A Q&A guide to employment and employee benefits law in Indonesia.
The Q&A gives a high level overview of the key practical issues including: permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; pensions; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits Country Q&A tool.
The Q&A is part of the PLC multi-jurisdictional guide to employment and employee benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-mjg.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Indonesian labour laws and regulations do not expressly differentiate between regulations imposed on foreign nationals and regulations imposed on Indonesian nationals. The principal legislation governing employment relations in Indonesia is Law No. 13 of 2003 concerning Manpower (Labour Law). This law outlines the principal rules for:
Establishing an employment relationship.
Employment terms and conditions.
Employment termination.
Generally, foreign nationals can work in Indonesia, provided that the work to be performed cannot be performed by Indonesian nationals. Normally, this requirement is applied leniently and is further subject to additional regulations in a number of industries. Where a company cannot hire an Indonesian national with the appropriate skills, the company is allowed to employ foreign employees provided that at least two Indonesian nationals are simultaneously employed and trained by the company.
The Indonesian Labour Department has determined that employment of foreign nationals falls under the employment for a definite period category (Perjanjian Kerja Waktu Tertentu) (PKWT) because of the following:
Not all positions in Indonesia can be held by foreign nationals.
In relation to positions that foreign nationals are allowed to hold, they are required to obtain a work permit and other related permits and these permits are only valid for a one-year period (even though an extension can be applied for at its expiration).
Therefore, not all the provisions of the PKWT apply to foreign employees. For example, the provisions of the PKWT relating to the extension of the contract period that stipulate that the contract can only be extended once do not apply to foreign employees. This is because the foreign nationals' employment is for a specific position and a specified period of time.
The following laws and regulations apply to Indonesian nationals working abroad:
Law No. 39 of 2004 on the Placement and Protection of Labour Workers.
Presidential Regulation No. 81 of 2006 on National Board on the Placement and Protection of Indonesian Manpower.
Minister of Manpower and Transmigration No. 14 of 2010 on the Implementation of the Placement and Protection of Indonesian Manpower overseas.
Law No. 39 of 2004 and its implementing regulations cover nationals working abroad through a government-appointed agent. The agent may be a government institution or a private entity.
Indonesian Company Law No. 40 of 2007 (Company Law) outlines the requirements, constraints and conditions in relation to company directors. The law is silent on any age restrictions imposed on company directors. Article 93 provides that the director must simply be "capable of performing legal actions". Therefore, the individual must have mental capacity to perform legal decision-making actions and have reached the age of majority. The age of majority is generally 21.
The Company Law is silent on any nationality restrictions imposed on company directors.
The only explicit restrictions imposed on company directors are that they cannot, in the five years preceding their appointment, have been (Article 93(1), Company Law):
Declared bankrupt.
Members of a board of directors or a board of commissioners declared to be at fault in causing a company to be declared bankrupt.
Sentenced for crimes which caused losses to the state and/or were related to the finance sector.
In addition, the authorised technical agencies are entitled to determine additional requirements under the applicable legislative regulations (Article 93(1), Company Law).
Members of a board of directors must be appointed by the general meeting of shareholders (GMS). A company's articles of association can also provide certain additional requirements and procedures for the election of company directors.
There are no monetary grants or incentives for employing people.
In general, there are no official filings when employing people. However, an employer must register the employment contract for employees who work for a definite period.
A foreign national must obtain a Limited Stay Visa (VITAS) to be able to work in Indonesia. This visa is valid for one year.
Procedure for obtaining approval. See below, Permits: Procedure for obtaining approval.
Cost. The cost for obtaining a VITAS is about US$150 (as at 1 August 2012, US$1 was about EUR0.8).
Time frame. Obtaining a VITAS takes about one month.
The following is a brief guide concerning the permits required for entry into Indonesia. The permits are classified on the basis of the purpose of the entry.
Permits for non-business visitors (tourists). A foreign national who wishes to enter into Indonesia for a purpose other than business may apply for either a tourist visit visa or a social and cultural visit visa. The tourist visit visa may be obtained at the immigration desk at the point of entry on arrival. The social and cultural visit visa can be applied for from the home country at the Indonesian Consulate. Under the terms of the tourist visit visa (which is valid for two months and is non-extendable), the holder is not allowed to perform any form of official business activities. The social and cultural visit visa is valid for one month and is extendable four times.
