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Insights Indonesian labor regulations at a glance

Indonesian labor regulations at a glance

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The country of Indonesia is on the rise as an investment destination from overseas. As the investment grows, investors are increasingly faced with the complex particulars of labor regulations in Indonesia. The following provides a brief overview aiming to give investors an idea as to where to focus on when it comes to labor matters: 
    

​Key Points

​Descriptions

​​Employment Arrangement

Permanent
  • Can be agreed verbally
  • Can include probation period of max. 3 months

Employment Arrangement

​Temporary
  • Must be based on written agreement and registered with local manpower authority
  • Reserved for certain types of works
  • Limited by time or completion of work
  • Cannot be transferred into a permanent labour relation after expiry

​Expatriate Worker

  • ​Permissible for certain positions only; work permit is required
  • Prohibited to handle HR matters, which are commonly performed under a POA by a local colleague
  • Can only be hired under temporary arrangements

Salary​

  • ​Minimum wages are determined by regional government and may vary from one region to another
  • Minimum wages can only be implemented for first year of employment; afterwards, adjustment is necessary
  • Religious holiday allowance (13th salary) is mandatory

​Paid Leave

  • ​At least 12 days per year; for white collar 14 days is common
  • Entitlement kicks in after working for 12 months consecutively, before that the days count pro rated
  • Statutory paid leaves due to employee’s private affairs are available

Working Hours

  • 7 hours/day for 6 working days/week
  • 8 hours/day for 5 working days/week
  • Deviation is permitted depending on the nature of the business

​Overtime

  • Will trigger additional payment and benefit
  • Cannot exceed 4 hours/day and 18 hours/week
  • Some positions may not be entitled to overtime payment

​Social Security

  • ​Employees must be registered with the mandatory social security program
  • Contributions to the social security program are to be paid jointly by the employer and the employee

​Termination

  • ​Must be preceded with notification and align with the mandatory procedure as per the employee handbook or general regulations
  • Immediate termination is possible for certain actions as set out in the regulations and/or employment contract

​End of Service Payment

  • ​Amount would vary depending on the type of employment, last salary, length of service period and reason of termination
  • Consists generally of severance, service reward pay, and substitution of rights

​Retirement

  • ​Retirement age is not regulated, but can be stipulated in the employment contract, employee handbook/company regulations
  • Will entitle employee to end of service payment and pension benefits 

​Employee Transfer and Secondment Arrangement

  • ​Less regulated but commonly found in practice
  • Performed on contractual basis between employee and current/future employer 

​Industrial Relation Dispute

  • ​Require multiple layers of resolutions procedures before brought into court (i.e. Industrial Relation court)

​Labor Union

  • ​May be established by at least 10 employees
  • Establishment must be notified to local manpower authority

​Employee Handbook

  • ​Mandatory for employer with 10 or more employees
  • Lines out all regulations  related to the employment relation between the employer and their employees, and aims to clarify uncertainties and differences in the general employment regulations of Indonesia, e.g.:
      1. Termination procedures and reasons for termination
      2. Working time
      3. Retirement age
      4. Additional restrictions and regulations applicable to the work environment at the company
      5. Additional benefits granted to all employees
  • Must be re-registered every 2 years
     
 Please contact Rödl & Partner Indonesia for further discussion on this topic.

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