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A G U I D E T O C O M P L I A N C E I N I N D O N E S I A
Human Resources Compliance
1. LEGAL FRAMEWORK ON EMPLOYMENT IN
INDONESIA
The key legislation on employment in Indonesia is
Act number 13 of 2003 concerning Manpower (Act
13 of 2003). Among others, Act 13 of 2003 deals
with employer-employee-relationships, protection,
wages and welfare, industrial relations and criminal
regulations and administrative sanctions in the
event of noncompliance. Furthermore, several
other provisions, decrees and decisions are in place
to govern the employer-employee-relationships in
Indonesia. Among others, Decree No. 102/MEN/
VI/2004 contains specific provisions on overtime
work hours and overtime pay.
2. LABOR CONTRACTS
The legal requirements on labor contracts are
stipulated in Chapter IX of Act 13 of 2003.
a. Establishment of an Employer-Employee-
Relationship
In order to establish an employer-employee-
relationship, the parties have to conclude a labor
agreement in accordance with Article 50 of Act 13
of 2003. The labor agreements can be made either
orally or in writing. Article 54 of Act 13 of 2003 lists
theminimumcontent of a labor agreement. Among
others, the labor agreement shall include the type
of job, the location where the job is to be carried
out, the salary and the rights and obligations of the
parties.
b. Indefinite and Definite Labor Contracts
1.
Definite Labor Contracts
In Indonesia, definite labor contracts are only
legally allowed if the job will finish in a specific
period of time due to its type and nature.
These contracts must therefore meet one of the
requirements stipulated in Article 59 of Act 13
of 2003:
• work will be performed and completed at
one go or the work is temporary by nature;
• completion of work is estimated at a period
of time which is not too long and no longer
than three years;
• seasonal work; or
• work that is related to a new product, a new
type of activity or an additional product that
is still in the experimental stage or try-out
phase.
Thus, unlike in other countries, in Indonesia
labor contracts can only be concluded
for a specific period of time if one of the
aforementioned reasons is given. It is made clear
in Article 59 paragraph 2 of Act 13 of 2003 that
a definite contract cannot be concluded for a job
which is permanent by nature.
Labor contracts made for a specific time shall be
no longer than two years and can be extended
one time for another year. In case the definite
labor contract shall be renewed the parties have
to wait for 30 days after the ending of the first
definite labor contract before entering into
another definite labor contract. The renewed
labor contract shall be no longer than two years
and can only be agreed upon one time.
Furthermore, definite labor contracts are
governed by the technical provision No.
KEP.100/MEN/VI/2004 in which particular
seasonal work and daily freelance work
agreements are addressed.
2.
Indefinite Labor Contract
In Indonesian employment law an indefinite
labor contract is considered as the general form
of labor agreement and as such there are no
specific provisions in place.
c. Probation Period
According to Article 60 of Act 13 of 2003 the
probation period of an indefinite labor contract
shall not be longer than three months. Definite
labor contracts shall not contain any probation
periods. In case these contracts do contain a
probation period this probation period is void.
d. Wages
The main principles of wages in Indonesia is
stipulated in Article 88 of Act 13 of 2003, according
to which every employee has the right to earn an
income that meets a livelihood which is decent for
human beings. In this respect, the government sets
out rules forminimumwages that take into account
the productivity and economic growth. Thus, every