Permits for business visitors. A foreign national who wishes to come to Indonesia for business purposes may apply to the Indonesian Embassy in the country of his residence for a business visit visa with no permit to work. This business visit visa is valid for a maximum period of two months and expires as soon as the holder leaves the country. As long as the holder is still in the country, the business visit visa may be extended in Jakarta up to four times, each time with a maximum validity of one month.
The holder of this visa may visit offices and attend business meetings, but is not allowed to perform actual work. If, during the initial two-month period, the holder wishes to interrupt his stay in Indonesia, it is more efficient for him to apply for a multiple visit visa. The multiple visit visa is valid for 12 months, with a maximum duration of two months for the initial visit and a maximum duration of one month for subsequent visits. With this multiple visit visa, a foreign national can travel in and out of Indonesia as many times as he wishes or needs in any 12-month period, and can undertake all activities that a holder of a business visit visa with no permit to work would be entitled to.
Procedure for obtaining approval. The employer must first obtain approval from the Department of Manpower of its Expatriate Manpower Utilisation Plan (RPTKA) which is the master document for processing individual work permits for foreign employees. The RPTKA contains information on the number, functions and employment periods of the foreign employees.
Following approval of the RPTKA, the employer can submit a VITAS application to the Immigration Office. If the VITAS application is accepted, the Immigration Office will send a telex confirming the approval to the Indonesian embassy in the foreign national's country of domicile. The foreign national must then collect the approval at the Indonesian embassy and get the VITAS stamp on their passport.
Cost. The cost related to the RPTKA is about IDR1.25 million (as at 1 August 2012, US$1 was about IDR9,425).
Time frame. Processing an RPTKA approval takes around ten to 15 working days.
Procedure for obtaining approval. The foreign worker must submit the application for the limited stay permit to the Immigration Office no later than seven days after their arrival in Indonesia (verified by the entry permit). If the application is approved, the Immigration Office issues a Limited Stay Permit Card (Kitas), following which the employee receives a "control blue book" to record changes, if any, to his immigration status. The Kitas is valid for one year.
An employer must further obtain a work permit (IMTA) from the Minister of Manpower and Transmigration for its foreign employees. The IMTA is valid for one year.
In certain regions, foreign nationals who work in Indonesia must also obtain a number of other permits.
Cost. Obtaining an IMTA and Kitas from the Immigration Office costs approximately INR1.6 million. Foreign workers must also pay an annual contribution of US$1,200 for local training and development.
Time frame. Processing the required permits takes about two to three months.
Employment agreements can be made for a definite or indefinite period of time (Labour Law). A fixed-term employment agreement must be made in writing, in the Indonesian language using the Latin alphabet (some Indonesian dialects do not use the Latin alphabet) (Article 57, Labour Law). If an employment agreement is in both Indonesian and a foreign language, the Indonesian version prevails in the event that there are differences in interpretation.
Employment agreements of indefinite term can be made either orally or in writing (Article 51, Labour Law).
Any written employment agreement (fixed-term or indefinite) must at least state the following:
Name, address and line of business of the employer.
Name, sex, age and address of the employee.
Position of the employee or type of work.
Place where the work is to be carried out.
Amount of wages and how they will be paid.
Terms and conditions of employment stating the rights and obligations of both the employer and the employee.
The effective date of the employment agreement and the period of the employment agreement.
Place and date of the execution of the employment agreement.
In addition, it must be signed by the parties to the agreement.
Employment agreements of indefinite term can be made orally or in writing (Article 51(1), Labour Law). However, in practice, employment agreements should be made in writing and only if circumstances do not permit, an employment agreement can be made orally.
There are no implied terms in employment agreements under the Labour Law or other applicable laws and regulations.
If a company has a registered labour union, the labour union can enter into a collective labour agreement (CLA) with the management of the company. A trade union can be established by at least ten employees in any business industry. The CLA is valid for two years but can be extended. Only a duly registered trade union with a registration number has the right to negotiate a collective labour agreement with the employer's management.
An employment agreement is a contract. Under the Indonesian Civil Code, a contract cannot unilaterally be changed and, therefore, an employment agreement cannot be unilaterally changed or revoked.
