Home Blog Complete Guide to Indonesia’s Labor Law: Contracts, Leave, Wages & Termination Human Resource | Indonesia | Payroll Complete Guide to Indonesia’s Labor Law: Contracts, Leave, Wages & Termination InCorp Editorial Team 4 February 2025 6 minutes reading time Table of Contents Updated Employment and Labor Law Regulation in Indonesia Types Of Employment Contracts in Indonesia Working Hours, Overtime, and Leave Policies in Indonesia Minimum Wage and Salary Regulations Hiring Foreign Workers in Indonesia Termination of Employment and Severance Pay Streamline Recruitment and Payroll Effortlessly with InCorp Indonesia’s labor law framework, the backbone of its workforce regulation, is designed to ensure equitable treatment of employees and foster economic growth. The Manpower Act No. 13 of 2003 governs the law and defines critical aspects of employment, including wages, working hours, leave entitlements, and termination processes. Thus, the law provides security and value to all involved. Recent amendments introduced through the Omnibus Law on Job Creation have streamlined and restructured regulations to enhance flexibility and attract foreign investment, keeping you informed and up-to-date with the latest changes in Indonesia’s labor laws. Updated Employment and Labor Law Regulation in Indonesia Indonesia’s labor regulations are grounded in several key legislative frameworks designed to protect employee rights and ensure fair employer practices: Labor Law of 2003 on Manpower: Originally amended by Law No. 11 of 2020 on Job Creation, Government Regulation replaced it in Lieu of Law No. 2 of 2022. Law No. 21 of 2000 on Labor Unions: Regulates establishing, operating, and protecting labor unions. Law No. 2 of 2004 on Industrial Relations Dispute Settlement: Establishes procedures for resolving workplace disputes through conciliation, mediation, or arbitration. Types Of Employment Contracts in Indonesia Employment contracts in Indonesia are categorized based on their duration and nature of work. Each type has specific requirements and implications for both employers and employees: Permanent Employment Contracts (PKWTT) Permanent contracts provide employees with stability and long-term job security. They must be written and include detailed terms such as job descriptions, salaries, and benefits. Employees under this contract are entitled to severance pay and benefits upon termination, except in cases of serious misconduct. Fixed-Term Employment Contracts (PKWT) Fixed-term contracts are used for temporary positions or roles tied to specific projects. They are typically limited to a maximum five-year duration (including extensions). Employers must register these contracts with the Ministry of Manpower, ensuring transparency and compliance. Termination of PKWT does not entitle the employee to severance pay, but unused leave and other dues must be settled. Freelance and Outsourced Contracts These contracts are popular for project-specific or short-term roles. Freelancers are not considered formal employees and do not receive statutory benefits like healthcare or severance. On the other hand, outsourcing agreements must be facilitated through registered labor agencies, ensuring compliance with Indonesian labor law. Apprenticeship Agreements Apprenticeship contracts allow individuals to gain practical experience and build skills. These agreements must outline the program duration, type of work, and allowance (if applicable). Apprentices are not entitled to full employee benefits but are protected under general workplace safety and health regulations. Probationary Periods Under PKWTT agreements, employers can impose up to three months of probation on new hires. Probationary employees are entitled to wages and other statutory benefits but are not eligible for severance pay if dismissed during this period. READ MORE:Indonesia’s Employment Opportunities: Trends and Strategies Legal Framework for Employee Dismissal in Indonesia Transforming Payroll Management for a Global Renewable Energy Company Working Hours, Overtime, and Leave Policies in Indonesia Indonesia’s labor laws establish clear guidelines on working hours, overtime compensation, and employee leave entitlements to ensure workplace fairness and productivity. Working Hours in Indonesia Standard working hours are limited to 40 hours per week, typically split into 7 hours per day over six days or 8 hours per day over five days. Employers must adhere to these limits to comply with labor laws. Exceptions apply in specific industries, such as healthcare and manufacturing, which require continuous operations. Overtime Regulations Overtime is allowed for up to four hours per day or 18 hours per week. Employers must pay overtime compensation, calculated based on hourly wages, with rates typically ranging from 1.5 to 2 times the regular hourly rate. Written consent from employees is required for overtime work. Leave Policies in Indonesia Type of Leave Entitlement Details Annual Leave 12 days of paid leave/year 1. Earned after 12 months of continuous work.2. Can be carried over for six months. Sick Leave Paid leave with reduced salary based on the duration of absence 1. 