Minimum statutory terms
Termination of employment
Discrimination and harassment
Occupational health and safety
Regulation of outsourcing and contracting
Industrial relations

Acknowledgment

This Guide was prepared by the Workplace Law & Advisory – Asia practice of Freehills International Lawyers, with assistance from the following firms:

Contacts:

George Cooper
Practice Leader
+65 6236 9941 begin_of_the_skype_highlighting              +65 6236 9941 
george.cooper@freehills.com

Celia Yuen
Senior Associate
+65 6236 9972 begin_of_the_skype_highlighting              +65 6236 9972 
celia.yuen@freehills.com

Note:     This Guide:

• is current to 31 March 2010;
• contains general introductory information only, without an assumption of a duty of care by Freehills or the other firms listed;
• does not contain legal advice; and
• is not intended to be, nor should it be relied on as, a substitute for legal or other professional advice.

If employers have workplace relations issues or requirements in particular jurisdictions, then Freehills Workplace Law & Advisory - Asia can assist, working with local counsel.

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Minimum statutory terms

Key statutes
In addition to the general civil laws that apply to all types of contracts, employment in Indonesia is specifically regulated under legislation including Law No 13 of 2003 (Employment Law) and Law No 2 of 2004 (Industrial Disputes Law). These are supplemented by government regulations and presidential decrees, as well as ministerial regulations, circulars and instructions, which are subject to change from time to time.

In addition to applicable laws, terms and conditions will be set by individual contracts of employment as well as by the Company Regulations or Collective Labour Agreement (if applicable). The Employment Law specifically requires fixed-term employment contracts to be in the Indonesian language. 

Furthermore, Law No 24 of 2009 on National Flag, Language, State Symbol and Anthem (Law No 24) provides that all agreements involving an Indonesian private institution or individual must be in the Indonesian language. If a foreign party is involved, Law No 24 also permits such agreements to be made in bilingual form (Indonesian and the national language of the foreign party or in English, or both). 

A Presidential Regulation is expected to be issued in due course to provide further clarification of Law No 24. Since Indonesia is a civil law jurisdiction, unlike the common law jurisdictions, there is no doctrine of binding precedent in the courts.

Employer work rules
Companies with 10 or more employees must have Company Regulations which are made by the company and must be approved by the Ministry of Manpower and Transmigration.

Some companies will have a Collective Labour Agreement that applies to the company and its employees instead of Company Regulations. A Collective Labour Agreement is made by the company and the labour union/s of the company and must be registered with the Ministry of Manpower and Transmigration.

Probationary period
The Employment Law recognises two types of employment agreements—definite/fixed-period employment agreements (see more below in ‘Fixed-term employment arrangements’) and indefinite/permanent employment agreements.

A probationary period cannot be provided for in a fixed-period employment agreement. It is however possible to provide for a probationary period of up to three months in a permanent employment agreement.

Minimum wage
There is no national minimum wage in Indonesia. Each local provincial government is responsible for setting minimum wage levels, which may vary from one industry to another.

Remuneration structure
Remuneration is generally seen as falling into two categories:
salary/wage components, including basic salary, fixed allowances (that is, paid regularly to the employee) and non-fixed allowances (that is, may be paid depending on circumstances), and
non-salary components, including facilities, bonuses and religious holiday gratuities.

Working hours

Hours of work— Standard hours of work under the Employment Law for daytime employees are up to 40 hours per week, being up to seven hours per day for a six-day work week and up to eight hours per day for a five-day work week. Certain businesses or jobs may be exempted from these requirements by ministerial decree.

Overtime— Employers are obliged to pay overtime to workers who work in excess of the standard hours of work. In general, overtime may not exceed three hours on any one day and 14 hours in any one week.
The quantum of overtime payments due is governed by ministerial decrees and is complex. In general, certain employees with positions of responsibility are not entitled to overtime payments.
Company Regulations and Collective Labour Agreements often contain prescriptions regarding overtime and overtime payments.