There is no national minimum wage. Instead, all 33 provinces settle their own minimal wage every year, which can also vary depending on industry. The minimum wage is generally set based on the estimated amount required to cover all basic needs.
For example, the minimum wage in Jakarta, in 2012, is set at IDR1,529,150 per month.
The minimum wage is intended to cover employees working a 40-hour week in the formal sector (that is, any job sector or industry that is recognised, monitored and regulated by the government). The minimum wage requirement only applies to employees (whether working under a definite or indefinite employment contract) whose length of service is less than one year.
There are two types of minimum wage:
Provincial or regency based minimum wage.
Sectoral based minimum wage, which is determined by a sector in a province or in a regency. Sectoral based minimum wages are established by business groups in a district, province or regent throughout Indonesia. A sectoral based minimum wage may not, in any case, be lower than the minimum wage of the respective province or regency.
The minimum wage of a regency (kabupaten) may not be higher than the minimum wage of the province.
There is some evidence of the increasing role of trade unions in wage bargaining. If the salary is composed of basic wage and fixed allowances, the amount of the basic wage must not be less than 75% of the total remuneration.
An employee can work a maximum of 40 hours per week, allocated in one of the following ways:
Seven hours per day/six days per week.
Eight hours per day/five days per week.
It is prohibited to employ the following employees between 11pm and 7am:
Female employees aged less than 18 years.
Pregnant employees who, under a doctor's statement, are at risk of damaging their health or harming their own safety or the safety of their unborn child if they work.
In general, employers who require an employee to work outside the normal working hours must pay overtime wages to the employee unless the employee's position, function or job is that of a "thinker, planner, implementer or controller" whose working hours cannot be limited to normal working hours. These categories of employees are not entitled to overtime wages, but are entitled to a higher salary than that of ordinary employees. Overtime can only be performed for a maximum period of three hours per day and 14 hours per week. The overtime pay rate for one hour is 1/13 of the monthly wage plus fixed allowances, if any.
Employees are entitled to at least half-an-hour break after four continuous hours of work (Labour Law).
Under Indonesian labour laws and regulations, shift workers are those normally employed as blue-collar workers and security guards. The total working hours per day is eight hours and no more than 40 hours per week for shift workers.
Workers who work a five-day week have Saturday and Sunday off. Workers who work six days a week are entitled to Sunday off. All employees are entitled to 12 working days of paid vacation per year after one year's uninterrupted service.
Workers are not obliged to work on formal public holidays (Labour Law). Employers who require their employees to work on formal public holidays must pay the concerned employees for overtime work (see Question 8, Working hours). The Minister of Manpower together with the Minister for Religious Affairs and the Minister for the Utilisation of State's Apparatus issue a Joint Ministerial Decree every year, stipulating the specific date for each public/national holiday. In the period from 2011 to 2012, there are 14 public holidays. Most public holidays are religious dates and as most religious concessions function by a different calendar, for example, the lunar cycle, the exact dates vary from year to year. Public holidays are included in the minimum holiday entitlement.
Employees are entitled to paid sick leave in the case of illness or injury that is evidenced by a medical certificate or statement.
Employees are also entitled to long-term paid medical leave provided that such leave is recommended in writing by a doctor and lasts for a period greater than one year.
Female employees are also entitled to two days of menstrual leave (the first and second day of menstruation).
An employee who is experiencing a prolonged sickness continues to be entitled to the payment of wages, as follows (Labour Law):
First four months: 100% of the wages.
Second four months: 75% of the wages.
Third four months: 50% of the wages.
Subsequent months: 25% of the wages until the employment is terminated.
The employer cannot recover any of the costs from the government.
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
Pregnant employees are entitled to take three months' paid maternity leave, of which 1.5 months are taken in the pre-natal period and 1.5 months are taken in the post-natal period (Labour Law). In this period, employees receive their full salary.
An employee who has had a miscarriage is entitled to a 1.5-month rest period, provided this is recommended in a medical statement issued by an obstetrician or midwife.
Employers must provide proper opportunities to female employees, whose babies still need breastfeeding, to breastfeed their babies if this must be performed during working hours (Labour Law).
Male workers are entitled to two days' paid paternity leave if his wife gives birth or miscarries.
The labour laws are silent on the rights of a surrogate mother or parents under a surrogacy arrangement to leave, pay and other benefits. Provided all legal documents are given to the employer, parents under a surrogacy agreement will have the same maternal and paternal rights as parents of a naturally born child.
