Back to all news
Employee is one of the key components of a company. Indonesia has a unique regulation that addresses various employment issues, from the registration of foreign workers to the termination procedures of employees. The Manpower Law was established in 2003 and revitalized in 2022.
Some multinational companies operating in Indonesia often bring foreign workers to handle projects. However, many companies are unaware that there are limitations on the positions that can be filled by foreign workers, specifically in Human Resources-related positions. Apart from the position that can be filled by foreign workers, they must obtain a proper working permit prior to working in Indonesia. It's very crucial as a tourist visa (or visa on arrival) cannot be used for work or to have business meetings in Indonesia.
To start a working relationship, a company has to prepare a written agreement with its employees. There are two primary forms of working agreement: (i) Definite Period Working Agreement (Perjanjian Kerja Waktu Tertentu) and (ii) Indefinite Period Working Agreement (Perjanjian Kerja Waktu Tidak Tertentu). Point (i) applies to both foreign workers and local workers, while point (ii) only applies to local workers.
Termination Procedures (PHK) for Workers in Indonesia
Termination of Employment, or Pemutusan Hubungan Kerja (PHK), is a complicated process if one does not understand the law, as both employers and employees must follow a legal procedure to ensure fairness during the termination process.
Under Indonesian law, employers must have a legitimate reason for terminating an employee. Reasons might include, among others, business needs, poor performance, or violations of work-related regulations. It is important to note that workers must comply with the terms of their work permits (for foreign workers), and any violation may lead to termination. The termination process should follow the proper procedures outlined in the Manpower Law and the Job Creation Law, ensuring that the rights of all workers are respected.
Before termination, employers are required to notify the employee and provide reasons for dismissal. If issues arise, companies may need to engage in mediation or discussions to resolve the matter before resorting to termination.
As part of the termination process, permanent workers are entitled to Severance Pay; meanwhile, non-permanent workers are entitled to compensation as regulated in the working agreement or the company regulation. Below is a detailed explanation of their entitlement to severance pay.
Entitlement for Severance Pay for Workers in Indonesia
Severance pay, or Uang Pesangon, is a key aspect of employment law in Indonesia. Workers are entitled to receive severance pay upon termination. While the severance pay is similar for all employees, the calculation may differ depending on the terms of their employment agreements.
When an employee’s employment ends, they are entitled to:
- Severance Pay (Uang Pesangon) – This is the main compensation for employees upon termination. It supports the workers after they depart from the company.
- Long Service Pay (Uang Penghargaan Masa Kerja) – This payment is made to workers who have been with the company for an extended period, recognizing their dedication and loyalty.
- Compensation for Rights Replacement (Uang Penggantian Hak) – This compensates workers for any unused entitlements, such as unused leave days, that may have accrued during their tenure.
Employers must ensure that these payments are correctly calculated and distributed. To assist with this, the Ministry of Labor offers an online Severance Pay calculator that helps companies comply with the latest regulations.
Handling Disputes Involving Workers in Indonesia
Some employee terminations do not end amicably, and the parties must proceed through the relevant, i.e., the local manpower office for the out-of-court process and the Industrial Relation Court (“IR Court”) if the dispute cannot be settled at the local manpower office.
The procedures will be as follows:
- The first procedure for settling an industrial relation dispute is to conduct bipartite negotiations, involving only the worker and the employer. If this negotiation does not reach a settlement, one of the parties must submit a petition to the local manpower office to become a third party or mediator.
- The second procedure is the tripartite negotiation, where the local manpower office acts as a mediator and issues a Recommendation about the dispute. If the parties do not agree with the Recommendation, the case must continue to the IR Court.
- The third procedure is the IR Court process, where a party submits its lawsuit to the court, and the court examines the case. Recommendation from the second procedure is crucial as it is a mandatory attachment for the lawsuit.
- The fourth procedure is an appeal to the Supreme Court, which can be processed if one of the parties does not agree with the IR Court decision.
Conclusion
Indonesia's employment regulations are comprehensive and unique, addressing various aspects of employment from hiring to termination. Companies must navigate these regulations carefully to ensure compliance and fairness. Understanding the legal requirements for foreign workers, the types of working agreements, and the procedures for termination and dispute resolution is crucial for both employers and employees. By adhering to these regulations, companies can foster a fair and respectful working environment, ultimately contributing to their success and the well-being of their workforce.
