Overview on Draft Bill of Job Creation: Identification on the Employment Matters

The Indonesia government has formally submitted the draft of Omnibus Bill on Job Creation (“Draft Bill”) to the House of Representative / Dewan Perwakilan Rakyat (“DPR”) in early February 2020. The Draft Bill introduces various reform which is intended to impress the investors in order to accelerate the investment and ease of doing business in Indonesia. The Draft Bill will amend or simplify a number of regulations related to licensing procedures, investment requirements, employment, immigration, and so forth with the main focus of creating jobs.

In this Legal Insight edition, we highlight some of the employment matters discussed in the Draft Bill.

Legal Frameworks: In preparing this overview, we refer to the following prevailing laws and regulations:

  1. Law No. 13 of 2003 on Manpower (“Law 13/2003”);
  2. Law No. 40 of 2004 on the National Social Security System (“Law 40/2004”); and
  3. Law No. 24 of 2011 on the Social Security Agency (“Law 24/2011”).

Identification on the Employment Matters: We have managed to provide the analysis on the Draft Bill in employment-related matters, including the comparison to the current provisions on the above legal frameworks. 

Topic

Current Provisions

Draft Bill

Fixed Term Employment Agreements/ Perjanjian Kerja Waktu Tertentu (“PKWT”)
  • PKWT is allowed for a limited type of works with a maximum period of 3 years. Any violation of the PKWT requirement will cause the PKWT to be transformed to Indefinite Time Employment Agreement/Perjanjian Kerja Waktu Tidak Tertentu (PKWTT). (Art. 59 (1) of Law 13/2003)
  • Any PKWT agreement should be in writing form and in Indonesian language, otherwise such agreement will be deemed as PKWTT. (Art. 57 (1) of Law 13/2003)
  • Employee is not entitled for any compensation payment after the expiration of PKWT.
  • PKWT is allowed to any kind of works and contracting parties are allowed to determine the period of work of any work themselves.
  • The regulation removes the sanction in the case of violation of PKWT agreement form. 
  • Compensation payment (the amount which will be further regulated) should be made at the end of the PKWT working period.
  • Indonesian government will issue a new regulation on the PKWT.

Employment of Foreign Workers
  • The employment of foreign workers is currently stipulated under Art.42 – Art. 49 of Law 13/2003 and Presidential Regulation No. 20 of 2018 on Utilization of Foreign Workers.
  • The positions which are allowed for foreign workers are stipulated under a Ministry Regulation, specifically Ministry of Manpower (“MoM”) Regulation No. 228 of 2019 on Certain Titles Open for Foreign Workers.
  • The Draft Bill introduces exemption for several positions including Board of Directors and Commissioners who held certain percentage of shares and foreign researchers, emergency engineers and start-ups from the required RPTKA approval.
  • A new Presidential Regulation will be issued to regulate the positions which are allowed for foreign workers.

Outsourcing
  • The types of work which allowed to be outsourced are limited to the following criteria: (1) the work shall be conducted separately company's main activities; (2) It is conducted direct/indirect order of user; (3) It is supporting activities of the user; and (4) It shall not cause a problem or stop the user’s production process. (Art. 65 (2) of Law 13/2003)
  • The Draft Bill revokes all currently applicable outsourcing provisions; thus, employers are allowed to outsource any types of work.
  • The Draft Bill requires the outsourcing companies to be responsible for its employees including in the occurrence of any industrial disputes.
  • The government will issue a new regulation to address the outsourcing.

Working Hours
  • The current working hours is classified as follows: (Art. 77 (2) of Law 13/2003)
  1. 7 hours a day and 40 hours a week for six working days in a week; or
  2. 8 hours a day and 40 hours a week for 5 working days in a week.
  • Overtime is allowed for a maximum of 3 hours in a single day and 14 hours in a week. (Art. 78 (1) of Law 13/2003).
  • The Draft bill simplify the working hours to be maximum of 8 hours a day and 40 hours a week (with at least 1 rest day for a 6-day work week).
  • Overtime hours are is allowed for maximum 4 hours in a single day and 18 hours in a week.
  • New government regulation will be issue to address certain types of works or sectors which are exempted from the provision.