Labour Law does not recognise this type of leave. As long as all legal documents are given to the employer, parents of an adopted child will have the same maternal and paternal rights as parents of a naturally born child.
An employee is entitled to paid family leave in the following circumstances:
Marriage of the employee's child: two days' paid leave.
Circumcision of the employee's child: two days' paid leave.
Baptism of the employee's child: two days' paid leave.
Death of the employee's child: two days' paid leave.
All the above mentioned leaves are paid leave, which means that the employee is paid his full salary for the period of his leave. However, the employer is not obliged to pay the allowances that are conditional to the attendance of the employee.
Indonesian labour laws are silent on carer's rights. In practice, leave may be granted by an employer as unpaid leave. This also applies for emergency care for dependants, a spouse or a close family member. An employee may be given permission for unpaid leave. Likewise, an employee may be given emergency care for himself and his immediate family members.
A worker becomes entitled to annual leave after working for 12 consecutive months (see Question 9, Minimum holiday entitlement). An employee who has been working for the same employer for six consecutive years may also be entitled to a leave of at least two months in the seventh and eighth year of work.
If employees are transferred from one company to another without dismissal, the new company must provide at least the same remuneration as the previous company. The new company must also recognise the length of service of the employees. This applies to all types of employee transfer.
The Labour Law and other applicable regulations do not differentiate between rights of temporary and agency workers and rights of permanent employees. Temporary workers' terms and conditions, including salary, cannot be lower than what is provided for under the existing laws in relation to permanent employees.
An agreement for a definite or specified period can be an agreement for a specified period of time or an agreement for a specified job.
Under Indonesian labour laws, an agreement for a definite or specified period can only be extended once. Generally, it can only be made for a maximum period of three years (including its extension). At the end of the three-year period, the parties (employer and employee) may renew their agreement for a maximum period of two years after a break period of 30 days. Employees who are hired for a definite period/temporarily are entitled to the remaining amount of pay if their employment is terminated before the end of the specified period/job.
In relation to agency workers who are seconded to another company, protection and working conditions provided to the workers at the other company must be at least the same as the protection and working conditions provided at the previous company.
See above, Temporary workers.
While Indonesia has enacted various laws relating to data privacy in a number of specific areas (for example, banking and tax), no laws have been enacted on the protection of an employee's privacy before, during or after employment. The only law that may be applicable in this case is the Human Rights Law No. 39/1999, which stipulates that each individual has the right to their own privacy, and cannot be subjected to an investigation without their agreement, except on the order of a court or other legitimate authority under prevailing legislation.
All persons that are qualified to perform a job have the same opportunity to obtain the job without discrimination (Article 5, Labour Law). The interpretation of Article 5 provides, among other things, that all persons who are qualified to perform a job cannot be discriminated against on the grounds of:
Sex.
Ethnicity.
Race.
Religion.
Political orientation.
In addition (Article 6, Labour Law):
All workers have the right to receive equal treatment without discrimination from their employer.
Employers must provide workers with equal rights and responsibilities with no discrimination based on:
sex;
ethnicity;
race;
religion;
skin colour; or
political orientation.
Indonesia has also ratified the following International Labour Organisation (ILO) Conventions:
No. 111 of 1958 on Discrimination in Employment and Occupation.
No. 80 of 1957 on Equal Remuneration for Male and Female Workers for Work of Equal Value.
The Labour Law does not regulate protection from harassment for employees. However, the company's manual or collective labour agreement will normally contain a provision regarding harassment and its sanction. Indonesian case law also provides protection for workers from harassment. However, the Indonesian court system is based on a civil law system and does not follow the rule of stare decisis (a legal principle under which judges must respect the precedents established by prior decisions).
Employees wishing to take action against sexual harassment they have experienced in the workplace can file a claim on the basis of the civil tort law. The labour laws and regulations are silent on the period of claim for this matter.
Employees cannot be dismissed for reporting suspected crimes committed by their employers (Article 153(1), Labour Law). This can be interpreted as a form of general protection for whistleblowers. There are no specific provisions regarding the protection of whistleblowers under the law.
The law does not set out notice periods for ordinary dismissals and unfair dismissals. However, in practice a 30-day notice must be given to terminate an employment contract.
