Employment contract is an imperative document in Indonesia that cannot be understated. It is a legally binding agreement that regulates the terms and conditions and the employment relationship between the employee and the employer, in order to give security to both parties.
Similar to many countries around the world, even though the Indonesian government has a number of employment rules designed to protect employees, employers are also able to safeguard everything they have established. One of the ways is through the employment contract.
However, not all employers in Indonesia have entered into written employment contracts with their employees. For many of those who do have employment contracts, oftentimes, these employment contracts are poorly written and inadequate. These cases are particularly prevalent in many micro or small businesses where business owners assume that these terms can be dealt with verbally with their employees.
This article explains everything you need to know about employment contract in Indonesia, and why it has never been more vital for you to enter into a well-written employment contract.
Types of Employment Contract
Generally, an employment agreement in Indonesia can be categorized into a fixed-term employment contract (temporary employment contract) or an indefinite-term employment contract (permanent employment contract).
Fixed-Term Employment Contract (Temporary Employment Contract)
A fixed-term employment contract has stricter requirements compared to an indefinite-term employment contract. The working hours can be on a flexible basis with an agreed hourly or daily rate.
Unlike a seasonal contract, the employee under this type of contract is expected to remain in a position only for a set period of time. This period of time can last for up to two years, and may be extendable for a maximum period of 12 months.
Furthermore, it can be renewed once after a 30-day grace period, for a maximum period of two years. One thing worth taking note is that a fixed-term employment contract will not include a probation period of employee, and the termination of employees when necessary is less complex.
A fixed-term employment contract must be drafted in both Indonesian and English. This is because a bilingual contract will need to be presented in cases of employee-employer conflict or disagreement. Without fulfilling the said requirements, a fixed-term employment contract will be regarded as an indefinite term employment contract by law.
Indefinite-Term Employment Contract (Permanent Employment Contract)
An indefinite-term employment contract or a permanent employment contract is the most common type of contract where an employee works in a company on an ongoing and predictable basis, until the employee stops working or being terminated by the employer.
A probation period of a maximum of three months is usually included in the contract. Once the indefinite-term employment contract is agreed verbally, it is the employer’s responsibility to provide an appointment letter or offer letter to the employee. The termination of an employee under an indefinite-term employment contract is more complicated than that of a fixed-term employment contract.
What to Be Included in Employment Contract
Basically, an employment contract shall cover the following details in order for it to be effective:
- Both employee and employer’s names
- Job title and job description
- Date of job commencement
- Pay rate and pay date
- Overtime pay
- Working hours
- Holiday and annual leave entitlement
- Location of work (especially when a company has more than one locations or sites)
- Sick pay
- Period of notice in the event of resignation
Why You Need a Legal Specialist for Employment Contract
A well-drafted employment contract sets out the critical ground rules between the employer and the employee. Furthermore, it mitigates risks for both parties and resolves workplace disputes in the most effective manner.
To draft an employment contract, you need to have comprehensive knowledge of labour law, common practices in work environment in Indonesia as well as Indonesian language proficiency.
Cekindo provides employees and businesses with custom and professional legal advice on employment matters, including drafting a detailed employment contract. Get in touch with Cekindo today for assistance.