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Deciphering Your Employment Contract: A Comprehensive Guide

Employment Law

The realm of employment law presents a intriguing terrain to explore, centered on safeguarding workers’ rights amidst the dynamics of employer-employee relationship. Defined as the body of laws that governs the relationship between employers and employees, employment law in Indonesia, as in other jurisdictions, serves a dual function, that is, blending both public and private interests.

Understanding Employment Law

At its core, employment law reflects a societal commitment to ensuring the protection and welfare of workers while fostering an environment conducive to business growth. Its purview encompasses a wide array of areas, including but not limited to minimum wage standards, working hours, leave entitlements, occupational safety, protection against unfair termination, and the right to unionize.

The evolution of employment law in Indonesia mirrors the nation’s historical journey. Initially, employment concerns took a backseat amid the fervor for independence. However, as the nation transitioned into post-colonial governance, socio-economic issues, including employment rights, gained prominence. The enactment of various employment legislations, notably Law No. 12 of 1948, marked the nascent stages of formal employment regulation, which later culminated in a more comprehensive legal framework under Law No. 1 of 1951, extending the applicability of employment laws across the entire archipelago.

Employment Contract

Read More: Understanding the Dynamics of Fixed-Term Employment Agreements

Overview of Indonesia’s Employment Law

Employment law, as enshrined in Indonesian statutes, encompasses a broad spectrum of regulations aimed at nurturing a balanced and harmonious relationship between employers and employees. It delineates foundational principles, equal employment opportunities, workforce planning, training, industrial relations, and dispute resolution mechanisms.

In recent times, the enactment of the Job Creation Law has introduced significant amendments to the employment landscape. Key provisions include regulations on Fixed-Term Employment Contracts or Perjanjian Kerja Waktu Tertentu (“PKWT”), Outsourcing arrangements, Minimum Wage or Upah Minimum (“UM”) standards, employment of Foreign Workers, and the establishment of Job Loss Assurance programs.

Understanding the Job Creation Law

The recently introduced Job Creation Law has brought about significant changes to the employment landscape in Indonesia, impacting various aspects of employment.

  1. Minimum Wage (UM): The Job Creation Law mandates the determination of a minimum wage at the provincial level or Upah Minimum Provinsi (UMP), taking into account regional economic growth and inflation. This ensures that employees receive a fair wage commensurate with the cost of living in their respective regions.
  2. Outsourcing: If changes occur in outsourcing companies, employees are guaranteed with job continuity and retention of their rights. This provision protects the interests of employees who may be affected by changes in outsourcing arrangements.
  3. Foreign Workers: The employment of foreign workers is now restricted to specific positions that require specialized skills and expertise. This measure aims to promote the development of local talent and protect domestic employment opportunities.
  4. Job Loss Assurance: To address the potential impact of job loss, the Job Creation Law introduces a new social security program called Job Loss Assurance. Administered by the Social Security Administrator for Employment or Badan Penyelenggara Jaminan Sosial Ketenagakerjaan (BPJS Ketenagakerjaan), this program provides financial support to workers who experience involuntary job loss.
  5. Working Hours: Recognizing the need for flexibility in certain industries, the Job Creation Law allows for more flexible work arrangements, empowering employers and employees to tailor work schedules that suit their specific needs.

Types of Employment Contracts

  1. Fixed-Term Employment Agreement (PKWT)
    Designed for specific projects with a clear end date, PKWT offers a structured approach to temporary employment. This type of contracts is valid for a maximum of five years, with the possibility of extension upon mutual agreement between the employer and employee. Written documentation and registration with the employment department are mandatory for PKWT to ensure transparency and accountability. Upon termination of the contract, the employer is obligated to provide compensation to the employee by recognizing their contributions to the project.
  2. Indefinite Term Employment Agreement (PKWTT)
    Designed for ongoing and permanent employment, Indefinite Term Employment Agreements or Perjanjian Kerja Waktu Tidak Tertentu (“PKWTT”) provide a sense of stability and security for long-term employees. This type of contracts can be established in writing or orally; however, a written letter of appointment is strongly recommended for oral agreements to avoid potential misunderstandings. In contrast to PKWT, registration with the employment department is not required for PKWTT, thereby streamlining the administrative process.
  3. Outsourcing Employment Agreement
    An Outsourcing Employment Agreement is a form of partnership between an employer and a third-party entity, where the latter offers employment services to complete specific tasks or projects. Governed in the PKWT and PKWTT arrangements, this agreement requires careful attention to detail, especially regarding the transfer of employment rights and responsibilities.

Read More: Employment Guidelines

Rights and Responsibilities of Employers

Employees are entitled to certain fundamental rights that safeguard their well-being and professional development.