Wages and Bonus
  • Employers shall adhere to minimum wages which consists of: (1) Provincial and district minimum wages; and (2) sectoral minimum wages as calculated based on stipulation on MoM Regulation No. 15 of 2019 on Minimum Wages. (Art. 89 (1) of Law 13/2003).
  • The Law 13/2003 specified the wage amounts and number of leave days to be claimed under certain circumstances (“Paid Leave”) (please refer to Art. 93 of Law 13/2003). 
  • The Draft Bill introduces an hourly based salary which are allowed for certain types of work (such as consultancy and part-time worker).
  • The Draft Bill acknowledges provincial minimum wages to be determined by the governor based on the newly introduced calculation formula.
  • The Draft Bill exempts labor-intensive industry and micro and small enterprises from the minimum wage formula. Otherwise, new government regulation will be issued to address such issue.
  • The Draft Bill does not specify the wage amounts and number of days on the Paid Leave provision.
  • The Draft Bill introduces a new bonus mechanism whereby the companies are required to make a one-off bonus payment within one year the Omnibus Law comes to force.

Termination of Employment
  • To terminate their employment, employers should at least conduct negotiations to meet amicable settlement. If the negotiation is unsuccessful, the party may proceed to the Court of Industrial Relations to obtain the decision of the dispute.  (Art. 136 of Law 13/2003).
  • Employers are required to pay for 2x (two times) of severance payment in certain circumstances.
  • Employers shall provide Service Payment/Uang Penghargaan Masa Kerja amounting to 2 – 10 months’ salary. (Art. 156 (2) of Law 13/2003).
  • Employees are entitled for Compensation Payment/Uang Penggantian Hak amounting to 2 – 10 months’ salary. (Art. 156 (4) of Law 13/2003).
  • The Draft Bill allows employer to terminate an employee without prior court approval in the event of: (1) closure of the company due to force majeure events; (2) bankruptcy; (3) violation of Company Regulations/Collective Labor Agreement (after given 3 consecutive written warnings).
  • The Draft Bill requires employer to pay 1x (one time) of severance and service payment to the employee in the event of termination.
  • Service Payment is capped to maximum of 8 months’ salary.
  • The Draft Bill revokes the current provision on Compensation Payment.
  • Termination procedures due to acquisition, merger, inefficiency or bankruptcy, including severance and service pay entitlements will be further stipulated under a new Government Regulation.

Social Security
  • The social security program consists of: (a) social health insurance; (b) working accident protection/Jaminan Kecelakaan Kerja (JKK); (c) Old-age protection/Jaminan Hari Tua (JHT); (d) pension protection/jaminan pensiun; and (e) death protection/jaminan kematian (Art. 18 of Law 40/2004 jo. Art. 6 of Law 24/2011).
  • The Draft Bill introduces a new unemployment benefit for laid-off workers who have made premium payment to Manpower Social Security Agency/Badan Penyelenggara Jaminan Sosial Ketenagakerjaan (BPJS-TK).
  • The benefit of this new program consists of: (a) training and certification; (b) financial benefit; and (c) work placement access to the workers.
  • Indonesian government will issue a separated regulation to address the details of this new program.

Conclusion: From the foreshadowed comparison, we can conclude that the Draft Bill has introduced major changes to Indonesia's current employment rules. The Draft Bill has included numerous simplifications for the advantage of employers and potential investors, such as introductory of hourly based salary, reduction on severance payment rates, and so forth. However, it is important to note that the Draft Bill is currently being discussed by the DPR, thus feedback from all stakeholders is indeed expected so that the Omnibus Bill could satisfy the interest of all relevant parties. 

The article above was prepared by Marshall S. Situmorang (Partner) and Aniendita Rahmawati (Associate). 

Disclaimer: The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances. For more information, please contact us at mail@nusantaralegal.com.