The Labour Law regulates individual employment termination and provides for:
Dismissal without cause (not due to the employee's fault). Where dismissal of employees cannot be avoided, such as in the case of a merger, a reorganisation of the company, or bankruptcy of the employer, it is prudent for the employer to explain the circumstances to the related Ministry Manpower in advance if the employment termination is mass employment termination.
Dismissal with cause (due to the employee's fault). Dismissal with cause can arise in the following circumstances:
the employee's violation of the employment contract or company regulation;
the employee's gross wrongdoing or committing of a major fault. However, dismissal can only be effected if a final and binding verdict confirming the employee's wrongdoing has been obtained from a criminal court judge (Decision of the Manpower Minister No. 13 of 2005).
In addition, an employer can dismiss an employee if:
The employee has been unable to work for over six months due to legal proceedings brought against them (Article 160(3), Law No. 13/2003). If the court finds the employee not at fault, the employer must re-employ the employee.
The employee has been absent from work for five or more consecutive working days without providing reasons or evidence (Article 168, Labour Law).
The labour law sets out the dismissal and severance payment requirements. The amount and type of severance to be paid to an employee can vary depending on the basis of the dismissal. If the dismissal is due to the employee's fault, the employee is entitled to the following:
Standard severance pay. One's salary for every year of service, up to nine months' salary.
Service appreciation pay. Two months' salary for the first three years of service, followed by an additional one month's salary for every three years of service thereafter, up to a maximum of ten months' salary for 24 years of service.
Compensation. Monetary compensation must be paid to cover the following (Labour Law):
annual leave that has not expired or been taken;
relocation expenses (that is, expenses to return the employee and their family to the place from which they were recruited);
medical and housing allowance: 15% of the total severance pay and service appreciation pay, if any;
other benefits provided under the respective employment agreement, the company regulations or the CLA; and
other compensation amounts as determined by the Industrial Relations Court (this can include special arrangements between the employer and employee).
If the dismissal is not due to the employee's fault (dismissal without cause), the employee is entitled to two times the severance pay amount plus the standard service appreciation pay and compensation. The Labour Law does not provide separate provisions on severance payment for ordinary dismissals and unfair dismissals. However, it provides different formula of severance pay for the different reasons of the dismissal/employment termination.
If the employee violates the provisions under the employment agreement, company regulations or CLA, then the employer can terminate the employment after it issues three consecutive disciplinary (warning) letters (Article 161, Labour Law).
In all other cases, the employer must attempt to negotiate the proposed dismissal with the employee or applicable labour union, and all employment termination plans (except where dismissal is caused by the resignation of the employee) require approval, in the form of a decision of authorisation of the Industrial Relations Court. If the employee and the employer agree to the employment termination, they must enter into a mutual employment termination agreement. This must be done simultaneously with the payment of the severance package (see above, Severance payments). The entire transaction must be registered with the Industrial Relations Court, after which the court issues a deed of registration of the employment termination.
The long and expensive procedures involved with employment termination have induced employers to try and conclude an amicable settlement with employees.
If procedures are not followed or the parties do not reach a termination agreement, each party can bring the case to a mediator (officials from the Manpower Department). If the case cannot be settled through mediation, the mediator will forward the case to the Industrial Relations Court and the losing party may appeal to the Supreme Court.
Law No. 13.2006 concerning the protection of witnesses and victims (Law No. 13/2006) provides protections for witnesses and victims in all stages of court proceedings within court jurisdiction. The protection to witnesses and victims is aimed at providing a sense of safety to witnesses and/or victims in presenting their testimony in a court proceeding.
Article 10 sets out that witnesses, victims and people who report an offence should not be prosecuted on criminal or civil code on the report or testimony which they will give, are giving or have given. The above provisions are not applicable to witnesses, victims and people who provide information without a good intention.
Under this Law No. 13/2006, whistleblowers cannot be discriminated against. Based on the principle of equality before the law, witnesses and victims in a court proceeding must be given a guaranteed legal protection.
An employee cannot be dismissed under certain conditions, including the following (Article 153(1), Labour Law):
The employee is ill (the employee must have this validated in writing by a doctor), provided the employee is not absent for a period of greater than 12 months.
The employee is fulfilling state obligations, as defined in valid legislation.
The employee is fulfilling religious obligations (for example, praying, taking part in a religious ceremony).