  1. Fair Compensation: Employers have a legal obligation to compensate their employees fairly and in accordance with applicable laws and regulations. This includes providing wages commensurate with the employee’s job duties, performance, and experience. Failure to do so may result in legal sanction.
  2. Occupational Safety and Health: Employers are responsible for providing a safe and healthy work environment for their employees. This includes implementing a comprehensive safety program, conducting regular safety training, and providing necessary safety equipment. Failure to comply with occupational safety and health regulations can lead to fines, penalties, and even criminal charges.
  3. Leave and Social Security: Employers must adhere to applicable leave laws and provide employees with entitled leave, such as annual leave, sick leave, and maternity/paternity leave. Additionally, employers may offer additional benefits such as health insurance and pension plans to protect their employees in case of unexpected events.
  4. Training and Development: Investing in employee training and development is critical to maintaining a skilled and productive workforce. Employers should provide opportunities for employees to enhance their skills and knowledge, which ultimately benefits the organization as a whole.
  5. Fair and Non-discriminatory Treatment: Employers are prohibited from discriminating against employees based on gender, age, religion, ethnicity, or other protected characteristics. Creating a workplace free from discrimination is not only ethically sound but also legally mandated.

Understanding Fixed-Term Employment Agreements

Read More: Understanding and Adhering to Indonesia’s Overtime Pay Provisions

Obligations of Employees

In return for the rights and benefits they receive, employees also have certain obligations to fulfill.

  1. Fulfill Job Duties: Employees have the responsibility to perform their job duties with diligence, professionalism, and accountability. This includes meeting deadlines, maintaining high-quality work, and contributing to the overall success of the organization. Failure to fulfill job duties may lead to disciplinary action, up to and including termination of employment.
  2. Respect Company Policies: Employers establish company policies and procedures to ensure a smooth and efficient work environment. Employees are expected to adhere to these policies, including following work hours, reporting absences accurately, and refraining from actions that violate company rules or regulations. Breach of company policies may result in disciplinary action.
  3. Accurate and Timely Work Reports: Accurate and timely reporting is crucial for effective decision-making. Employees are responsible for submitting accurate and timely work reports, including financial reports, activity reports, and other relevant information. Failure to do so may hinder the organization’s operations and could lead to disciplinary action.
  4. Maintain a Safe, Orderly, and Clean Workplace: A well-maintained and organized workplace not only enhances productivity but also promotes a positive professional atmosphere. Employees are expected to maintain their workspace in a clean and orderly manner, ensure the proper use of equipment, and adhere to all safety protocols. Failure to maintain a safe and orderly workplace could lead to accidents, injuries, and disciplinary action.
  5. Maintain the Confidentiality of Company Information and Data: As employees gain access to sensitive company information and data, it is their responsibility to safeguard this confidential information. This includes refraining from disclosing it to unauthorized individuals or using it for personal gain. Violating a confidentiality agreement may result in disciplinary action, legal liability, and even criminal charges.

In conclusion, understanding your employment contract,  rights and responsibilities as an employee empowers you to navigate the workplace with confidence and professionalism. By fulfilling your obligations and upholding the values of your employer, you contribute to a harmonious and productive work environment, which in turn fosters personal growth and organizational success. Remember, open communication, mutual respect, and a commitment to excellence are the cornerstones of a fulfilling and rewarding employment relationship. If you have further questions or would like to seek consultation, don’t hesitate to reach out to us at ADCO Law.


About ADCO Law:

ADCO Law is a firm that offers clients a wide range of integrated legal services, including in commercial transactions and corporate disputes in a variety of industry sectors. Over the course of more than a decade, we have grown to understand our client’s industry and business as well as the regulatory aspect. In dealing with business dynamics, we provide comprehensive solid legal advice and solutions to minimize legal and business risks.

ADCO Law is a Proud Member of the Alliott Global Alliance (AGA) in Indonesia. Founded in 1979, AGA is one of the largest and fastest-growing global multidisciplinary alliances, with 215 member firms in 95 countries.

As a law firm, we also believe in regeneration. To stay abreast of business changes and stay relevant, our formation of lawyers is comprised of the top graduates from Indonesian and international law schools.

Should you have more queries regarding this matter, please do not hesitate to contact us


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Disclaimer: This article has been prepared for scientific reading and marketing purposes only from ADCO Law. Accordingly, all the writings contained herein do not constitute the formal legal opinion of ADCO Law. Therefore, ADCO Law should be held harmless of and/or cannot be held responsible for anything performed by entities who use this writing outside the purposes of ADCO Law.