Indonesia: Job Creation Regulation Becomes Law with Issuance of Law No. 6 of 2023
Indonesia’s House of Representatives recently approved into law Government Regulation in Lieu of Law No. 2 Year 2022 on Job Creation (“Job Creation Regulation”), based on Law No. 6 Year 2023 on the Stipulation of Government Regulation No. 2 of 2022 in Lieu of Law No. 11 of 2020 on Job Creation into Law (“Law No. 6”). Law No. 6 adopted the Job Creation Regulation in its entirety without making any changes.
With this change, Indonesia’s Manpower Law is now known as Law No. 13 Year 2003, as amended by Law No. 6 of 2023.
Highlights of Law No. 6
- Reduction of termination entitlements: The Government eliminated the health and housing allowance component, which was 15% of the total Severance Pay and Service Pay, from the Compensation Pay for permanent employees under the Manpower Law. The implementing regulation of the current Manpower Law (GR 35 of 2021) also reduced the termination entitlements calculation of Severance Pay and Service Pay for permanent employees across the board.
- Notice of Termination procedure: Indonesia has adopted the notice of termination concept that is very common in many jurisdictions. Previously, all terminations were subject to the approval of the Labor Court unless agreed by the employee. Employers must give 14 working days’ notice of termination and such termination is effective unless the employee objects in writing within 7 working days after receipt of the notice.
- Outsourcing: Under the current Manpower Law as amended, a company may hand over part of the execution of its work to another company through an outsourcing agreement. The Government plans to issue an implementing regulation to clarify which work or type of work can be outsourced to another company.
- Minimum wage: The formula for calculating the minimum wage considers the variables of economic growth, inflation, and certain indexes. The Government in certain circumstances may stipulate a different formula for calculating the minimum wage.
- Expatriate employees: The Government has simplified work permit procedures. but maintains the prohibition on employing foreigners in human resources positions. Expatriate employees can only be hired on fixed-term employment agreements.
- Fixed-term employees: A fixed-term employment agreement can be made for a maximum of five years without any break. A fixed-term employee is entitled to receive compensation pay upon the expiration of a fixed-term employment agreement calculated as follows:
|Compensation for Fixed-Term Employee
|Less than a month
|1 Month or more but less than 12 months
(Service Period / 12) x 1-month salary
|More than 12 months
This compensation pay for expiration of a fixed-term employment agreement is not applicable to foreign employees.
- Job Loss Security program: The government has introduced Job Loss Security, a new social security program under the BPJS Employment (BPJS Ketenagakerjaan)social security program. Job Loss Security benefits consist of (a) a monthly cash benefit for six months, (b) access to job market information and career counselling, and (c) online or offline job training.
Given these significant changes, which are largely employer-friendly, the implementation of Law No. 13 Year 2003, as amended by Law No. 6 will significantly impact the future of employer-employee relations in Indonesia. We would encourage employers to update their employment documentation (template agreements, Company Regulation (work rules) or Collective Labor Agreement, as the case may be, and any related policies) to conform with Law No. 6 of 2023.
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