The employee is getting married. This should be taken to mean that an employee cannot be fired the day that they are getting married. In addition, an employee is entitled to three days' paid family leave when getting married (Article 93, Labour Law).
The employee is pregnant, breastfeeding, giving birth or has recently had a miscarriage.
The employee is related by blood to another worker, unless the dismissal is required by a collective bargaining agreement.
The employee belongs to a trade union.
The employee has reported a crime committed by their employer.
The dismissal is due to discrimination on any basis.
The worker is disabled or ill due to a work related accident and the period of recovery is indeterminable.
Dismissal under one of the circumstances listed above will be declared null and void and the employer will then be obliged to re-employ the employee concerned.
See above, Protection against dismissal.
The labour regulations do not contain provisions on redundancy notification. There is no specific definition of redundancy or layoff in Indonesian labour law. Redundancy or layoff would be treated as dismissal without cause (see Question 17). An employer should provide evidence as grounds for the redundancy. In particular, the evidence is needed if the case is brought to a government institution that handles labour cases.
Employers who wish to dismiss employees must first obtain approval from the Industrial Relations Court. Following this, consultation or discussion with the employee or labour union is required prior to mass or individual dismissal (see Question 17, Procedural requirements for dismissal).
The redundancy pay/severance package is calculated on the basis of the employee's:
Monthly salary.
Period of service.
Allowance and benefits such as leave, and medical and housing entitlements.
Since redundancy/layoff is treated as dismissal without cause, the employee is entitled to two times the severance pay amount plus the standard service appreciation pay and compensation.
There is no requirement under law that employees be represented at management level. Management representation is regulated by the Company Law No. 40 of 2007 (Company Law). A company's articles of association can provide a procedure and requirements relating to the management team's selection (Company Law).
An employer whose company is engaging in a merger or acquisition, or whose company is changing ownership, must notify its employees of the merger or acquisition, or change of ownership (Articles 127(1) and (2), Company Law). Notification must be made at least two weeks before the respective transaction, to allow employees to decide whether they want to continue their employment following the transaction. This procedure (sale of share) including an announcement in a newspaper only applies for a change in shares of the controlling shareholders. In relation to an asset sale, the announcement to employees is not mandatory but in practice this is done.
Employee opinion can be voiced and can have an impact on the stakeholders' decision, as if the employees are not satisfied with the planned action or change, they have the opportunity to resign.
Employee consent is not required for major transactions (see above, Consultation).
An employee can voice their concerns with the Ministry of Manpower appointed mediator. Though there is no requirement for an employer to consult their employees on major transactions. However, there is no consultation requirement, the employer is required to notify the employees in the event that such a transaction will result in termination of employment.
Employees cannot take any action other than voicing their concerns (see Question 20).
Employees are not automatically transferred on a business transfer. The following three options are possible in relation to permanent employees:
The employee is not willing to continue their employment with the new employer, in which case they must be paid a severance payment.
The new employer is not willing to accept the employee, in which case the employee concerned is entitled to two times the stipulated severance pay, plus the other standard remuneration (that is, compensation pay and service appreciation pay).
Both the new employer and the employee are willing to continue the employment as if no business transfer has occurred. In this case, the employment relationship continues on the basis of the same terms and conditions as before the transfer.
A non-permanent worker whose employment is not continued by the new employer is entitled to receive the wages for the remaining period of his contract.
There is no protection against dismissal for employees on a business transfer (see above, Automatic transfer of employees). However, as with all dismissal claims, the Industrial Relations Court approval is required before an employee can be dismissed (see Question 17, Procedural requirements for dismissal).
If the employment continues following the business transfer, the terms and conditions of employment must be the same as before the transfer, unless the change is approved by the Industrial Relations Court. The new employer must also recognise the employee's continuous length of service.
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
The labour laws are silent on the employer's liability for the acts of its employees. However, an individual must be responsible for the damage which he has caused by his own act, as well as for that which was caused by the acts of the individuals for whom he is responsible, or caused by matters which are under his supervision (Article 1367, Civil Code). Therefore, an employer may be liable for the acts of its employees.
Indonesian law does not provide for a parent company's liability for the acts of its subsidiary company's employees.
