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Indonesia

January 26, 2021

By Nafis Adwani and Indra Setiawan

Back to International Employment Law

Indonesia

KEY DEVELOPMENTS FOR 2020


 

Overhaul of existing laws under the Bill on Job Creation

The key issue in 2020 is the progress of the Bill on Job Creation (the "Bill") through the National Legislative Assembly (DPR). The Bill proposes to amend a total of 79 existing statutes which, taken together, cover virtually all major economic sectors and activities, as well as many important facets of the country's Governmental, regulatory and planning systems.

In the employment arena, the Bill proposes significant changes to the prevailing Manpower Law 2003. Some of the key changes envisaged by the Bill are the following:

  • relaxation of Indonesia's strict rules on termination of employment;
  • reduced benefits for dismissed employees;
  • changes to the formula for the calculation of minimum wage to strip out the inflation component―as a result, the minimum wage will no longer be linked to the consumer price index;
  • abolition of most restrictions on outsourcing―previously, outsourcing was only permitted for ancillary activities and prohibited for core production operations;
  • establishment of a national, insurance-based unemployment benefit scheme; and
  • to help dampen down opposition from organised labour, the Bill proposes the payment by employers of a one-off, length-of-service bonus to employees ranging from one months' pay (for employees with less than three years’ service) to up to five months' pay (for employees with 12 years' of service or more). Following a storm of protests from employers, the Minister of Finance recently stated that the bonus would only be payable to employees on less than IDR 20 million (approx. USD 1,400) per month. However, as this proviso is not actually stated in the Bill, there is no guarantee that this will actually be the case.

In general, making progress with the Bill is still a top priority of the current Government and legislature. However, since the end of March 2020, the country's attention quickly refocused on health issues caused by the COVID-19 pandemic. Prior to the COVID-19 emergency (which started around mid-March 2020), the legislature and Government (including the President and ministries) considered postponing the discussion on employment matters under the Bill. There has since been no further clarification on the schedule for discussing employment matters under the Bill, nor have the legislature and Government confirmed whether the employment related provisions in the Bill will be left out altogether.

Since the COVID-19 emergency hit Indonesia, the Government and legislators have turned their attention to laws and regulations related to health protocols, as well as laws and regulations that ultimately will protect and help businesses and citizens to re-energise the economy. Amongst others, the Government has issued regulations on tax incentives for industry, relaxation of loan obligations and adjustments to the education system.

 

KEY DEVELOPMENTS FOR 2019


 

Employment administration streamlined for expatriates

The administration process for expatriate employment has been significantly streamlined by (i) Presidential Regulation No. 20 of 2018 (“PR 20/2018”) and (ii) Regulation of the Ministry of Manpower No. 10 of 2018 (“MoM 10/2018”) (“New Regulations”), which have respectively revoked (i) Presidential Regulation No. 72 of 2014 (“Old Presidential Regulation”) and (ii) Regulations of the Ministry of Manpower No. 16 of 2015 and No. 35 of 2015 (“Old MoM Regulations”).


 

Expatriate Manpower Employment Plan/Expatriate Manpower Employment License

The most important change is a prospective employer will no longer be required to apply for a separate Expatriate Manpower Employment License (“IMTA”) from the Minister of Manpower in order to employ an expatriate. Instead, the employer will need to submit an Expatriate Manpower Employment Plan (“RPTKA”) to the minister for approval. Article 9 of the New Regulation expressly states that an approved RPTKA will simultaneously constitute the license to employ the expatriate.

Once the RPTKA is approved, the following steps need to be completed:

  • notify the Director General of Manpower Placement Development and Expansion of Job Opportunity (“Notification”);
  • pay the compensation fund in the amount of US$100 per month per expatriate (“Compensation Fund Payment”); and
  • evidence of the Notification and Compensation Fund Payment must then be submitted online to the Director General of Immigration as the basis for issuance of a Limited-Stay Visa.

 

Concurrent Employment now Permitted

Article 6 of PR 20/2018 allows expatriates in particular sectors to work concurrently for more than one employer. Previously, only a director/commissioner could be employed by more than one company. This new provision reflects a greater awareness of the need for flexibility in sectors suffering from shortages of skilled labor.


 

Centralization of authority with Minister of Manpower

Under the Old Presidential Regulation and Old MoM Regulations, provincial governments in certain circumstances had a role to play in RPTKA and IMTA extension or renewal. In contrast, the New Regulations afford no such role to provincial governments, although the Minister of Manpower or an authorized official is required to forward data on expatriate employees to the relevant provincial, county, or municipal manpower agencies within whose jurisdiction the expatriates are employed. Thus, the entire expatriate manpower licensing process from start to finish has now been centralized with the Ministry of Manpower, which should help avoid confusion and overlapping, provided, of course, that this change is reflected in implementing regulations subsequently issued by the minister.


 

Jakarta minimum wage for 2019

On 26 October 2018, the Governor of DKI Jakarta determined the minimum wage for the capital in 2019 through the issuance of Regulation of DKI Jakarta Governor No. 114 of 2018. The new minimum wage for 2019 will be Rp3,940,973, an 8.03% increase on the Rp3,648,035 for 2018. The province with the second-highest minimum wage is Papua (Rp3,240,900), followed by North Sulawesi (Rp3,051,076.)

 

KEY DEVELOPMENTS FOR 2018


 

Revisions to the Labor Law

The Government has indicated that it will revise the Labor Law by including it in the working agenda of the Tripartite Cooperation Body. The new Labor Law is expected to remove employers’ obligation to pay severance on termination in certain conditions, as well as to lower the amount paid.


 

Impact of Digitalization on Labor

The Government is paying particular attention to the impact of digitalization on labor sectors. The Ministry of Manpower plans to invigorate vocation training to match industry needs focusing on labor intensive services, manufacture, and agriculture.

The Ministry of Manpower is also planning to formulate a comprehensive employment policy (regulation) responding to the digitalization trend. The policy will synchronize related existing policy/regulation issued by other government institutions such as the Ministry of Trade, Ministry of Communication and Information Technology, Ministry of Transportation, etc.


 

New Procedure for Manpower Reporting

The Ministry of Manpower is introducing a new online procedure for mandatory manpower reporting. It requires companies to submit manpower reports via the Ministry’s website (a) On establishment, recommencement, or relocation or (b) prior to their relocation, suspension, or dissolution. In addition, companies are required to submit annual manpower reports in the month of December.


 

Wage Structure and Wage Scale

Employers are obliged to prepare a wage structure and scale, and communicate this to employees. In preparing the wage structure and scale, consideration must be given to classification, position/title, years of service, education and competency. There are administrative sanctions for non-compliance, and the document must be presented on application for (a) ratification or renewal of a company’s company regulations/manual, and (b) in the application for registration, extension or renewal of a company’s collective labor agreement. 

With thanks to Nafis Adwani and Indra Setiawan of Ali Budiardjo, Nugroho, Reksodiputro for their invaluable collaboration on this update.

Contributors

Image: Suzanne Horne
Suzanne Horne
Partner, Employment Law Department

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Kirsty Devine
Associate, Employment Law Department

Image: Aashna Parekh
Aashna Parekh
Associate, Employment Law Department