With the deepening of globalization, when enterprises expand their business in multiple countries, cross-border labor compliance has become one of the most complex and severe challenges. To help enterprises systematically address this issue, we have collaborated with top labor lawyers from over 50 major jurisdictions worldwide (all recommended by Chambers, The Legal 500, or equivalent institutions) to jointly compile a Chinese-English labor & employment compliance guide exceeding 1 million words, and we will continuously update relevant key points.

This article publishes the key points of labor & employment compliance in Indonesia.

01 Overview of the Labor Law System

1.Legal System

Indonesia’s legal system is based on the civil law tradition, drawing heavily from Dutch colonial law and supplemented by customary law and, in certain areas, religious law. The system relies primarily on written statutes and codifications.

2.Resources and Agencies

Indonesia’s employment law system is codified primarily in statutes and government regulations, supplemented by ministerial and regional regulations and guidelines. 

02 Employment Qualifications and Classification

1.Employment Age

Indonesian law sets the general minimum employment age at 18 years, with limited exceptions for children. The Employment Law and its implementing regulations do not expressly set a mandatory retirement age. In practice, companies often refer to the age at which an employee becomes eligible to access national pension benefits, which is gradually increasing and as of January 2025 is set at 59 years.

2.Qualifications for Employment

As a general rule, foreign entities do not directly hire employees in Indonesia, but are permitted to do so through an Indonesian legal entity (i.e., a limited liability foreign investment company, locally known as a PT PMA) or through a legal presence in Indonesia in the form of a representative office.

3.Classification of Employment

The types of employment relationships recognized in Indonesia include:

• Employment relationships

• Independent Contractor

• Outsourcing arrangements

• Employer of Record (EOR)

4.Foreign Workers

As the sponsoring entity, an eligible Indonesian employing entity (Employer) wishing to engage a foreign worker must first apply to MoM for approval of a foreign worker utilisation plan (locally known as RPTKA), which sets out the foreign worker’s proposed position and details. Once approved, the RPTKA becomes the foreign worker’s work permit.  

03 Recruitment and Employment Contracts

1.Background Examination

In conducting background checks, employers are prohibited from discriminating against candidate employees based on gender, ethnicity, race, religion or political values.

2.Contract Types

• Permanent (indefinite) employment

• Fixed-term employment

• Specific-term employment for foreign workers.

3.Probationary Period

The Employment Law permits employees under a permanent employment agreement to have a probation period of up to three months. The employer and employee may, however, agree on a shorter probation period. Probation periods are not permitted under F-T Employment Agreements.

04 Working Standards

1.Remuneration and Statutory Benefits

As a standard practice, employees are paid a basic salary, which must be higher than the applicable minimum wage that is adjusted annually. In addition, the salary structure may also include “fixed allowances” and “non-fixed allowances”, such as transportation, telecommunications and meal allowances.

2.Social Security and Employment Taxes

The Social Security Law regulates that all local employees (including both fixed-term and permanent), and any foreign workers (employed/assigned for more than 6 months in Indonesia), must be enrolled into both the BPJS Health and BPJS Manpower programmes, subject to exceptions.

3.Working Hours

Working hours in Indonesia are generally set at seven hours per day and forty hours per week for a six-day work week, or eight hours per day and forty hours per week for a five-day work week. Exceptions to the normal forty-hour week apply in certain sectors, including mining, energy, transportation and health.

4.Rest and Leave

a) Annual leave

b) Maternity and other female leave

c) Sick leave

d) Leave regulated under Article 93(2) of the Employment Law

05 Occupational Health and Special Protection

1.Occupational Health and Security

Employers in Indonesia must comply with occupational health and safety standards. Companies with 100 or more employees are required to create and implement an Occupational Health and Safety Management System, which covers policies, planning, implementation, monitoring and continuous improvement. Employers must also provide protective equipment, conduct health checks, ensure a safe work environment and prevent occupational accidents and diseases.