Rest periods— Employees are entitled to one rest day for a six-day work week or two rest days for a five-day work week pursuant to the Employment Law.
Under the Employment Law, an employee is entitled to a 30-minute rest period after four hours of continuous work.

Public holidays
Generally, employees are entitled to a paid day off on gazetted public holidays. However, employees in certain types of work may be required by their employer to work on public holidays (for example, medical, transportation, tourism, supermarkets, security etc). In such cases, an overtime pay rate will apply under the applicable ministerial regulation/decree.

Paid annual leave
Pursuant to the Employment Law, all workers (including those on fixed-period employment agreements and those on permanent employment agreements) are entitled to 12 days paid annual leave after 12 months service. Untaken leave must be paid out in the event of termination or resignation.

Other types of leave
Leave entitlements are generally regulated in some detail by applicable Company Regulations or Collective Labour Agreements. Some examples of statutory leave entitlements include:

Maternity leave— Female employees are entitled to paid leave for 1.5 months before the birth and a further 1.5 months after the birth. Employers are required to employ the employee in the same position after the employee’s return from maternity leave. Maternity leave can be extended with medical certification.

Miscarriage leave— In the event of a miscarriage, female employees are entitled to 1.5 months of miscarriage leave.

Menstruation leave— Female employees may be granted leave on the first and second day of their menstrual cycle.

Sick leave— Employees are entitled to be absent from work due to sickness provided that the sickness is substantiated by a doctor’s certificate. An employee who is sick and requires long term treatment based on doctor’s advice is entitled to sick leave according to the following provisions:

• the first four months:           100% of the monthly salary
• the second four months:    75% of the monthly salary
• the third four months:          50% of the monthly salary, and
• thereafter:                              25% of the monthly salary until
  the employer terminates the employment relationship.

Hajj leave— An employer must provide Hajj leave to its Muslim employees who wish to travel on a pilgrimage to Mecca. The detailed requirements and procedures for Hajj leave should be regulated in the employment agreement or Company Regulations or Collective Labour Agreement of the company.

Long service leave (if applicable)— Employees of certain companies who have worked for six consecutive years are entitled to at least two months of long service leave. The companies required to implement this kind of leave are companies which had already implemented such long service leave before the issuance of Decree of the Minister of Manpower and Transmigration No KEP-51/MEN/IV/2004 dated 8 April 2004 regarding Long Service Leave for Certain Companies.

Other leave— Employees are entitled to paid leave for their own wedding (three days), circumcision of child (two days), baptism of child (two days), marriage of child (two days), paternity leave (two days), death of husband/wife, parents/parents-in-law, child or son-in-law/daughter-in-law (two days) and death of a relative who lives in the same house (one day).

Fixed-term employment arrangements

• Fixed-term employment agreements are only available for certain work, as follows:work to be carried out and completed at one time or work which is temporary by nature
• work that is estimated to be completed within three years
• seasonal work, and
• work that is related to a new product, a new activity or an additional product that is still in the experimental stage or try-out phase.

Fixed-term employment agreements can be made for a maximum period of two years and may only be extended once for a maximum period of one year (provided that written notice of extension is given at least seven days before expiry). A fixed-term employment agreement may thereafter be renewed once for a maximum period of two years. However, the renewal of a fixed-term employment agreement for a further two-year term may only be carried out after the passage of a ‘grace period’ of 30 days as from the expiry date of the relevant agreement, which can be waived by written agreement between the parties.

If the fixed-term employment agreement does not comply with the above formal statutory requirements, then it could be treated as a permanent employment agreement, entitling the relevant employee to all the benefits for permanent employees under the Employment Law.

If either party to a fixed-term employment agreement terminates the employment relationship prior to the end of the agreement, or if the agreement must end for any reasons other than the exceptions referred to below, then the party that terminates the relationship is obliged to pay compensation to the other party in the amount of salary that the employee would be entitled to receive from the point of termination until the end of the agreement. The exceptions are where:

• the employee dies
• the fixed-term agreement expires
• a court ruling or an IRC order ends the agreement, and/or
• circumstances apply as are prescribed in the employment agreement, the Company Regulations or the Collective Labour Agreement that effectively result in the termination of employment.

