“Following the promulgation of the Omnibus Law in 2020, the Indonesian government has issued several implementing regulations, including the implementing regulation concerning industrial relations between employers and their employees.”
From mid-2020 to early 2021, matters regarding industrial relations have been made uncertain by the promulgation of Law No. 11 of 2020 concerning Job Creation (“Omnibus Law”). While Omnibus Law has made considerable changes to the Law No. 13 of 2003 concerning Manpower (“Manpower Law”), multiple provisions contained therein are insufficient to clarify the implementation. In February 2021, this issue has been resolved by the promulgation of Government Regulation No. 35 of 2021 concerning Fixed-term Work Agreement, Outsourcing, Working Hours and Rest Periods, and Termination of Employment Relationship (“PP 35/2021”).
Employment Period under Fixed-term Work Agreements
As regulated by the Manpower Law before the Omnibus Law, employers are allowed to hire employees under fixed-term work agreements or permanent work agreements. This regulation has not been amended by the Omnibus Law and PP 35/2021. However, the Omnibus Law and PP 35/2021 have fundamentally amended matters specifically regarding fixed-term work agreements.
Previously, fixed-term work agreements only allow employers to hire employees for a maximum period of 3 (three) years. The specific provision is that fixed-term work agreements can be drawn up for a maximum period of 2 (two) years and may only be extended once for the maximum period of 1 (one) year.
The Omnibus Law has revoked the specific provision mentioned but has not provided the replacing provision thereof. However, PP 35/2021 filled this void.
According to PP 35/2021, fixed-term work agreements can be drawn up for the maximum period of 5 (five) years and are not limited to a specific number of extensions. Nonetheless, it is stated that the maximum employment period under fixed-term work agreements in total can only be up to 5 (five) years. Therefore, should a fixed-term work agreement be drawn up for the period of 5 (five) years, such work agreement cannot be extended because the total maximum employment period has been fulfilled. On the other hand, should a fixed-term work agreement be drawn up for less than 5 (five) years, such work agreement can be extended infinitely until the total maximum employment period reaches 5 (five) years.
Compensation Fund at the End of Employment Period under Fixed-term Work Agreements
The Omnibus Law has regulated that employers must pay a compensation fund to the relevant employees at the end of the employment period under fixed-term work agreements. However, the amount of such compensation fund has not been provided therein. This is a new provision which the Manpower Law has not regulated before the Omnibus Law, and therefore there had not been any guide to implement this provision.
Under PP 35/2021, employers must pay a compensation fund to employees at the end of every employment period under fixed-term work agreements. Therefore, even if the employment period under a fixed-term work agreement is extended, the employer must pay the employee’s compensation fund at the end of the initial employment period, regardless of whether such employment period has been extended. If the employment period is indeed extended after the initial employment period, employers must then pay the compensation fund at the end of the extended employment period.
The calculation for the compensation fund at the end of the employment period under fixed-term employment period is regulated as follows:
- 1 (one)-month wages for 12 (twelve) months of continuous employment; and
- 1 (one)-month wages multiplied by total months of employment period divided by 12 (twelve) for more than 1 (one) month of continuous employment.
However, this calculation of the compensation fund does not apply to employees of other nationalities (expatriates) and employees of Micro and Small Enterprises. Under PP 35/2021, the compensation fund does not apply to expatriates, releasing employers from paying any compensation fund to expatriates at the end of their employment periods. However, for Micro and Small Enterprises, while such enterprises are also under the obligation to pay a compensation fund to the employees, the calculation of such compensation fund is subject to an agreement between the respective enterprise and its employees.
Compensation Fund and Retribution Fee for Early Termination of Fixed-term Work Agreements
Within Article 62 of the Manpower Law, it is stated that if either the employer or the employee terminates the fixed-term work agreement prior to the expiry date thereof, the terminating party must pay a retribution fee (uang ganti rugi) to the other party in the amount of the employee’s wages until the agreed expiry date of the fixed-term work agreement. It must be regarded that Article 62 of the Manpower Law has not been revoked nor amended by the Omnibus Law, and therefore this provision shall continue to prevail.
The compensation fund, as newly introduced by the Omnibus Law and regulated by PP 35/2021, must be separated from the retribution fee regulated under Article 62 of the Manpower Law. According to PP 35/2021, in the event of early termination of a fixed-term work agreement, the employer is obligated to pay the employee a compensation fund calculated based on the employment period executed by the said employee. Therefore, should a fixed-term work agreement be terminated by the employer prior to the expiry date, the said employer must pay the employee both the compensation fund and the retribution fee.
Author: Yohana Veronica Tanjung
Related article: Dealing with an Employment Agreement Based on Omnibus Law