Indonesia Employment Law Explained

Indonesia employment law is an important part of the employer-employee relationship, this is because one wrong step can lead to expensive consequences. The labor market is booming and regulations are constantly getting updated, organizations wanting to survive have to get this right. 

There are strict rules around hiring, firing, and employee benefits. Employers need to be keeping tabs in order to shield themselves from legal issues and nurture a flourishing company.

In this article, we’ll explain the ins-and-outs of Indonesia employment law to help you understand the main provisions of labor law in Indonesia, and what should be done in order to ensure that your business remains compliant.

Core Components of Indonesia Employment Law

Manpower law

Manpower law Indonesia also known as Law No. 13 of 2003, is useful for governing various sectors in employment which includes employment contracts, working hours, leave periods, and termination. Under the manpower law Indonesia, employers are required to provide clear job scope, employment contracts and identification numbers for their employees. This is healthy for HR compliance and ensures that employees are well informed on their rights and obligations.

Industrial relations dispute law

The industrial relations dispute law governs disputes between employers and employees, especially collective labor disputes. In terms of the Indonesia employment law, the parties will adopt dispute resolution options through mediation, arbitration and court proceedings amongst others. For instance, if employees have a dispute over wages, they may issue a complaint in the Industrial Relations Court who will take charge over the processes to determine a resolution to the issues.

Labor union law

The labor union law shows the right of employees to form and join labor unions. The law regulates union activities, collective bargaining, and strikes. For example, factory workers who agree to form a labor union in order to bargain with the employer for minimum wages and better working conditions, it is legal under the Indonesia employment law. 

Minimum wage

Indonesia's minimum wage law prescribes the minimum wage rates for employees across the different sectors and regions of the country. Employers are legally mandated to pay wages meeting or exceeding the prescribed minimum wage rates. For instance, the minimum wage in Jakarta is pegged at IDR 4,400,000. This means every employer based in Jakarta has to pay a minimum of this amount to their employees. This is made possible by the Indonesia labor law, as it ensures fairness in the remuneration of employees.

Social security (SJSN)

The SJSN system gives social security benefits, such as health insurance, pensions, and workers' compensation. Employers are required to register their employees on BPJS. Employers are recommended to join BPJS and ensure that workers receive health insurance and pension in accordance with the employment agreement.

Key Provisions of the Indonesia Employment Law

Core labor rights

• Minimum wage: Employers are expected to pay their workers the minimum wage determined by the Indonesia employment law. This wage is periodically reviewed and adjusted to align with inflation and the cost of living. The minimum wage ensures that all employees receive a basic level of income sufficient to cover essential living expenses like food, housing, and transportation.

Read next: Helping Employees Prepare for Income Tax Indonesia

• Working hours: Employees work normally within a 40-hour week limit, and such may be evenly distributed in an 8-hour day with a five-day workweek or in a 7-hour day over a six-day workweek. Work extended beyond these hours constitutes overtime work. According to the Indonesia labor law, overtime work will be compensated at an increased rate, normally 1.5 times the regular hourly wage for the first one hour and at double the regular hourly wage after that, so as to ensure fairness in remuneration if work is extended.

• Annual leave: A minimum of 12 days of paid annual leave is granted to the employees after completion of one year of continuous service with the same employer. This leave, in addition to the public holidays, has been designed to provide adequate rest and time to recharge oneself for work and attend to personal matters. According to the Indonesia employment law, employers are under obligation to provide this leave and shall not be able to reject or disallow it without sufficient reason.

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• Social security: Employers are mandated to register their employees into the national social security programs such as health insurance, work injury compensation, old-age pensions, and death benefits. They offer protection against disease and eventual invalidity arising from injuries sustained at work, aging, and death. These contributions are paid by both employer and employee through payroll deductions.

• Maternity leave: Female workers are entitled to three months of maternity leave that start before and end after child delivery, according to the Indonesia employment law. It is fully paid by the employer, including her salary during this leave period. An employer cannot dismiss a worker while on maternity leave from work. Hence, this guarantee offers complete job security to working mothers.

Employment contracts

• Written contracts: All employment agreements must be documented in writing to ensure clarity and legal protection for both parties. These written contracts should clearly outline the terms and conditions of employment on both the employer and employee sides. This can help to prevent misunderstandings and disputes by providing a clear reference point incase of disparity.

