Indonesia is currently undertaking a major reform of its employment regulatory framework through the drafting of a new Manpower Bill (Rancangan Undang-Undang Ketenagakerjaan or RUU Ketenagakerjaan). The proposed legislation is intended to consolidate Indonesia’s employment regulations into a single and more unified legal framework.
The proposed law is still in draft form and has not yet been enacted. The version discussed in this article remains under deliberation by the House of Representatives (DPR), and its provisions may still be amended before the legislative process is completed.
Nevertheless, the proposed changes provide an indication of the direction of Indonesia’s employment regulatory framework and are relevant for employers, employees, and other parties involved in employment relationships in Indonesia.
Why Is This Bill Being Proposed?
The proposed Manpower Bill follows Constitutional Court (Mahkamah Konstitusi) Decision No. 168/PUU-XXI/2023, which instructed the government, as regulator, to reorganize employment regulations into a standalone law.
Currently, employment regulations are primarily governed by the 2003 Manpower Law and provisions introduced through the 2023 Job Creation Law. The existing framework has resulted in overlapping or inconsistent provisions in certain areas.
The proposed bill is therefore intended, among other things, to consolidate employment regulations and establish a more unified legal framework.
Key Provisions in the Proposed Manpower Bill
1. Fixed-Term Employment Contracts (PKWT)
Fixed-term employment contracts (Perjanjian Kerja Waktu Tertentu or PKWT) are employment agreements based on a specific period or the completion of a particular task.
Under the proposed provisions, PKWT would be subject to a maximum period of four years. Certain work designated for a two-year duration could be renewed up to two times, with each renewal lasting for a maximum of one year.
There are also requirements concerning the use and form of PKWT. The agreement must be made in writing, may not contain a probationary period, and may only be used for certain types of work that, based on their nature or activities, are expected to be completed within a certain period.
Where an employment contract does not comply with these requirements, the employee may automatically be deemed a permanent employee by operation of law.
These provisions indicate the importance of ensuring that PKWT arrangements correspond with the nature and duration of the work for which they are established.
2. Outsourcing Remains Permitted, Subject to Regulation
The proposed bill continues to recognize outsourcing as a lawful employment arrangement, subject to certain requirements.
Outsourcing must be based on a written agreement, and the types or fields of work outsourced must consist of supporting services or activities that are not directly related to the production process.
Examples of supporting activities include:
- Cleaning services;
- Food provision services for workers;
- Security personnel or security unit services;
- Supporting services in the mining and petroleum sectors; and
- Transportation services for workers.
The proposed provisions also place greater emphasis on the protection of workers’ rights and entitlements when working through outsourcing providers. These include working conditions, worker competency development, protection, wages, social security and welfare, as well as mechanisms for resolving employment disputes.
3. Minimum Wage and Components of Severance Pay
Under the proposed framework, provincial governors would retain the authority to determine minimum wages, while higher minimum wage levels may also be established at the city or regency level.
The minimum wage calculation would use a formula that takes into account variables such as economic growth, inflation, and certain applicable indices.
The proposed bill also clarifies the wage components used in calculating severance payments. These components consist of basic salary and relevant fixed allowances.
The clarification of these components is relevant to the calculation of employment-related entitlements, particularly when an employment relationship is terminated.
4. Working Hours, Overtime, and Annual Leave
The proposed working-hour provisions maintain a standard working time of 40 hours per week, which may be arranged as:
- 7 hours per day for a six-day workweek; or
- 8 hours per day for a five-day workweek.
Overtime would be limited to a maximum of four hours per day and 18 hours per week.
For annual leave, the proposed framework provides for a minimum of 12 working days after an employee has completed 12 months of continuous employment.
These provisions are relevant to the preparation of employment agreements, company regulations, working schedules, and overtime policies.
5. A More Structured Framework for Severance and Employment Termination
In the event of termination of employment, employers would be required to provide severance pay, long-service appreciation pay, and compensation for other employment entitlements due to the employee.
Under the proposed framework, severance pay would follow a tiered structure based on the employee’s length of service. The proposed scale ranges from one month’s wage for employees with less than one year of service to up to nine months’ wage for employees with eight years or more of service.