Social security
Companies with 10 or more employees or that pay salaries to employees collectively worth at least Rp1,000,000 (approximately US$90) per month must register the employees in the Worker Social Security Program (Jamsostek Program).
The Jamsostek Program consists of:

• Occupational Accident Insurance: the contribution amount to be made by the employer is based on the type of business of the company, and varies from a minimum of 0.24% up to a maximum of 1.47% of the relevant monthly salary
• Life Insurance: 0.3% of the monthly salary
• Retirement Benefits: 5.7% of the monthly salary, and
• Health Insurance: 6% of the monthly salary for married employees and 3% of the monthly salary for unmarried employees.

The Jamsostek contributions are mostly borne by the employer on a monthly basis. However, 2% out of the total percentage of 5.7% of the monthly salary for the Retirement Benefits contribution is borne by the employee, and is deducted from the employee’s monthly salary by the employer.

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Termination of employment

Legal requirements
In general, an employer may only unilaterally terminate an employment relationship if it has a prior order from the Industrial Relations Court (IRC). 

Until such order is obtained, the employment relationship (and hence the employer’s obligation to pay wages) remains on foot.

Before an order for termination can be sought, the employer must negotiate either collectively or individually with the employee(s) to attempt to reach a mutually agreeable outcome on how the termination(s) will proceed. It is common for unions to be involved in the negotiation stage.

A detailed and cumbersome procedure for terminating employees is set out in the Employment Law, for situations where an employee breaches an employment agreement, Company Regulations or Collective Labour Agreement. A series of three warning letters, each valid for a maximum period of six months, warning the employee not to commit any further breaches must be issued by the employer. If the employee breaches the employment agreement, Company Regulations or Collective Labour Agreement during the period of the third warning letter, the employer then has sufficient grounds to apply for a termination order from the IRC.

The Elucidation of the Employment Law also provides that the employment agreement, Company Regulations or Collective Labour Agreement may specify certain violations committed by employees that entitle the employer to serve only one warning letter. Under such circumstances, if the employee breaches the employment agreement, Company Regulations or Collective Labour Agreement during the period of such warning letter, the employer may then apply for a termination order from the IRC without having to serve any more warning letters.

In deciding whether or not to issue an employment termination order, the IRC will also carefully examine the financial position of the company and whether it is commensurate with the termination payment proposed to be made.

A prior IRC order is not required before the termination of employment takes effect if the employer and the employee are able to reach mutual agreement in relation to the employment termination (including the severance entitlement). However, if the parties to a dispute regarding termination have already commenced the formal resolution process through negotiation, conciliation or mediation in accordance with the provisions of the Industrial Disputes Law, then any resulting mutual agreement must be recorded in writing and registered at the IRC.

Notice periods
As set out above, under the Employment Law, an employer cannot terminate employment upon mere notice to the employee—the prior approval of the IRC is required for a termination. An employee can resign from employment by giving 30 days written notice.

Restrictions on the ability to terminate employment
Article 153(1) of the Employment Law sets out specific grounds upon which an employer must not terminate employment. These include, for example, because of absence due to illness over a period of less than 12 consecutive months, because of marriage, pregnancy, union activities, religion, race, gender, or due to permanent disability arising from an industrial accident.

Remedies
An employee may seek reinstatement or compensation, including back pay, in respect of a termination of employment effected without a prior order from the IRC or without the mutual agreement of the parties.

Severance payments
Upon termination of employment, an employee is entitled to receive a severance payment from their employer. 

The quantum of the severance payment depends on the reason for termination, and may consist of one or more of the following components:

Severance Pay: if applicable, this will either be one month’s salary per year (or part year) of service, capped at nine months salary, or two months salary per year (or part year) of service, capped at 18 months salary, depending on the reasons for the termination.