• Fixed-term contracts: Fixed-term contracts are contracts directed at a certain period of employment. The Indonesia labor law at times limits the maximum period that this can take, mostly up to two years and possibly even longer in particular instances. The law requires that, in addition to the fixed term, the employer must spell out any provisions for renewal or termination in the first place. Where the fixed-term contract is renewed beyond the legal limit, it can be treated as a permanent contract, entailing claims to higher rights and protection.

• Termination: Indonesia employment law clearly spells out how employment can be terminated to be fair and open. Termination has to take place for a valid reason, which can be poor performance or misconduct. Also, legally, the employer has to serve the employee with a notice period, usually of one month, before terminating the employment. In cases of wrongful termination, employees are entitled to severance calculated in relation to the length of service and last drawn salary.

Industrial relations

• Labor unions: Employees have the right to form and join labor unions, which serve as a means to advocate for their rights and interests. Labor unions can be useful in representing workers in discussions with employers, helping to ensure fair treatment, safe working conditions, and equitable compensation. The Indonesia employment law protects union activities, prohibiting employers from discriminating against employees who participate in union activities or serve as union representatives.

• Collective bargaining: This allows labor unions to discuss and agree on wages, working conditions, and other terms of employment with employers. During collective bargaining, representatives of the union and the employers sit down and arrive at an agreement on things like salary increments, other benefits that may be provided, working hours, and even workplace safety. Such collective bargaining agreements through this process are legally binding, set clear and fair standards of employment for all workers within the bargaining unit.

• Dispute resolution: In conflict management, employees may use such methods as mediation, facilitated by an impartial third party in bringing agreeable novel solutions to current cases, or arbitration, where an impartial arbitrator consistently comes up with a final conclusive ruling on the dispute at hand. Additionally, in some cases, complex disputes may require labor court intervention in order to arrive at a resolution. The resolution is designed to occur quickly and with impartiality, therefore minimizing the incidence of protracted disputes, ensuring that the rights of workers are upheld.

Other provisions

• Overtime pay: Employees must receive additional compensation for any overtime worked, as mandated by Indonesia employment law. They are protected to avoid exploitation from organizations.

• Religious holidays: There is a provision for the workers to take time off during religious, officially accepted holidays, and in this way, there exists a diverse cultural or religious practice. Time should be granted-off, with pay due, for observing public holidays officially declared by the government in respect of major events falling on religious occasions. This provision aims at respect for the religious practice of employees and embraces cultural diversity and inclusion.

• Health & safety: Indonesian employers need to provide a safe and healthy working environment by observing occupational health and safety. Organizations have the responsibility to provide the necessary training and ensure that workplaces are safe and free from hazards. Observance of regular inspections and audits for maintaining safety is a must on both sides to protect from injury or work-related illnesses.

• Discrimination: Indonesia employment law prohibits discrimination in cases of an employee or job applicant based on race, gender, and religion, among other characteristics that fall under the law. Employers should not exercise bias in any employment practice, including hiring, promotion, and compensation.

Best Practices for Indonesia Employment Law

1. Stay updated with labor laws and regulations

As an employer, you’re expected to review and stay informed about changes in labor laws and regulations. This will help you stay compliant and avoid legal issues. To do this, you can subscribe to legal updates, attend relevant seminars, and consult legal experts to stay updated about new developments.

2. Partner with local HR consultants 

Also, employers are expected to engage with local HR consultants who have expertise in Indonesian labor laws and practices. They can provide valuable insights and offer guidance on best practices tailored to the local context. This partnership can help businesses follow the Indonesia employment laws to the letter.

3. Maintain comprehensive documentation

Keeping detailed records of all employment-related documents, including contracts, payroll records, performance reviews, and disciplinary actions is important for organizations. These documents can end up as evidence for both employees and employers in cases of disputes.

4. Build strong employee relations

Employers should aim to foster a positive work environment by maintaining open communication, providing fair treatment, and addressing employee concerns promptly. In cases of strong relations, it’s easier for employees to trust that the employers have their best interest at heart and that they are compliant to the Indonesia employment law.

5. Implement strategies for risk management

Finally, there should be strategies to manage risks associated with employment. This can include conducting regular audits, providing training on compliance and safety, and establishing clear policies and procedures in organizations. Proactive risk management prepares both parties for the worst case scenarios.

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