Definite Term Employment Agreements, Outsourcing, Work Hours and Rest Time, and Termination of Employment Regulated Further – Lexology

As a follow up to Law No. 11 of 2020 dated November 2, 2020 on Job Creation (the “Job Creation Law” or commonly known as the Omnibus Law) which amends, among others, Law No. 13 of 2003 dated March 25, 2003 on Manpower (the “Manpower Law”), the Government enacted Government Regulation No. 35 of 2021 dated February 2, 2021 on Definite Term Employment Agreements, Outsourcing, Work Hours and Rest Time, and Termination of Employment (“GR 35”). Despite the date of GR 35, as a matter of fact GR 35 was not available publicly until the third week of February. You may refer to our Newsflash on Changes to the Manpower Law under the Job Creation Law here.

As mandated in the Manpower Law (as amended by the Job Creation Law), GR 35 sets out in more detail the provisions of the Manpower Law. The highlights of provisions stipulated under GR 35 are as follows.

  1. Definite Term Employment Agreements

Pursuant to GR 35, a Definite Term Employment Agreement (Perjanjian Kerja Waktu Tertentu or a “PKWT”) may be made based on (i) the period of work or (ii) the completion of certain work. A PKWT may not be made for the work that is permanent in nature. In addition, GR 35 allows a PKWT to be made for any other types of work, provided that the type and nature or activity of such work is temporary.

  • PKWT Based on Period

A PKWT on the period of work may be made for the following types of work:

  • Work that is estimated to be completed in a short period of time (a maximum of 5 (five) years);
  • Seasonal work (i.e., work that depends on certain seasons, weather, or conditions); or
  • Work related to development of a new product, activity or any additional products that are still in trial or exploration.

A PKWT based on the period of work may be made for a maximum of 5 (five) years. The Manpower Law (as amended by the Job Creation Law) and GR 35 no longer set out any period of each PKWT and/or any number of extensions or renewals of a PKWT.

If a PKWT based on the period of work reaches its expiration and the work is not complete, the employee and the employer may extend such PKWT, provided that the collective period of work after the extension is not more than 5 (five) years. In this regard, the period of work for the PKWT that has been extended as above, shall be calculated since the start of the initial PKWT.

  • PKWT Based on Completion of Work

A PKWT based on the completion of work may be made for the following types of work:

  • Work that may be completed in one exercise; or
  • Work that is temporary in nature.

A PKWT based on the completion of work must be based on the agreement by the employer and the employee under the PKWT. Such agreement will include the scope and limitation of the completion of work and the period of the completion of work. A PKWT based on the completion of work that ends earlier than the agreed period will, by law, be deemed to be terminated and ended on the date of such completion of work.

  • Daily PKWT

GR 35 also allows certain work which period and volume as well as pay may change based on attendance. This type of PKWT may only be made under a daily employment agreement. If an employee under this kind of PKWT works for 21 (twenty-one) days or more in one month for 3 (three) consecutive months or more, such PKWT will automatically convert to an Indefinite Term Employment Agreement (Perjanjian Kerja Waktu Tidak Tertentu or a “PKWTT”).

  • Non-Compliance of PKWT Requirements

Note that under the Manpower Law a PKWT that does not meet the requirements above will convert such PKWT into a PKWTT.

  1. Compensation on Termination of PKWT

Now, an employer is required to pay compensation (in Bahasa Indonesia, kompensasi) to employees under PKWTs upon the completion/end of the PKWTs. This compensation is payable for a definite term employee who works for at least 1 (one) month uninterrupted.

An employee who is hired under a PKWT and has worked for 12 months consecutively are entitled to 1 month’s of wage. The compensation is pro-rated if an employee works for less or more than 12 months.

The compensation does not apply to foreign employees that are employed based on a PKWT.

In case either party under a PKWT early terminates the PKWT before the agreed completion of the PKWT, the employer will still be required to pay for the compensation.

  1. Mandatory Registration of PKWT

An employer shall register a PKWT through the online system no later than 3 (three) working days as of the execution of such PKWT. If the online system is yet to be ready, the registration shall be conducted manually at the relevant local manpower office no later than 7 (seven) working days as of the execution of such PKWT.

We note that the online system for the PKWT registration is not yet ready. Therefore, an employer shall manually register a PKWT to the relevant manpower office. As the registration is a requirement for a PKWT to be valid, any failure to register the PKWT will render the PKWT converted into a PKWTT.

  1. Outsourcing

An employment relationship between an outsourcing company and an employee is based on an employment agreement (i.e., definite term or permanent) in writing. The rights of the employee in an outsourcing employment agreement must be protected and in the responsibility of the outsourcing company (not of any other company).

