Indonesia, a burgeoning tech hub in Southeast Asia, presents an attractive destination for tech companies looking to build remote or distributed teams. The country's diverse talent pool, coupled with a vibrant startup ecosystem, provides immense opportunities for growth. Nevertheless, complying with Indonesian employment laws is paramount to seamlessly integrating tech talent and fostering productive working relationships.

Understanding the specifics of these laws helps companies avoid legal pitfalls and, in turn, enhance the professional experience of their remote workers. Let's delve into these regulations and their implications.

Main Employment Laws and Regulations in Indonesia

Navigating the employment landscape in Indonesia involves understanding various laws and regulations. Here's an in-depth look at the primary employment laws and their implications.

Manpower Law

The Manpower Law, also known as Law No.13/2003, serves as the principal labor law in Indonesia, addressing various aspects of employment. It provides guidance on issues like working hours, leave, minimum wage, and termination of employment procedures. It also mandates employers to protect their employees' rights and well-being, making it an integral part of global HR compliance.

Trade Union Law

The Trade Union Law (Law No. 21/2000) safeguards employees' rights to form and join trade unions, providing a platform for employee representation. They play an important role in advocating for better working conditions and improving communication between employees and companies. This becomes particularly relevant when building distributed teams, where employees might feel detached from decision-making processes.

Social Security Law

Under the Social Security Law (Law No. 40/2004), employers are obligated to register their employees for social security benefits, including health and workplace accident insurance. This requirement holds true even for international contractors, fostering an inclusive work environment, a principle central to Indonesian labor law.

Law on Elimination of Sexual Violence in Employment

Indonesia takes a firm stance against sexual violence in the workplace through this law (Law No. 18/2019), which respects the rights of male and female workers. It not only provides a definition of what constitutes sexual violence but also sets forth legal procedures and penalties under the employment laws in Indonesia. Complying with this law is critical to avoid common legal troubles for global businesses.

Types of Employment Contracts

Navigating employment contracts, such as fixed-term employment agreements, is important for effective workforce management in Indonesia. An understanding of the types of contracts ensures legal compliance and facilitates a cordial and productive working relationship between organizations and employees, encouraging a positive employer-employee relationship.

Definite Term Employment Contract (PKWT)

A Definite Term Employment Contract, also known as PKWT, is a contract or a fixed-term employment agreement with a predetermined duration. Under the Manpower Law, the maximum length for this contract is two years - it can be extended once for a period not exceeding two additional years.

Employers must ensure that the PKWT includes:

• The name, address and type of business
• The type of work
• The place of work
• The amount of wages and the method of payment
• The terms and conditions of employment
• The start and end date of the contract

A key aspect of PKWT is that it's typically used for a certain type of work, is temporary in nature, can be completed within a specific period, or are seasonal. Employees are entitled to understand these terms as part of their employment agreement.

Indefinite Term Employment Contract (PKWTT)

An Indefinite Term Employment Contract, or PKWTT, has no specified end date. This type of contract is ideal for long-term engagements or for work that is permanent in nature and abides by the employment laws in Indonesia.

Similar to PKWT, the PKWTT should also have details of the name, address, type of business, type of work, location, wage details, and conditions of employment. But, it does not need to have an end date. This forms part of the stipulations in the employment agreement.

One must note that an oral indefinite-term employment contract is considered a legal and binding agreement in Indonesia. However, it is recommended that employment agreements be put into writing for practical and legal reasons. 

Misclassification and its Consequences

It is important to correctly classify your workers, as misclassifying employees as independent contractors can lead to severe penalties. Employers may face legal repercussions, fines, or penalties imposed by the government for misclassification. It could also result in businesses having to pay back taxes and benefits, including health insurance, retirement, and other in-kind benefits.

Due to the uncompromising nature of the employment laws in Indonesia, it is essential to understand the implications of misclassification in Indonesia.

Minimum Employment Terms in Indonesia

A firm grasp of the minimum employment terms in Indonesia is essential when hiring tech talents, especially when considering legal and tax risks of remote employees working from abroad. Under the Manpower Law, certain terms are set to safeguard the interests of the employees, forming a part of the employment laws. Let's delve deeper into these.

Working Hours

The standard working hours for full-time employees in Indonesia should not be more than 40 hours per week. This is further broken down depending on the length of the work week.

• For a six-day work week, an employee should not work more than 7 hours a day.
• For a five-day work week, the maximum working hours are 8 hours per day.

These regulations aim to maintain a balanced workload and prevent employee burnout. It is essential to keep the hourly wage in mind during these calculations.

