Indonesia Labor Code Amendments

Effective since 2nd November 2020, the Indonesian president, Joko Widodo, passed the “Omnibus Law” in an attempt to enforce new job creation laws. The amendments were aimed to create more investment and job opportunities by simplifying the process of issuing licenses. The Job Creation Law allows the ease of doing business in Indonesia through streamlined regulations and procedures.

Amendments in Labor Code

The Indonesian law recognizes two types of employment; Permanent employees and Fixed Term Contractual employees. Through the amendment of preexisting laws, the government aims to create better job security and working conditions for employees. The new regulations bring significant change to fixed-term employment contracts, outsourcing, the number of working hours, and the process of employment termination. Through the enactment of the new labor laws, employers are now obligated to pay fair compensation to employees if their fixed-term contracts are extended. The government felt the need to pass these laws to provide greater legal protection for workers.

Compensation for Fixed-Term Contractual Workers

Before the Omnibus Law was implemented, any party terminating the fixed-term contract was required to pay the other party compensation equivalent to the employee’s salary for the remaining time of the contract. If the contract expired naturally then neither party would pay compensation. However, this changed with the amended laws. Now the responsibility of paying the employee rests on the employer even in the event if the employee terminates their contract prematurely. The employers are obligated to pay compensation in the following three instances:

  1. If the fixed-term contract expires
  2. If the contract is extended
  3. If there is an early termination of the contract by either party.

Revised Working Hours

The standard working hours in Indonesia is 40 hours per week distributed into 8 hours per 5-day working week, or 7 hours per 6-day working week. The Omnibus Law now recognizes less than 40 hours per week if a company undertakes work that can be completed in 35 hours or less per week. It also stands true if the company can implement flexible working hours and if the tasks can be completed outside a particular location.

The Public Opinion

Even though the Job Creation Law was meant to attract foreign investment and create more jobs, labor groups and trade unions see it as a major threat to workers’ rights. The Indonesian Trade Union Alliance Congress expressed that the new laws give more room for the exploitation of employees and natural resources. The amendments have caused significant changes to environmental regulations and workers’ entitlements by removing necessary protections, such as paid maternity leaves, increased limit to overtime work, and slashing severance pay amounts. Despite the public’s outrage towards the Job Creation Law, the Indonesian government remained unfazed. The executive director of the Center of Reform on Economics stated that the government’s area of focus should have been dealing with the pandemic rather than economic growth. Learn more about doing business in Indonesia by clicking here.

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