A separate long-service appreciation payment would also apply to employees with three years or more of service, with the proposed calculation extending to employees with 24 years or more of tenure.
The proposed structure would therefore be relevant to the calculation of employment termination costs and the rights of employees affected by termination.
6. Industrial Relations and Trade Unions
The proposed framework recognizes industrial relations as involving three interconnected parties: the government, workers, and employers.
These parties have respective roles in maintaining the continuity of business operations, implementing employment policies, and protecting workers’ welfare and rights.
Industrial relations are implemented through various mechanisms and institutions, including:
- Workers’ trade unions;
- Employers’ organizations;
- Bipartite institutions;
- Tripartite institutions;
- Company regulations;
- Collective labor agreements;
- Manpower laws and regulations;
- Industrial relations dispute settlement institutions; and
- Manpower training.
The proposed bill also recognizes workers’ rights to form and become members of trade unions. This includes the right of trade unions to collect and manage organizational finances and to account for such finances, including strike funds.
7. Provisions Concerning Foreign Workers (TKA)
The proposed bill contains specific provisions concerning the employment of foreign workers (Tenaga Kerja Asing or TKA).
An employer employing foreign workers would generally be required to obtain approval for a Foreign Worker Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or RPTKA) from the relevant Minister.
Foreign workers may be employed in Indonesia for specific positions and periods and must possess the competencies required for the positions they occupy.
However, the proposed provisions would not apply to certain categories, including:
- Members of a company’s management, including Directors and/or Commissioners, who are shareholders;
- Diplomatic and consular staff at foreign representative offices;
- Foreign workers required by an employer for production activities that have been suspended due to emergencies, vocational training, technology-based start-up activities, business visits, or research for a specific period; and
- Foreign workers who remain in a valid marriage with an Indonesian citizen and/or are children of a valid marriage with an Indonesian citizen.
The specific requirements and exemptions remain subject to the final wording of the legislation and any implementing regulations that may subsequently be issued.
8. Strengthened Labor Inspection and Sanctions
The proposed bill provides for labor inspections to be conducted by competent and independent labor inspectors to oversee the implementation of employment regulations and the protection of the workforce.
Companies would be required to provide the necessary access and data to labor inspectors for workplace inspections and to submit inspection-related reports to the Minister periodically.
The proposed framework also strengthens enforcement mechanisms. Administrative sanctions may include warnings, written reprimands, and fines, while certain serious violations may also be subject to criminal provisions.
What Should Employers Consider While the Bill Is Still Under Discussion?
Although the proposed Manpower Bill has not yet been enacted, its provisions provide an indication of potential developments in Indonesia’s employment regulatory framework.
Employers may therefore need to pay attention to areas such as the structure and duration of employment contracts, outsourcing arrangements, wage and overtime policies, employee leave, termination procedures, severance calculations, social security obligations, and the employment of foreign workers.
For companies that employ workers in Indonesia, these matters are already subject to existing employment regulations. Any changes resulting from the proposed legislation may require employment documentation and internal policies to be reviewed once the final law and its implementing regulations are established.
At this stage, however, the provisions discussed above should be understood as proposed rules rather than requirements that are already legally effective.
Conclusion
The proposed Manpower Bill represents an effort to reorganize and consolidate Indonesia’s employment regulations into a more unified legal framework.
Its proposed provisions cover a broad range of employment matters, including fixed-term employment contracts, outsourcing, wages, working hours, leave, termination and severance, industrial relations, foreign workers, and labor inspections.
As the legislative process is still ongoing, the substance of the bill may change before it is enacted. Employers and other stakeholders should therefore distinguish between the provisions currently in force and those contained in the draft bill, and monitor the development of the legislation and its implementing regulations.
This article is based on the draft of the Manpower Bill (RUU Ketenagakerjaan), which remains under deliberation and has not yet been enacted into law. The latest status and final provisions should be verified through the relevant official authorities, including the House of Representatives (DPR) and the Ministry of Manpower.
For further information or consultation, please contact:
Rifki Hermawan – Partner – rifki@cptp.law
Raditya Alif Fahreza – Paralegal