Overtime

While overtime work is allowed, it should be carefully managed to ensure compliance with the law. Overtime should not exceed 3 hours per day and 14 hours per week. Employers must pay overtime wages/salaries, which are usually set at a higher rate than regular wages. This provision is crucial to consider, especially when managing HR issues within distributed teams.

Minimum Wage

Indonesia adopts a regional minimum wage system, with each province setting its minimum wage annually. This wage is calculated basis of the region's cost of living, economic growth, and labor productivity. It is essential to be aware of these changes to avoid common HR compliance mistakes.

Social Security

Both the employer and employees must contribute to the Indonesian social security fund known as BPJS Ketenagakerjaan. The program comprises several components, including work accident insurance, old age benefits, pension insurance, and death benefits. This is another factor to consider while evaluating the pros and cons of hiring international contractors vs. employees.

Type of Workers Protected by Indonesian Employment Laws

Indonesia’s employment laws provide a wide umbrella of protection, covering different categories of workers. The encompassing nature of these laws ensures that everyone from permanent staff to temporary workers is treated fairly and equally.

Full-Time Employees

Full-time employees work for a standard number of hours each week. These workers have access to comprehensive benefits such as annual leave, sick leave, social security, and overtime pay.

Part-Time Employees

Part-time employees work fewer hours compared to their full-time counterparts. Indonesian labor laws do not discriminate between full-time and part-time employees, ensuring that part-time employees are entitled to the same rights and benefits proportional to their working hours. It is essential to note the employment law in Indonesia mandates this, ensuring fairness in the employment relationship.

Contract Workers

Contract workers or definite-term employees work for a specific period under a contract that clearly stipulates the duration of employment. The stipulated period must meet the applicable minimum wage and hourly wage criteria. Under Indonesian labor law, if an employee rejects termination, the employer must offer a mutual employment termination agreement to protect the rights of both parties. Although they might not enjoy the same job security as full-time staff, these workers are protected by Indonesian laws from misclassification and have rights to fair remuneration, holidays, and safe working conditions.

Temporary Workers

Temporary workers are those employed for a specific project or for a set period. Even though their employment is temporary, these workers are still covered by Indonesian employment laws and entitled to benefits such as sick leave, overtime pay, and safe working conditions. It's vital for organizations to correctly classify and manage these workers to avoid common HR compliance mistakes. Employment termination laws must be adhered to avoid any potential industrial relations dispute.

Foreign Workers

Foreign workers or expatriates are also protected under Indonesian employment laws. These laws ensure their rights to fair wages, safe working conditions, and other benefits are upheld. However, both the employer and the foreign worker need to follow employment law processes like ensuring the proper work permits and visas are in place, avoiding legal troubles that could arise from non-compliance and to avoid an industrial relations dispute settlement.

Anti-Discrimination Laws in Indonesia

Indonesia staunchly upholds anti-discrimination principles within its employment landscape. The Constitution of Indonesia, the job creation law, as well as numerous laws and regulations, play a key role in preventing discrimination and ensuring a fair and equal working environment for all employees and contractors.

Article 27 of the Indonesian Constitution asserts that every person shall have equal status in law and government. This plays an important role in promoting equality in the workplace.

The Manpower Law prohibits discrimination based on sex, ethnicity, race, and religion. It mandates equal remuneration for men and women performing the same work, underlining Indonesia's commitment to gender equality in the workplace.

Indonesia also has specific laws to combat sexual harassment at work, namely the Law on Elimination of Sexual Violence. It defines sexual violence, outlines punitive measures, and sets guidelines for preventing and handling such incidents in the workplace.

Moreover, Indonesia's Disability Law protects persons with disabilities from discrimination at work. This law promotes inclusivity by ensuring persons with disabilities have the same opportunities to contribute to and benefit from employment.

Indonesia's anti-discrimination laws promote a healthy and diverse workforce, which is essential when building remote or distributed teams. Understanding these laws can help businesses foster an inclusive culture, effectively manage global HR compliance, and avoid potential legal troubles.

Leave Rights in Indonesia

Leave entitlements form an integral part of employee benefits, directly impacting their work-life balance and productivity. In Indonesia, these rights are codified under the Manpower Law, ensuring workers have ample time to rest and recharge.

Here are the various types of leaves Indonesian workers are entitled to:

Annual Leave

After 12 consecutive months of service, employees in Indonesia are granted 12 days of paid annual leave. This policy applies to both local and remote employees. It is advisable that companies manage these leaves efficiently to maintain a harmonious work environment and avoid common global HR compliance mistakes.

