Omnibus Law: Compensation For Employee

The Job Creation Law (Omnibus Law / Undang-Undang Cipta Kerja) as Convention No. 10 of 2020 regulated November 2, 2020, was one of the most highlighted Indonesian regulations these days. This convention provides allows Indonesian Ministries and Governmental agencies to create new regulations to be in accordance with the directions in Omnibus Law. To rapidly, create new governed regulations under the Omnibus Law. The Job Creation Law revises various provisions in cross-sectoral laws, including Law No. 13 of 2003 on Labor (“Labor Law”).

Enforcement of the new Regulation of Omnibus Law

            As one of the most affected authorities, the Ministry of Manpower, alongside the other related governmental institutions, created a new regulation under the Omnibus Law called Government Regulation (Peraturan Pemerintah) Number 35 of 2021. This regulation enforced by considering Article 81 and Article 185 concerning the Job Creation Law regarding the Fixed-Term Employment Contract, Outsourcing, Working Hours & Recess Hours, and Employment Termination. As for today’s review, we will straightly provide you with the latest information on the Fixed-Term Employment Contract (Perjanjian Kerja Waktu Tertentu), and how to terminate it.

Omnibus Law on Compensation for Fixed-Term Employees (“PKWT”)

           Previously, Labor Law number 13 of 2003 was the regulation for the manpower sector in Indonesia. All sectors entwined, based on the necessity of having proper employment terms, regulated in the previous Labor Law. The next action taken by the Government after the enforcement of Omnibus Law is to have the latest enforced Law taken into consideration.

DETAILSLaw (Undang-Undang) No. 13 / 2003
previous regulation
Government Regulation (Peraturan Pemerintah) No. 35 / 2021  
current regulation
Working Period“2-1-2” rule: 2 years maximum in the first term
1-year extendable period (once)
2 years maximum contract renewal (after 30 days “clean break” period)
Fixed period of time / on completion of a specified project as written in employment agreement
TerminationPeriod / termination requestPeriod and/or project completion / termination request
COMPENSATIONNONE1 year salary for 12 months fixed-term working period

Compensation Calculation : working for a month entitled to compensation!

  • An employee entitled to receive a certain amount of compensation after completing their Fixed-Term Employment contract. The amount calculated based on the minimum working period of 1 (one) month and calculated on a pro-rata basis to their monthly salary. Any form of termination, be it by unilateral or voluntary decision, or by completing the period of Contract, will provide the terminated employee with a work compensation (Article 15 of the Government Regulation No. 35/2021). Previous Labor Law has never issued this type of terms to Fixed-Term Employee. However, this rule does not apply to foreign employees with a fixed-term contract of employment. This is because of the company’s working relationship.
  • The compensation gave based on the value of the basic salary and fixed allowance. If, the Company has a non-fix allowance provided alongside the basic salary, the compensation given based on the value of the basic salary.
  • The compensation for a fixed-term employment contract, for a specific project, finishes before the period specified in the employment agreement, the compensation is then calculated up to the time of completion of work and not until the specified period.
  • Compensation for Employee/Worker on Micro and Small Business gave based on the negotiation and mutual agreement between the Employer and the Employee/Worker.
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Effectively Regulated for the field of Labor

The Labor Law of 2003 is not ignored in performing the employment-related issue despite Government regulation, the mutual agreement between the company and the employee has to be a part of the rules set for employment conditions. Moreover, as explained in Article 65 of Government Regulation Number 35 of 2021. The previous Labor Law of 2003 can be carried out, as long as it doesn’t contradict the regulated terms in the Government Regulation.

Omnibus Law, Effects on Business

These regulations clearly put Labor on the “winning” side, the Government must pay attention to the impact it may have on business especially during this time of recession. Employers are now given the option of hiring temporary or permanent employees for their Company. They both have benefits and drawbacks of doing business; permanent employers get no compensation; after compliance with the terms specified, the employee continues to be entitled to the Company’s severance pay.

And this newly regulated Government regulation helps the employer to give more time upon employment status consideration; in whichever must be suitable to the needs and in accordance to the Law. For a more complete regulation insight please contact Double M. Phone: +62 21 2789 9882 or Email: info@double-m.co