Law No. 1 of 1970 regarding Occupational Safely sets out the general framework in relation to the implementation of occupational safety. An employer must establish an occupational safety and health management system that complies with the legal requirements if it both:
Employs 100 or more individuals.
Requires its employees to carry out high risk work/activities.
An employees' representative must agree to the workplace occupational safety and health management system. The system must also be explained to all the company's employees, suppliers and customers. The Department of Manpower and Transmigration must supervise the implementation of the system, and evaluate and assess the system on a regular basis.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Resident foreign employees are taxed on the part of their salary earned in Indonesia and other remuneration the employee earns during their stay in Indonesia (for example, bonus, and religious holiday allowance). The Indonesian portion of the salary is taxed at source, and the employer must withhold the tax.
Non-resident employees (that is, an individual who does not reside in Indonesia and is present in Indonesia for less than 183 days in any 12-month period, or an entity that is not domiciled in Indonesia and is not conducting business or carrying out activities in Indonesia through a permanent establishment) are generally subject to a withholding tax of 20% of their gross income from Indonesia (Labour Law).
Indonesia has concluded several tax treaties and agreements with other states. Taxation rates and deductions can be altered under these treaties. Double taxation treaties offer a lower withholding tax rate, usually 10% or 15%. In addition, most treaties provide an exemption from withholding tax where interest is paid to the government or other specified authority of the other country. The treaties also provide a "time test" for determining when a permanent establishment is deemed to exist. By the end of 2008, Indonesia had negotiated and implemented tax treaties with 57 countries.
Deductions can be made for dependant spouses and children. In addition, foreign nationals may be able to claim for some expenses which are paid for by the employer, such as accommodation or vehicles. However, this depends on how the employer has classified these payments. Items such as healthcare costs which may be covered by the employer are classed as income.
Indonesia exempts from taxation the portion of the employee's salary that is attributable to a foreign company.
Non-resident individuals are subject to a withholding tax of 20% on their gross income from Indonesia (Labour Law), unless the provisions of a double taxation treaty provide otherwise.
Tax resident individuals are subject to the following rates of income tax:
Up to IDR50 million: 5%.
From IDR50 million up to IDR250 million: 15%.
From IDR250 million up to IDR500 million: 25%.
Over IDR500 million: 30%.
An employer with ten or more employees and a total payroll of more than IDR1 million per month must insure its employees, including its foreign employees (if their home country does not provide social security), by contributing to the Manpower Social Security programme (Jaminan Sosial Tenaga Kerjal (Jamsostek)).
The following contributions must be made under the Jamsostek programme:
Occupational accident security: between 0.24 to 1.74% of the employee's monthly pay, depending on the type of industry in which the employee works (there are five types of industry under the Law No. 3 of 1992 regarding the Jamsostek and its implementing regulations). Occupational Accident Security contributions are to be fully borne by the employer.
Death security: 0.3% of the employee's monthly pay, to be fully borne by the employer.
Old age security: 5.7% of the employee's monthly pay. 3.7% is borne by the employer and 2% is borne by the employee.
The healthcare security. This must be provided to an employee and their family, which can include their spouse and a maximum of three children. The amount of contribution, fully borne by the employer, is:
3% of the employee's monthly pay for a single person;
6% of the employee's monthly pay for an employee who has a family.
However, the highest salary for the calculation basis is IDR1 million.
The employer and its employees must participate in the Jamsostek programme. Under the Jamsostek, contributions to the government operated pension fund are made as follows:
3.7% of the employee's monthly salary by the employer.
2% of the employee's monthly salary by the employee.
Jamsostek contributions are tax deductible.
Payment of state pension under the Jamsostek programme can be paid:
Once, as one lump-sum payment.
Periodically.
Part as a lump-sum payment and the remainder periodically.
The overall amount paid is the total Jamsostek contributions made plus interest.
An employee becomes entitled to the pension when they either:
Reach the age of 55 years.
Are permanently disabled, as confirmed by a physician.
An employee who resigns from a company before reaching the age of 55 years and who has made contributions under the Jamsostek programme for at least five years can claim the payment of their pension.
Is linked to the employee's salary?
Is linked to employer and/or employee contributions and investment return on those contributions?
Under the Pension Fund Law No. 11 of 1992 (Pension Fund Law), a private sector employer is not required to provide a pension plan to a worker. However, once a pension fund has been established, the employer must maintain it. There are two main types of pension fund plans covered under the Pension Fund Law:
Employer's pension fund. A pension fund that is set up and controlled by the employer through a separate legal entity.