100%: First 4 months 2. 75%: Second 4 months 3. 50%: Third 4 months 4. 25%: Following 4 months. Maternity Leave 3 months of paid leave 1. 1.5 months before and after childbirth. 2. 1.5 months for miscarriage if specified by a doctor. Paid Leave Leave for specific personal events 1. Marriage: 3 days 2. Child’s marriage: 2 days 3. Child’s baptism/circumcision: 2 days 4. Wife’s childbirth or miscarriage: 2 days 5. Death of spouse, child, or parent: 2 days 6. Death of family member in the same household: 1 day. Minimum Wage and Salary Regulations Indonesia’s minimum wage system is essential to its labor laws, ensuring fair compensation for workers nationwide. These regulations protect employees from exploitation while reflecting regional economic conditions. Hiring Foreign Workers in Indonesia Yes, foreigners can work in Indonesia, and many companies hire expatriates for specialized roles. However, employment must comply with Government Regulation No. 34 of 2021 on the Use of Foreign Workers, which requires: A work visa for legal entry. A work permit to authorize professional activities. Employers must follow these regulations to ensure lawful hiring and operations. Termination of Employment and Severance Pay Termination of employment in Indonesia is regulated to protect workers’ rights and ensure fair treatment. Employers must follow specific procedures and provide compensation where applicable. Grounds for Termination Employment can be terminated under various circumstances, including: Resignation: Initiated by the employee, requiring a 30-day notice. Mutual Agreement: Both parties consent to the termination terms. Employee Misconduct: Serious violations of company policies. Business Conditions: Economic challenges, company closure, or restructuring. Retirement: As stipulated by company policy or statutory retirement age. Severance Pay Calculation Employees are eligible for severance pay based on their length of service. Compensation typically includes: Severance Pay: Equivalent to 1-9 months of salary, depending on tenure. Service Appreciation Pay: Additional pay for long-term service, calculated in tiers. Compensation Pay: Covers unused leave, housing, healthcare, or other benefits based on the employment contract. Streamline Recruitment and Payroll Effortlessly with InCorp Managing compliance with Indonesia’s complex labor laws can be challenging for businesses. However, you don’t have to handle it alone. InCorp Indonesia (an Ascentium Company) can assist you with: Recruitment: Ensuring you hire the right talent while complying with labor laws. Payroll Management: Accurate and timely salary processing in line with regulations. Complete the form below to optimize workforce management and comply with labor standards. Read Full Bio Verified by Heldy Narua Senior External Finance Manager at InCorp Indonesia Heldy, with seven years of experience, leads InCorp Indonesia's External Finance team, specializing in reliable Payroll Outsourcing and Finance Management solutions. She has an Accounting and Business Administration degree from Sampoerna University and Oregon State University. She is certified with Brevet AB, highlighting her technical expertise and commitment to client success. Frequently Asked Questions How does the HR outsourcing mechanism work? As your HR outsourcing provider, InCorp signs a standard employment agreement with an outsourced employee. After this, we take care of the employee’s payroll in coordination with your company. InCorp is also responsible for paying the salary to the employee. How many employment and hiring options exist in Indonesia? According to Indonesia’s Manpower Law, employers can hire Indonesian talents under temporary or permanent employment. What are the obligations related to payroll? Health Insurance and Social Security Insurance (BPJS) are mandatory. The company and the employee will bear a certain percentage, respectively. Another obligation is tax withholding. The percentage and type of taxes vary from case to case. Contact us to get information on your specific field. How does InCorp’s recruitment outsourcing mechanism work? As a professional executive search agent, InCorp helps promote job vacancies, screen, and shortlist applicants, conduct pre-interviews, and arrange final interviews with applicants. This can also be topped up with an employee background check. Get in touch with us. 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