2.Special Protection

Under the Employment Law, protection for female employees includes restrictions on night work for those under 18 and pregnant women, requirements for nutritious food, security and transport on night shifts, as well as entitlements to menstrual leave, maternity and miscarriage leave, breastfeeding rights and protection from dismissal on grounds of pregnancy or related conditions.

06 Personal Information and Privacy

1.General Rules

The PDP Law establishes lawful bases for processing personal data, including consent, contractual necessity, legal obligations, protection of vital interests, public interests and legitimate interest. The PDP Law defines a “personal data controller” as any person or body that acts individually or jointly in determining the purposes and exercising control over the processing of personal data.

2.Transnational Transfer

A cross-border transfer of personal data, including employees’ personal information, may only be carried out if the recipient country has an equal or higher (adequate) level of personal data protection compared to Indonesia.

07 Anti-Discrimination and Anti-Harassment

1.General Rules

Under the Employment Law, every job applicant is entitled to equal opportunity to secure employment without discrimination on the grounds of gender, ethnicity, race, religion or political orientation, in accordance with the applicant’s interests and capabilities.

2.Protective Characters

Apart from the protections against discrimination provided under the Employment Law, further protections are given to employees under ILO Convention No. 111 concerning Discrimination in respect of Employment and Occupation. 

08 Internal Policies

1.Applicability

Employers may regulate employment relations through internal policies. However, such policies will only be legally enforceable if they are in accordance with Indonesian law, prepared in bilingual form (or in the Indonesian language only) and if the employees have agreed to be bound by the employer’s policies. Such agreement makes compliance with the employer’s policies contractually enforceable.

2.Validity

Employees are usually bound to comply with company policies due to an explicit requirement set out under their employment agreements or Company Regulations (or CLA, if the company has a union).  Such policies also need to be consistent with Indonesian Employment law, including being in the Indonesian language or in bilingual form, and must be clearly communicated to the employees.

09 Transactions

1.Employment Relationship

A business owner (employer) has the discretion to terminate any existing employee employment agreements that are in force before completion of a merger, consolidation, acquisition/equity transfer (that involves a change in control of a company) or asset transfer (that involves the proposed transfer of employees). Employee terminations due to merger, consolidation or asset transfer can be initiated either by the employer or an employee who does not wish to continue employment.  Such terminations are only possible if the employer pays statutory severance entitlements to such terminated employees.

2.Compensation

In principle, all employees are entitled to a severance package if their employment is terminated as a result of a merger, acquisition or equity/asset transfer. However, if their employment is not terminated as a result of a merger, acquisition or equity/asset transfer (either by the employer or employee) the employees have no statutory entitlement to compensation.  

10 Termination of Employment

1.Termination Grounds

The value of an employee’s severance package is determined by the employee’s service period with the company as well as the specific reason for termination.  For example, the statutory minimum severance package amount for a termination arising out of a company closure due to the company incurring continuous losses will be less than the statutory minimum severance package for a termination arising out of a company closure not due to the company suffering losses.

2.Termination Procedure

The Employment Law regulates that a notice of termination must be given as a prerequisite to termination. The relevant government regulation requires employers to provide at least 14 business days’ prior written notice before the effective termination date for both permanent employees (following expiry of the probation period) and fixed-term employees, and at least seven business days’ prior written notice for employees during any probation period.

3.Termination Protection

Employers are prohibited from terminating employees on the following grounds:  

a) Absence from work due to illness, supported by a medical certificate, for a period not exceeding 12 consecutive months;

b) Inability to perform work due to the fulfilment of state obligations as required under prevailing laws and regulations;

c) The performance of religious duties;

d) Marriage;

e) Pregnancy, childbirth, miscarriage, or breastfeeding;

f) An employee is related by blood or through marriage to another employee in the same company;

g) An employee establishes, or is a member in, or holds a position as management of a labour union;

h) Due to the employee reporting the employer to the authorities for a criminal offence;

i) Due to the employee having differences in ideology, religion, political orientation, ethnicity, skin colour, social group, gender, physical condition or marital status;

j) The employee has a permanent disability, occupational accident or work-related illness where the recovery period cannot yet be determined according to a medical certificate.