Service Pay: if applicable, this is calculated on a scale, ranging from two months salary for an employee with three years service, up to 10 months salary for an employee with 24 years service.

Compensation Pay, including:

• accrued but untaken annual leave
• transportation costs to repatriate the employee and his/her family to the place where the employee was recruited
• housing, medication and medical treatment compensation. This amount is calculated as 15% of the amount that the employee receives by way of Severance Pay + Service Pay, and
• all other amounts payable pursuant to the applicable employment agreement, Company Regulation or Collective Labour Agreement.

The categories of termination of employment provided for in the Employment Law must be carefully examined to determine the applicable severance payment components in the particular case.

No severance payment applies when employment ceases due to the expiry of a genuine fixed-period employment agreement.

Upon resignation, an employee is entitled to receive Compensation Pay and ‘Separation Pay’—the ‘Separation Pay’ component is not defined in the legislation and may be specified in the employment agreement, Company Regulation or Collective Labour Agreement.

Specific requirements applicable to redundancy
The severance payments due in the event of a redundancy will depend upon the circumstances of the redundancy and the financial circumstances of the employer at the time.

One particular provision of note is that the Employment Law contains a specific ‘change of ownership’ provision which may be invoked by the employee in the event of a change in the ownership of the shares in the company. Although the legal entity employing the employee remains the same, the employee may elect to resign as a result of the change of ownership, and the employer will be obliged to make a severance payment to the employee.

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Discrimination and harassment
Indonesian law provides for general protection from discrimination in employment on the grounds of gender and disability.

The Employment Law also provides for the employee to demand to be terminated and to receive an enhanced severance package from the employer in certain circumstances, including where the employer has assaulted or rudely humiliated or intimidated the employee.

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Occupational health and safety
The Employment Law provides for the basic principles that every worker has the right to obtain protection for occupational safety and health, and that employers must apply an integrated safety and health system within the company’s own management system.

Law No 1 of 1970 on Occupational Safety also sets out basic principles of workplace safety, and is supplemented by a host of implementing regulations. Certain specific obligations are imposed on managers, including the supervision of workers’ health and the obligation to provide guidance on working safely and training in accident prevention. Employees are also required by law to obey all safety instructions and to use personal protective equipment.

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Regulation of outsourcing and contracting
The circumstances in which a company may outsource parts of its activities are limited under Indonesian law. Generally, outsourcing can only be used for work that is separate or ancillary to the company’s main activities (for example, cleaning service, security guards etc, as long as these are not the core business of the company).

If work is outsourced other than in accordance with the legal limitations, a relationship of employment will be deemed to exist between the principal company and those performing the work.

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Industrial relation

Legislation in brief
The Industrial Disputes Law contains detailed provisions and procedures for the resolution of various types of disputes and grievances. These processes are often complex and time-consuming, consisting of multiple levels of negotiation and mediation in attempts to resolve the dispute. In addition to the Employment Law and the Industrial Disputes Law, industrial relations in Indonesia are also regulated by Law No 21 of 2000 on Labour Unions (Law No 21).

Role of trade unions and collective negotiations
Indonesia has moved only in the last decade from having one trade union organisation under the control of the State, to having a confusing and rapidly growing number of different unions, federations and confederations. Law No 21 provides detailed provisions on membership and registration of trade unions, the rights and obligations of trade unions, guidelines on financial and property wealth of trade unions, dispute settlement between trade unions and supervision by the Ministry of Manpower and Transmigration. Collective negotiations, with registered trade union involvement, are reasonably common, as is the entering into Collective Labour Agreements.

Industrial action and disputes
The Employment Law recognises the ability of parties to engage in strikes or lockouts, and sets out certain procedures in relation to these, including informing both the other party and the Ministry of Manpower and Transmigration in writing of the proposed industrial action. Penalties may be imposed for failure to comply with the legal requirements.

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