Financial institution pension fund. A pension scheme administered through a financial institution.
Approval from the Minister of Finance is required to establish and maintain both types of pension funds.
The value of the pension is not linked to the employee's salary but rather depends on the terms of the pension agreement agreed to by the parties.
The value of the pension is not linked to the employer and/or employee contributions but rather depends on the terms of the pension agreement agreed to by the parties.
There is no regulatory body that oversees the operation of supplementary pension schemes beyond the Director General of Pension Funds (DGPF). The DGPF is a director under the Director General of Financial Institutions (DGFI) who answers directly to the Minister of Finance.
Prudential supervision of pension funds must be performed by the Minister of Finance (Pension Fund Law). The Minister of Finance then delegates daily activities to the DGFI who, in turn, oversees the DGPF. The DGPF oversees and regulates the operation of supplementary pension schemes in Indonesia. Pension taxation requirements are regulated and overseen by the Director General of Tax.
Employer contributions to supplementary pensions are generally tax deductible.
Employee contributions to their supplementary pension are generally tax deductible.
Under the individual pension fund regulations, all pension contributions with interest are allocated to the employee when they resign or are dismissed. The employee cannot normally continue his contributions to the financial institution pension fund following dismissal or resignation.
There is no other protection for pension rights under the applicable laws.
Employees who are working abroad?
Employees of a foreign subsidiary company?
Employees working abroad can participate in a pension scheme established by a parent company in Indonesia.
Employees of a foreign subsidiary company can participate in a pension scheme established by a parent company in Indonesia.
Protection is provided. Normally, this matter is regulated by the agreement between the employer and the pension fund.
The only recognised bonus under the Labour Law is the Tunjangan Hari Raya (THR) or Religious Allowance. The THR is paid to workers who have been working for a period of greater than three months. Workers who have been working for a consecutive 12-month period are entitled to a minimum THR amount of one month's salary. The THR must be paid no later than seven days before the Idul-Fitr holiday. In practice, contractual or discretionary bonuses can be provided to employees.
If a work is made within an employment relationship or based on an order from the employer, the party who creates the work is deemed to be the creator and copyright holder, unless agreed otherwise by the parties (Article 8(3), Law No. 19 of 2002 concerning Copyright Law). In addition, the author of the work is entitled to both economic and moral rights. The moral rights in a work cannot be transferred even if the economic rights have been transferred to another party. IP rights differ depending on the laws relating to the industry in which they are created.
The party who assigned the work is the party who is entitled to the patent for an invention produced in an employment relationship, unless otherwise agreed by the parties (Article 12(1), Law No. 14 of 2001 concerning Patent Law). Inventors are entitled to compensation determined by the concerned parties. Considering the law respects the inventor's moral rights, they are entitled to have their name stated on the patent certificate.
Indonesian laws do not restrict an employer's ability to impose non-competition and non-solicitation covenants on an employee provided the employer and employee have entered into a formal agreement regarding this matter.
The employer is not required to continue paying the former employee while they are subject to post-employment restrictive covenants.
The government is planning to reform the Labour Law to address:
Complaints from employers regarding the formula set out to calculate severance pay.
Complaints from employees regarding outsourcing. Labour outsoucing has become popular with Indonesian employers but it is not clear what the rights of the outsourced employees are.
In 2010, the government established a committee to review and redraft the Labour Law. The government hopes that the review will be completed and a new draft produced by 2013. However, some legal commentators doubt that the new Labour Law will be ready by this time considering this is a very politically sensitive issue in Indonesia and the general election is scheduled for 2014.
The Ministry of Manpower and Transmigration
W www.depnakertrans.go.id
This is the official website of the Ministry of Manpower and Transmigration. It contains up to date official data and information as well as regulations on manpower and transmigration. New regulations are uploaded at random intervals, but no English translation of the provisions are provided. Occasionally, information in English will appear, but it is limited.
T +62 21 250 5125/5136
F +62 21 250 5001/5121/5122/5392
E nadwani@abnrlaw.com
W www.abnrlaw.com
Qualified. Advocate, Indonesia
Areas of practice. Corporate; labour law; land law; capital markets.
Recent transactions
