Indonesia: Omnibus Law on Job Creation (Undang-undang Cipta Kerja) Approved by Parliament - Employment Cluster

In brief

The Indonesian House of Representatives (DPR) has approved job creation law (RUU Cipta Kerja) - commonly known as the "Omnibus Law". The Omnibus Law amends a number of existing laws, including Law No. 13 of 2003 on Labor ("Labor Law") and Law No. 40 of 2004 on National Social Security System ("Social Security Law"). This alert will focus on Chapter IV of the Omnibus Law, which covers employment matters.


Essential Changes

Changes to the Labor Law

Foreign workers

A company employing a foreign worker is still required to obtain a work permit (known as a plan to utilize foreign workers or Rencana Penggunaan Tenaga Kerja Asing (RPTKA)). However, a work permit is not required for a foreign worker who is, among other things, engaged by a start-up company, on a business visit or conducting research for a certain period.

Definite period employment

  • The Omnibus Law removes provisions on the permitted period of definite period employment under the Labor Law. However, the Omnibus Law states that further requirements on the type and nature of work, and the period and extension of a definite period employment agreement will be regulated in a government regulation.
  • The Omnibus Law requires employers to pay compensation to a definite period employee upon expiry of a definite period employment agreement. The compensation will be based on the employment period of the relevant employee. Further requirements on the compensation pay will be regulated under a government regulation.

Outsourcing

The Omnibus Law removes certain provisions on outsourcing under the Labor Law. However, the Job Creation Law stipulates that protection of workers in an outsourcing arrangement as well as the relevant business licenses for an outsourcing arrangement will be further stipulated in a government regulation.

Overtime

The  Omnibus Law extends the maximum overtime hours to four hours a day and 18 hours a week. The maximum overtime hours, however, are not applicable for certain business sectors or work. As the Omnibus Law states that overtime hours and overtime pay will be further regulated under a government regulation, further clarification on certain business sectors or work that are not subject to the maximum overtime hours as well as the applicable maximum overtime hours that would apply for those sectors or work should be addressed in the government regulation.

Minimum wage

  • The Omnibus Law removes provisions of the Labor Law on sectoral minimum wage and the possibility for employers to defer the payment of minimum wages. However, it maintains the obligation of governors to determine the provincial minimum wage. A governor may also determine the minimum wage in certain regencies/cities within the province by taking into account the economic growth and inflation rate of the relevant regency/city.
  • Micro and small businesses are exempt from the minimum wage requirement.

Termination of employment

  • In general, there is no significant change in the procedure for termination of employment. However, under the Omnibus Law, if termination cannot be avoided, the employer must notify the employee and/or the union of its intention and the reason for termination. If the employee/union does not agree with the termination, the matter will be processed according to the industrial dispute settlement procedure (governed under Law No. 2 of 2004 on Settlement of Industrial Relations Disputes).
  • Employers are not required to provide notice of termination when the employment is terminated due to the employee's voluntary resignation, expiry of a definite period employment agreement, the employee reaching the applicable retirement age or the employee's death.
  • The Labor Law provisions that prohibited employers from terminating employment for certain reasons continue to apply. However, termination because an employee has a blood relationship and/or a marital relationship with another employee is no longer subject to an exemption (under the Labor Law, an employment agreement, company regulations or collective labor agreement could grant an exemption from this prohibition).
  • The Omnibus Law generally recognizes all reasons for termination previously regulated under the Labor Law. However:
  1. The reasons for termination are no longer limited to those set out under the law because the Omnibus Law specifically states that an employment agreement, company regulations or collective labor agreement can set out other reasons for termination.
  2. The Omnibus Law specifically recognizes a company's efficiency measures and a company being under a suspension of payment obligation (penundaan kewajiban pembayaran utang or PKPU) as reasons for termination.
  3. The Omnibus Law does not specifically require the issuance of warning letters for termination due to an employee's violation of the employment agreement, company regulations or collective labor agreement.
  4. Instead of specifying certain conducts of an employer that an employee can use to initiate the termination of employment (e.g., assaulting the employee and not paying the employee's salary), the Omnibus Law generally provides that the employment can be terminated if the employer's conduct harms the employee.

Further requirements and procedures for termination of employment will be regulated under a government regulation.

  • Unlike the Labor Law, the Omnibus Law does not include specific provisions on the termination payment formula that correspond with the reason for termination. However:
  1. The Omnibus Law still requires employers to pay employee severance pay, long service pay and compensation of rights in the event of termination. The previously regulated minimum calculation of severance pay and long service pay under paragraphs (2) and (3) of Article 156 of the Labor Law are now the maximum amount of severance pay and long service pay under the Omnibus Law. Further, housing and medical compensation (which was calculated at 15% of the total severance pay and long service pay) is no longer an element of compensation of rights.
  2. Further requirements on severance pay, long service pay and compensation of rights will be regulated under a government regulation.

Amendment to the Social Security Law

  • The Omnibus Law introduces a new social security program, i.e., jaminan kehilangan pekerjaan or unemployment security. This newly introduced program will be administered by the Manpower Social Security Organizing Agency (Badan Penyelenggara Jaminan Sosial (BPJS) Ketenagakerjaan).
  • Terminated employees are entitled to benefits from the unemployment social security program in the form of cash, access to information on the job market and job training.

The implementation of the unemployment security program will be further regulated under a government regulation.

Implementing Regulations

The Omnibus Law provides that the relevant implementing regulations, including government regulations, must be issued at the latest three months after the enactment of the Omnibus Law.

The existing implementing regulations of the Labor Law and the Social Security Law remain effective to the extent they do not contradict the provisions under the Omnibus Law. These implementing regulations must be harmonized with the provisions under the Omnibus Law at the latest three months after the enactment of the Omnibus Law.

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This client alert was prepared based on a draft of the Omnibus Law that we received from different sources. We have not been able to obtain confirmation that the draft we received is the final text of the Omnibus Law. Even though the House of Representatives passed the Omnibus Law on 5 October, the government has not issued the official final text of the Omnibus Law. We assume the draft that we have received materially reflects the final version of the Omnibus Law, but we are waiting for the government to issue the final ratified Omnibus Law. Therefore, this client alert is subject to change and will be updated accordingly.

This client alert was issued by HHP Law Firm (Hadiputranto, Hadinoto & Partners), a member firm of Baker McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome."


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