay for rights or entitlement is classified as below:

  1. Entitlements to paid annual leaves that have not expired, and the worker have not taken (used);

  2. Cost or expenses for transporting the worker and his or her family back to the point of hire where he or she was recruited and accepted to work for the company (which have not been reimbursed);

  3. Compensation for housing allowance, medical, and health care allowance is determined at 15% (fifteen percent) of the severance pay and or reward for years of service pay for those who are eligible to receive such compensation;

  4. Other compensation that are stipulated under individual work agreements, the company rules, and regulations or collective work agreements.

The Wage components used for the basis of calculation Severance Pay, Reward-of-Years-Service-Pay, and Compensation pay for rights or entitlement are composed with:

  1. Basic wage (Gaji Pokok);

  2. All forms of fixed allowances (Tunjangan Tetap).


In the event the Employee wish to terminate his/her Employment Agreement under PKWTT or submitting his/her resignation to the Employer, such Employee shall be entitled for Compensation Pay as stipulated above.


Post Termination:

To protect the Company from their competitors, the Company often include ‘Non-competition’ clause provision in an employment agreement which prohibits the Employee from working at company that engages in the same business. Please be advised that in principle, Indonesian Law is silent on the enforceability of non-competition clause. However, the right to work is one of the fundamental human rights protected by the 1945 Constitution under Article 27 paragraph (2) and Article 28 (D) paragraph (2), which is also being recognised under the Human Rights Law of 1999 and the Manpower Law of 2003.


Thus, in the case that the non-competition clause is being construed as preventing a person from accessing any of said rights, then the provision should be deemed violating the fundamental Human Rights to Work. Therefore, such provision should be null and void pursuant to Article 1335 of the Indonesian Civil Code. On the contrary, if the provision containing a non-competition clause is (somehow) formulated in such a manner so as not to violate the Human Rights to Work, then it should be enforceable (Hence, we suggest our Client to prepare an independent agreement which drafted and signed under freedom of contract or pacta suns servanda).


To obstruct workers who is holding key positions from changing sides and providing their expertise to competitor, Employer may provide Employee with Non-Disclosure Agreement, Non-Compete and Non-Solicitation Agreement. These agreements shall apply and enforceable upon the termination of Employee.


Since Indonesia Law has not yet governed the specified provisions on Non-Disclosure Agreement, Non-Compete and Non-Solicitation Agreement, the Parties (Employer and Employee) may determine an applicable period for the enforcements of restrictive provisions in these agreements.


In the event where the Employee breach the Non-Disclosure Agreement; Non-Compete; or Non-Solicitation Agreement, Employer shall take the dispute settlement as governed in the Agreement.

Insurance entitled for Employee:

To ensure Employee received unsurance as they are entitled under the prevailing laws and regulations, Government has established Social Security Administration Body for Employment or known as BPJS Ketenagakerjaan [“BPJS TK”] and Healthcare Security Administration Body [“BPJS Kesehatan”]. Under these government body, Employer shall enrol their Employee in the program, consisting of the Occupational Accident Security (JKK), Death Security (JK), and Pension Security (JHT).

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