​Indonesia | Job Creation Law – Focus on Manpower Law (Part I)

Date: 12 Dec 2020

MANPOWER

Following the passing of the bill by the House of Representatives on 5 October 2020, Law No. 11 of 2020 on the Job Creation Law (the “Job Creation Law”) was finally enacted on 2 November 2020. It involves and effects (to widely varying degrees) over 78 existing laws ranging from land licensing, investment, manpower, government administration and spatial planning to ease the conducting of business and commercial activities. The Job Creation Law is geared towards improving and enhancing the investment climate and creating more jobs in Indonesia.

One of the most controversial areas affected by the Job Creation Law is governed by the provisions of Law No. 13 of 2003 on Manpower (the “Manpower Law”). We outline the salient provisions of the Job Creation Law below:

Foreign Employees

The Job Creation Law has relaxed the requirement on having to submit a foreign employee utilization plan (‘rencana penggunaan tenaga kerja asing’) in order to hire foreign employees. The previous exemption to this requirement, before only applicable to diplomatic and consular employees, has now been extended to:

  • directors and commissioners who also hold a certain number of shares in the relevant company;
  • foreign employees required for certain types of production that ceased due to an emergency situation, vocational occupations, technology-based start-ups, business trips and market research for certain stipulated periods.

Additionally, positions that can be held by foreign nationals and the duration of employment will be further clarified by a forthcoming government regulation.

Indefinite Term Employment Agreement

The Job Creation Law sets a broader variety of employment types that can be covered by a definite term employment agreement. The Job Creation Law provides that a fixed term employment agreement can only be made for certain types of work, which based on its type and nature, will be completed within a certain period, namely:

  • work to be performed or completed at once, or work which is temporary in nature;
  • work which is due to be completed in a short timeframe;
  • seasonal work;
  • work that relates to a new product, new activities or technology or additional products that are still at the experimental stage; or
  • work whose type and nature is not permanent or ongoing in nature.

The type and nature or activity of work permissible under a fixed term employment agreement will be further clarified by a subsequent government regulation.

The provisions related to the duration and extension of unfixed term employment agreements under the Manpower Law have been removed by the Job Creation Law. These issues have been earmarked for future treatment under a forthcoming government regulation.

Furthermore, there is an additional provision related to the termination of indefinite term employment agreements. Previously, compensation was only payable if the agreement was terminated by either party before expiry of the agreement. Newly introduced under the Job Creation Law however, the employer is now obliged to pay compensation to an employee when the agreement expires or the relevant work has been completed. The levels of such compensation will again be subject to and defined by a future government regulation.

Outsourcing

The Job Creation Law has removed the former requirements under the Manpower Law stating that outsourcing of work or workers cannot be conducted in support of the service recipient’s core activities. This leaves open the possibility that an employer may now be free to delegate its main and/or supporting activities to an outsourcing company.

The Job Creation Law stipulates that matters related to the protection of employees in an outsourcing company and business licensing for outsourcing activities will be further delineated by a forthcoming government regulation.

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