Maternity Leave

Indonesian law provides substantial support to expecting mothers. Women employees are entitled to 1.5 months of leave before delivery and the same duration post-delivery, totaling three months of maternity leave. This is a significant benefit that could help your company attract and retain talented female employees, contributing to diversity within your remote or distributed teams.

Sick Leave

Employees in Indonesia are entitled to sick leave as certified by a doctor. The number of sick leave days is not capped; however, the employee must inform the employer immediately.

Furthermore, under specific conditions, employees are also entitled to long-term illness leave. These leaves, when planned and executed correctly, form an essential part of providing perks to your employees.

Other Leaves

In addition to these, employees are also entitled to special leave for specific circumstances, such as marriage, death in the family, and performing religious obligations.

Adhering to these leave regulations not only ensures compliance with Indonesian employment laws but also promotes a healthier and more productive work environment. Understanding such entitlements is crucial while dealing with HR issues within distributed teams.

Termination of Employment

Termination of employment in Indonesia is a multi-step process guided by comprehensive legal frameworks. Both employers and employees must follow these frameworks meticulously to ensure fairness and lawfulness.

Bipartite Negotiations

The first step in termination is bipartite negotiations between the employer and the employee. This mandatory negotiation aims at reaching an amicable resolution before considering the option of termination. This discussion may result in a mutually agreed separation or even the continuation of employment.

Mediation by the Department of Manpower

In the event of a deadlock in the bipartite negotiations, the parties can involve the Department of Manpower in a mediation process. The Department's role is to facilitate dialogue between the parties to achieve a peaceful resolution. It's crucial for businesses to navigate this step carefully, to avoid common global HR compliance mistakes.

Industrial Relations Court

If the mediation fails, the issue is escalated to the Industrial Relations Court. Here, the court examines the matter impartially and arrives at a legally binding decision. It is worth noting that decisions of the Industrial Relations Court can be appealed to the Supreme Court.

Severance and Compensation

If termination is indeed the outcome, the employer is required to pay the employee certain benefits. These include:

• Severance pay: This is compensation for loss of employment and it varies depending on the length of service.
• Long service pay: This is paid in recognition of the employee's length of service and commitment.
• Compensation rights: These cover any outstanding annual leave, costs for repatriation (for expatriate employees), and more.

The specifics of these compensations can be complex, making it crucial for companies to understand these legalities to avoid common legal troubles for global businesses.

Involuntary Termination

For involuntary termination scenarios such as layoffs, additional regulations apply. Companies must prove that the layoffs are unavoidable due to economic conditions, force majeure, or business closure. In these cases, higher severance packages are typically applicable.

Data Privacy Laws in Indonesia

Despite the absence of a comprehensive, standalone data protection law, Indonesia maintains several laws and regulations that address data privacy to a certain extent. These laws have implications for businesses, especially in the tech sector, where data handling is a daily occurrence.

The primary legislation in this respect is the Electronic Information and Transactions Law (EIT Law), amended in 2016. According to this law, the use of any electronic information and documents belonging to a person should be based on the person's consent. The law also directs a penalty for any person who intentionally, without authority, or unlawfully, alters, adds, reduces, transmits, deletes, moves or hides electronic information and/or electronic documents belonging to another person.

Another vital regulation is the Minister of Communication and Informatics Regulation No. 20 of 2016 on Personal Data Protection in Electronic Systems (MOCI Regulation). It provides a set of guidelines on how to handle personal data electronically, including obtaining consent, the requirement of data destruction after a certain period, and the need to register with the Ministry of Communications and Informatics if you operate a public service.

Given that tech talents often work remotely and handle sensitive data, adherence to data privacy laws is critical to avoid any legal disputes and to maintain the trust of employees and clients. For instance, mismanagement of employee data can pose legal and tax risks, which can lead to significant financial and reputational damage.

Ensure Compliance in Indonesia with Skuad

Ensuring your organization remains compliant with Indonesian employment laws not only helps your organization avoid unnecessary fines and penalties but also fosters a productive work environment.

As a comprehensive Employer of Record platform, Skuad enables organizations to hire and onboard contractors and employees compliantly across more than 160 countries, including Indonesia. With Skuad, legal risks and fines become a worry of the past, as the platform ensures your organization's complete adherence to country-specific laws and regulations.

Book a demo with Skuad to know more.

FAQs

What is Article 62 of the Labor Law in Indonesia?

Article 62 of the Labor Law in Indonesia states that an organization is mandated to pay the same amount of wages they are entitled to from the point of termination until their contractual agreement expires.

What is the maximum working hour in Indonesia?

The maximum working hours in Indonesia is 40 hours per week. Any work beyond this stipulated amount of hours is deemed overtime work.