Such rights of the employee must be covered and stipulated in an employment agreement, company regulation, or collective labor agreement.

There is no longer restriction as to the types of work or services that may be outsourced.

An outsourcing company is required to ensure the continued employment if there is a change of outsourcing companies provided the work remains the same. For example, Company A engages Outsourcing Company B for provision of an individual as a technician to work in Company A. Outsourcing Company B sends Mr. X as the technician. After a year, Company A discontinues its outsourcing arrangement with Company B and appoints Outsourcing Company C to provide an individual as a technician for the work of Mr. X. In this case Outsourcing B shall ensure that Mr. X is employed by Outsourcing Company C to perform the work for Company A.

  1. Work Hours and Rest Time
  • Work Hours

An employer is required to implement the working hours for its employees. There are 2 (two) types of working hours, namely:

  • 7 (seven) work hours in 1 (one) day or 40 (forty) work hours in 1 (one) week for 6 (six) working days a week; and
  • 8 (eight) work hours in 1 (one) day or 40 (forty) hours in 1 (one) week for 5 (five) working days a week.

The work hours shall be determined and included in the employment agreement, the company regulation, or the collective labor agreement of the employer.

An employer must provide weekly rest time of 1 (one) day for the 6 (six) working days a week or of 2 (two) working days for the 5 (five) working days a week.

  • Other Work Hours

For certain types of work, an employer may implement more or less rest time as stated above. These certain types of work may have the characteristic of:

  • the completion of work is less than 7 (seven) hours per day and less than 35 (thirty five) hours per week;
  • the work that implements flexible working hours; or
  • the work in certain business sectors or occupations which implement more working time than as stipulated above, in accordance with the provisions stipulated by the Minister of Manpower (the “MOM”).
  • Overtime and Overtime Pay

In addition to the maximum 40 (forty) working hours per week, employees may work additional hours as overtime. However, the overtime may only be conducted for up to 4 (four) hours within 1 (one) day and 18 (eighteen) hours in a week. Note that these limits exclude overtime during weekend or rest days.

Overtime is subject to prior consent from the employee. Typically, this consent is included in the employment agreements. But GR 35 appears to suggest that the consent is required each time an employee is required to work overtime.

An employer is obligated to pay for overtime pay for employees that work overtime including if the employee works during his/her weekly rest time and/or a national or public holiday.

An employer may determine certain positions within the employer that are not entitled to overtime pay.

  • Long Term Leave

An employer may also provide a sabbatical leave for the employees. The provisions for this sabbatical leave shall be stipulated under the employment agreement, company regulation, or collective labor agreement.

  1. Termination of Employment

An employer and an employee shall make all efforts to prevent a termination of employment. If despite all efforts taken by the employer and the employee the termination of employment is inevitable, then the termination of employment shall be firstly notified by the employer to the employee whose employment is going to be terminated. The notice has to be delivered 14 working days before the date of the termination. However, in case of an urgent reason (defined to include certain serious misconducts), such notification is not required.

If the employee has been notified and does not refuse such termination of employment, the employer is required to notify such termination of employment to the MOM and/or the relevant regional Manpower Office.

If the employee refuses the termination of employment, within 7 working days after receiving the notification the employee must provide a written refusal to such notification and both the employer and the employee shall negotiate to reach an amicable termination settlement. If the negotiation fails to reach any agreement, then the termination of the employment relationship may be conducted in accordance with the industrial dispute settlement mechanism.

  • Termination Benefits

In the event there is termination of employment, an employer shall pay the termination benefits to the dismissed employees in accordance with the Manpower Law, employment agreements, company regulations or collective labor agreements. The employment termination benefits consist of severance pay, service pay, and compensation pay (collectively, the “Termination Benefits”). Under the Manpower Law and GR 35, the Termination Benefits consist of the following components:

  • Severance Pay:

  • Service Pay:

  • Compensation Pay:
    • Compensation for annual leave to which the employee is entitled but which has not been taken and which has not been forfeited.
    • All costs or expenses incurred in returning the employee and his/her family to the place where he/she was recruited, if applicable; and
    • Other matters agreed in employment agreements, company regulations, or collective labor agreements.
  • Termination Benefits in Certain Circumstances

Depending on the reasons of the termination, GR 35 provides certain multipliers of the components of the amount of Termination Benefits. We set out below the multipliers for several reasons of terminations.

  • Termination of Employment for Employees with Pension Funds

If an employer enrolls its employees in a pension program, the contribution paid by employer in such pension program may be used to deduct the Termination Benefits payable to employees. The foregoing provisions shall be stipulated in an employment agreement, company regulation, or collective labor agreement.

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