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Indonesian labor laws, like most countries in Southeast Asia, are designed to safeguard workers’ rights.
Understanding the ins and outs of labor laws not only puts you on the right side of the law but is also pivotal in shaping the dynamics of employer-employee relationships.
We’ve put together a helpful guide outlining the key provisions of the labor laws in Indonesia, offering insights on work hours, leaves, and compensation packages.
Primary Sources of Employment Law in Indonesia
At the core of Indonesia’s labor regulations are the Labor Law of 2003 on Manpower and the more recent Act Number 11/2020 on Job Creation (Undang-Undang Cipta Kerja).
A significant factor in shaping their labor regulations is the country’s collaboration with the International Labour Organization (ILO). By engaging with ILO, Indonesia aligns its labor standards with global labor principles.
Other helpful sources for employment and labor laws in Indonesia are:
- Law No. 21 of 2000 on Labor Union
- Law No. 2 of 2004 on Industrial Relations Dispute Settlement
- Social Security Law
Understanding Key Minimum Employment Rights
As outlined in the Indonesian Labor Law.
Working Hours and Pay Regulations
56. Work agreements – Encompassing indefinite-term employment agreements (PKWTTs) and fixed-term employment agreements (PKWTs).
77(2) Working Time – Should not exceed seven (7) hours a day or 40 hours a week.
78 (1)(a) Overtime – Overtime work is subject to the employee’s consent and is limited to four (4) hours per day or 18 hours per week.
Employees are paid 1.5x the hourly wage for the first hour and twice the hourly wage for subsequent overtime hours worked.
Period of Rest, Special Leaves and Holidays
79(2)(a) Daily Rest – Minimum half an hour after four (4) consecutive working hours.
(2)(b) Weekly Rest – Minimum one (1) after six (6) working days or no shorter than two (2) days after five (5) consecutive working days.
79(2)(c) Yearly Rest – 12 days annual leave after 12 months of service.
81 (1) Menstrual Leave – Female employees who inform their employer of menstrual pain are not required to work on the first and second day of menstruation
82 (1) Maternity Leave – Female employees are entitled to a 1.5 month period of rest before they are estimated to give birth, and another 1.5 month period of rest after childbirth.
(2) Female workers who miscarry are entitled to a 1.5 month rest period, or as stated in a medical statement from the authorized obstetrician or midwife.
85 (2) Right to Holiday Pay – Employees mandated to work on formal public holidays are obligated to receive overtime pay.
Tunjangan Hari Raya (THR) / Religious Holiday Allowance: THR is provided by the company to employees following their respective religious holidays.
93 (2) and 93 (3) Sick Leaves: As long as the employee provides employee documentation (i.e.: med cert), they are entitled to paid leaves.
93 (4) (e) of the Indonesian Law No. 2 of 2022 on Job Creation / Paternity Leave – An employee whose wife gives birth or suffers a miscarriage is entitled to 2 days of paid leave from work.
93 (2) Special paid leaves – Workers are entitled to various paid leaves, including scenarios where the employee is required to:
- Fulfill obligations to the state;
- Perform religious obligations;
- Undergo educational programs required by the employer,
- Perform union duties with the permission of the employer; and
- Personal reasons: Marriage, having their children baptized, or death of a direct family member.
Pay and Social Security
89 (1) Minimum wage – Indonesia sets its minimum wage by province, eg. Jakarta’s minimum wage is Rp 4,641,854 per month in 2023 (due to an increase of Rp 5,067,381 in 2024).
Refer to this wage indicator for minimum wage per region.
99 (1) Social Security – Mandatory for all Indonesian citizens and expatriates.
There are different types of social security programs outlined in Article 18 of the Law of the Republic of Indonesia No. 40 of 2004 concerning National Social Security System:
- Health security
- Work accident security
- Old-age security
- Pension security
- Death security
Pph 21 (Income Tax)
As mandated under the Law on Harmonization of Tax Regulations 2021 (Undang-Undang No. 7 Tahun 2021) and the more recent regulation No.GR-58.
Indonesia’s income tax, known as PPh21, is levied on individuals earning income from work or businesses within the country.
Progressive tax rates apply based on annual income, with different tax brackets. We covered the different methods for calculating PPh21 here.
Labor Unions
As outlined in the Act of the Republic of Indonesia Concerning Trade Union/Labor Union 2000
Chapter III., Art. 5 Union Formation: Unions can be formed by at least 10 employees. They should be registered at the local government agency responsible for employment matters to be viable.
Chapter VI., Art. 25 Union Rights:
- Negotiation: The right to negotiate collective work agreements with their employers
- Representation: Represent workers in resolving industrial disputes
- Strike Responsibility: Plan, implement, and take responsibility for workers’ strikes
- Other Activities: Activities related to the field of employment in conformity with applicable laws and regulations
Termination of Employment
153(1) General Grounds for Termination:
- Violating an employment agreement after three (3) written warnings from the employee;
- absent due to sickness lasting more than 12 months;
- absent from work for more than five (5) days without valid reason;
- employee misconduct;
- the employee reaches retirement age;
- the employee is convicted of a crime.
Employees may also be terminated following business-related issues such as insolvency, mergers/acquisitions, bankruptcy, or downsizing.
156(2)Termination: Should termination take place, severance and compensation pay for rights or entitlements that the dismissed worker has not utilized are mandatory.
Depending on their years of service, workers are entitled to three types of termination benefits:
- Severance pay (Uang Pesangon, or UP)
- Long service pay (Uang Penghargaan Masa Kerja, or UPMK)
- Compensation pay (Uang Penggantian Hak, or UPH)
The fourth component, separation pay (Uang Pisah or SP), is not mandatory and must be specified on the employment contract to be eligible.
Factors including the employee’s salary, tenure, and cause of termination determine the value of each benefit.
Is Your Business Fully-Compliant with Indonesia’s Labor Laws?
To ensure compliance with Indonesia’s Labor Law, companies should update HR policies and provide comprehensive guidance to employees. Integrating HR systems that streamline policy changes is critical as well.
Solutions like KAMI help you achieve this and also enhance your team’s effectiveness, ensuring your business remains agile and fully compliant. Talk to a KAMI expert today to see how we can help.
