“The types of employment contract in Indonesia can be separated into two, which are Temporary Employment Contract and Permanent Employment Contract. Type of contract affects the right and obligation both parties, and in some cases, the enforceability of the contract itself.”
Some jobs, such as office work, are constant and continuous. Some others, such as project-based work, are short term and intermittent. While people focus on the details of the job itself, sometimes they would forget about the details of the employment contract. More than often, people would only care about the essential details such as the salary, and don’t bother with the less interesting parts of the contract. However, this is quite fatal, as the types of the contract itself would have different major implications to various aspects of the jobs. The types of employment contract in Indonesia can be separated into two, which are Temporary Employment Contract/Perjanjian Kerja Waktu Tertentu (PKWT) and Permanent Employment Contract/Perjanjian Kerja Waktu Tidak Tertentu (PKWTT). Type of contract affects the right and obligation both parties, and in some cases, the enforceability of the contract itself.
Differences between Temporary and Permanent Employment Contract
To most people, it would be obvious that jobs which are continuous/have no specific period require a permanent employment contract, while short-term/project-based jobs only require a temporary employment contract. However, the differences between the two are not only on the job’s length but also on many other aspects, including the probation period, the termination, and also the form of the contract itself.
The most obvious difference is the job’s length, while it is supposedly obvious which type of contract is required for which job, sometimes people would use a temporary employment contract for a permanent job by way of keep extending the employment contract, while this seems feasible, it is not permitted. According to Article 59 of Law No. 13 of 2003 on Manpower (Manpower Law), a temporary employment contract is only allowed for a maximum period of 2 years and is only extendable for a year. Alternatively, if it’s already expired, it is also permitted to be renewed for another two years, after 30 days of grace period since the expiration date. A temporary employment contract is not allowed to be extended any longer, as it is meant for jobs which can be finished in a single time, or ones that need no more than three years to be finished, or ones that are seasonal in nature. If the contract is extended longer than allowed, it will be automatically considered as a permanent employment contract.
The second difference is the probation period, it is common for companies to put recruit in probation before appointing the employee to a permanent position. However, according to Article 58 of Manpower Law, the probation period is only allowed for a permanent employment contract, and it is only allowed for a maximum of 3 months. In the event a temporary employment contract included a probation period, the contract shall be null and void.
In regards to the termination of the employee, it is also possible to terminate a temporary employment contract before the contract period is over. However, unlike termination of permanent employment contract, a terminated temporary employee is not entitled to severance pay, rewards of service pay, or compensation pay. Instead, they would only be entitled to their unpaid salary for the rest of the contract period. As for the termination process itself, if the termination is due to the expiration of the contract period, then there is no need to process the termination of the industrial relation court. If it is terminated before the contract period is over; however, it will be treated in the same termination process as a permanent employee.
Lastly, the form of contract between temporary and permanent employment contracts is also different. A temporary employment contract has to be written, made in the Indonesian language, and registered to the Ministry of Manpower. In specific, a temporary employment contract which doesn’t use Indonesia language will be considered as a permanent contract instead. On the other hand, a permanent employment contract is a complete opposite. Notwithstanding the Law No. 24 of 2009 regarding the usage of Indonesia language in a deal, there is no specific legal sanction for permanent employment contract drafted in a language other than Indonesia. It is also can be made orally, although there still needs to be a written appointment letter afterwards. Lastly, it doesn’t need to be registered at the Ministry of Manpower.
An Employment Contract for Foreigner
As mentioned above, the type of contract depends on the kind of jobs. However, there is a special exception for a foreign worker. According to Article 42 of Manpower Law, an employment contract for a foreign employee must be a temporary employment contract. In other words, the expatriate is not allowed to occupy a permanent position in Indonesia. Of course, it would be a different story if he/she were to apply to other companies after the current contract is expired.
On top of that, the positions allowed to be occupied by expatriate are limited. According to the Ministry of Manpower Regulation No. 228 of 2019, the positions which can be occupied by the expatriate in each business sector are the ones listed in this regulation, such as a general manager or financial advisor. Other positions not listed by the Ministry of Manpower, except for positions related to Human Resources, are negotiable. Lastly, on the practical side, the format of the temporary employment contract must adhere to the form provided by the Ministry of Manpower. While this is not mandatory, it is required to acquire the relevant permits from the Ministry of Manpower.
Author: Benedictus Giovanni
Gaffar & Co., Indonesian Boutique Law Firm which specializing and focus on commercial law areas include Employment Law.
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