DFDL, in exclusive association with Mataram Partners, has been serving the needs of domestic and foreign investors in Indonesia since 2011.
Following the passing of the bill by the House of Representatives on 5 October 2020, Law No. 11 of 2020 on the Job Creation Law (the “Job Creation Law”) was finally enacted on 2 November 2020. It involves and effects (to widely varying degrees) over 78 existing laws ranging from land licensing, investment, manpower, government administration and spatial planning to ease the conducting of business and commercial activities. The Job Creation Law is geared towards improving and enhancing the investment climate and creating more jobs in Indonesia.
One of the most controversial areas affected by the Job Creation Law is governed by the provisions of Law No. 13 of 2003 on Manpower (the “Manpower Law”). We outline the salient provisions of the Job Creation Law below:
The Job Creation Law has relaxed the requirement on having to submit a foreign employee utilization plan (‘rencana penggunaan tenaga kerja asing’) in order to hire foreign employees. The previous exemption to this requirement, before only applicable to diplomatic and consular employees, has now been extended to:
- directors and commissioners who also hold a certain number of shares in the relevant company;
- foreign employees required for certain types of production that ceased due to an emergency situation, vocational occupations, technology-based start-ups, business trips and market research for certain stipulated periods.
Additionally, positions that can be held by foreign nationals and the duration of employment will be further clarified by a forthcoming government regulation.
Indefinite Term Employment Agreement
The Job Creation Law sets a broader variety of employment types that can be covered by a definite term employment agreement. The Job Creation Law provides that a fixed term employment agreement can only be made for certain types of work, which based on its type and nature, will be completed within a certain period, namely:
- work to be performed or completed at once, or work which is temporary in nature;
- work which is due to be completed in a short timeframe;
- seasonal work;
- work that relates to a new product, new activities or technology or additional products that are still at the experimental stage; or
- work whose type and nature is not permanent or ongoing in nature.
The type and nature or activity of work permissible under a fixed term employment agreement will be further clarified by a subsequent government regulation.
The provisions related to the duration and extension of unfixed term employment agreements under the Manpower Law have been removed by the Job Creation Law. These issues have been earmarked for future treatment under a forthcoming government regulation.
Furthermore, there is an additional provision related to the termination of indefinite term employment agreements. Previously, compensation was only payable if the agreement was terminated by either party before expiry of the agreement. Newly introduced under the Job Creation Law however, the employer is now obliged to pay compensation to an employee when the agreement expires or the relevant work has been completed. The levels of such compensation will again be subject to and defined by a future government regulation.
The Job Creation Law has removed the former requirements under the Manpower Law stating that outsourcing of work or workers cannot be conducted in support of the service recipient’s core activities. This leaves open the possibility that an employer may now be free to delegate its main and/or supporting activities to an outsourcing company.
The Job Creation Law stipulates that matters related to the protection of employees in an outsourcing company and business licensing for outsourcing activities will be further delineated by a forthcoming government regulation.
The Job Creation Law stipulates that the determination of wage or salary levels shall be based on the unit of time and unit of output to be further clarified by a government regulation. The provincial minimum wage shall be determined by the governor. The governor may determine a higher minimum wage for certain regencies/cities in consideration of inflation levels, economic growth within the region and employment conditions. The provision regarding sectoral minimum wage levels under the Manpower Law has now been done away with by the Job Creation Law.
The Job Creation Law allows for termination of employees on the grounds of company inefficiency due to ongoing losses (with or without company closure). The Job Creation Law also allows for termination of employees if the company is in the process suspension of debt payment obligation (‘penundaan kewajiban pembayaran utang’ or PKPU).
In regard to termination compensation, the Job Creation Law strips away housing and medical benefits amounting to 15% of severance and/or service pay. The Job Creation Law has also removed provisions of the Manpower Law related to payable amounts of termination compensation due in specific circumstances. It is stipulated under the Job Creation Law that further provisions regarding termination compensation will be laid out under a future government regulation.
Overtime and Leave
The maximum allowable overtime has been increased from three hours per day (or 14 hours per week) to four hours per day (or eighteen hours per week). The Job Creation Law stipulates that further provisions regarding overtime and overtime payment will be unveiled in a subsequent government regulation.
Previously, the Manpower Law stipulated that certain companies had to provide long-term leave for a total period of at least two months. However, under the Job Creation Law, such long-term leave is now to be subject to the terms of the employment agreement, company regulations or collective labor agreement.
The Job Creation Law sets aside a number of significant issues to be further dealt with under relevant implementing regulations (i.e. a government regulation). The Job Creation Law states that these implementing regulations must be enacted within three months after the entry into force of the Job Creation Law. Meanwhile, all other existing implementing regulations issued to date shall remain in full force and effect provided that they are not in conflict with the Job Creation Law and these will be adjusted within three months following due enactment of the Job Creation Law.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Partner, Head of India Desk, Head of Regional Banking and Finance Practice & Head of Indonesia Practice