4.Severance and Compensation

The Labour Act does not establish a general right to severance (also called redundancy pay) pay upon termination of employment. Under the Act, the right to severance pay is applicable in specific instances.

5.Wrongful Termination

Employees may challenge a termination they believe is unlawful, including terminations based on the breach of a prohibition (e.g., discrimination, pregnancy and union activities), procedural defects or invalid terminations.  Remedies may include reinstatement, compensation for lost wages, severance, termination benefits or other appropriate relief, depending on the circumstances.

6.Mass termination and Layoffs

Special rules apply for mass terminations or collective dismissals. Under the relevant government regulations, mass terminations are generally understood as affecting a significant number of employees.

11 Confidentiality, Non-Compete, and Non-Solicitation

1.Confidentiality

No mandatory requirement is imposed on any specific group of workers to sign a confidentiality agreement. However, it is common practice for an employment agreement to include a confidentiality clause or for the employer and employees to enter into separate confidentiality agreements, depending on the relevant business sector.  

2.Non-Compete and Non-Solicitation

The Employment Law does not expressly regulate employment restrictive covenants (i.e., non-compete and non-solicitation) or their enforcement. Such matters are usually agreed between the relevant parties (i.e. employer and employee) in employment agreements or separate agreements.In principle, parties are free to include any provisions in their agreements as long as: (i) such provisions have a “lawful” objective; and (ii) the provisions do not violate the law or deviate from public morality or order. 

12 Work Representation and Trade Unions

1.Work Representation

Indonesian law requires the establishment of a Bipartite Cooperation Institution in every company employing 50 or more employees. The Bipartite Institution functions as a forum for internal communication and consultation between employers and employees concerning the resolution of any labour-related matters within the company. Its membership is composed of representatives from both the employer and the employees, with the latter being democratically elected by employees to represent their interests.

2.Trade Unions

A trade union (also known as a labor union) can be established by at least 10 employees within a company, provided it has articles of association, bylaws and other mandatory elements, and must be registered with the local Manpower Office, which must issue a registration number.  

13 Dispute Resolution

1.Procedures & Enforcement

Under Indonesian law, labor disputes must be resolved through the following multi-tiered mechanism:

a) Bipartite negotiations;

b) Tripartite negotiations;

c) Legal proceeding at IRC;

d) Cassation appeal.

2.Waiver & Enforcement

Employees cannot validly waive their statutory rights, as these are mandatory provisions of law and any waiver could be deemed null and void. Contractual rights may be waived only to the extent that such waivers do not contravene statutory protections.

14 Others

1.Latest Development & Trends

A Constitutional Court ruling in late 2024 introduced significant changes to the Employment Law, including new guidance on wages, severance packages, foreign workers and fixed-term employment agreements. The Court contemplated that due to their new guidance and other amendments, Indonesian lawmakers should draft a new Employment Law within two years, (i.e., before the end of 2026).

2.Cultural and Religious Considerations

Failure to observe the considerations can lead not only to employee dissatisfaction but also to reputational risks in the local community.

* To avoid ambiguity, this article should not be regarded as legal advice.

Authors

Robert M. Reid has been part of the S&T team in Indonesia since 2000. Robert’s main practice areas in Indonesia include employment/OHS law, corporate/M&A and energy & natural resources. 

Dimas Koencoro Noegroho joined Soemadipradja & Taher in 2006. Dimas acts for domestic and international clients on various employment matters including terminations, fixed-term employment arrangements, HR audits, reviewing and drafting employment documents (covering employment agreements, company regulations and collective labour agreements), and representing clients in bipartite, mediation and industrial relations court hearings. 

Translator

Zhou Hao, Master of Laws, Associate at Anli Partners. Areas of expertise: Labor Law, Dispute Resolution, ESG Compliance.