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Polemic on Employment Agreements for Foreign Workers in Indonesia

Foreign Worker

What is Foreign Worker?

According to Article 1 Number 13 of Law Number 13 of 2003 concerning Employment, as partially amended by the Government Regulation in Lieu of Law Number 2 of 2022 and subsequently ratified through Law Number 6 of 2023 (“Employment Law”), foreign workers, known as Tenaga Kerja Asing (“TKA”) in Indonesia, are individuals holding a foreign citizenship visa with an explicit purpose of working within the territorial confines of Indonesia.

The engagement of foreign workers in Indonesia is contingent upon their employment as confined to certain roles in a predefined duration stipulated in the Foreign Workers Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing, “RPTKA”).

Certain positions that foreign workers are eligible to occupy are determined by the minister by taking into account input from the relevant ministries. Further, foreign workers are expressly precluded from engaging in roles related to personnel management[1], underscoring the government’s commitment to maintaining the integrity and autonomy of domestic workforce management.

Notwithstanding the fact that regulations pertaining to foreign workers are firmly embedded in both statutory laws and government regulations, the practical execution of employing TKA in Indonesia has persistently encountered a myriad of challenges and complexities over the years.

Keeping this context in mind, the following section provides a brief overview of several prevalent issues that typically arise in employing foreign workers in Indonesia:

  1. Foreign Language in Employment Agreements

    In their pursuit to meet their unique needs, numerous companies often have difficulty finding the workforce they need like looking for a needle in a haystack, necessitating the recruitment of foreign workers with specialized expertise in specific fields.

    To streamline the recruitment process, especially for businesses heavily reliant on international talent, some companies choose to create employment agreements exclusively in a foreign language. Despite its prevalence, this practice is not devoid of legal risks in terms of interpretation.

    Referring to Article 57 of the Employment Law, it is expressely stipulated that Fixed-Term Employment Agreements (Perjanjian Kerja Waktu Tertentu,PKWT) are to be made in Bahasa Indonesia. In addition, In case there are discrepancies in a bilingual agreement (i.e., a document made in both Bahasa Indonesia and a foreign language), the Indonesian language version shall prevail.

    Despite the explicit provisions in the aforementioned regulations mandating the use of the Indonesian language in employment agreements, it remains disconcerting that many companies disregard these stipulations.

    That said, it is crucial for companies employing foreign workers to adopt a bilingual approach when crafting employment agreements, encompassing both the native language of the foreign worker and the Indonesian language. This approach helps mitigate potential legal conflicts and ambiguities, ensuring clear communication and compliance with legal requirements.

    Foreign Worker Contacrt
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  2. Mistakes in Determining the Type of Employment Agreement for Foreign Workers

    To ensure legitimacy in employing foreign workers in Indonesia, it is crucial to build a solid foundation for their employment agreements by utilizing contracts with specified durations. This is due to the fact that foreign workers are only authorized to undertake certain roles in Indonesia for a predetermined duration, contingent upon meeting the requisite qualifications for the respective positions they occupy. Consequently, an employment agreement made for a certain period of time serves as a crucial prerequisite for establishing employment relations between a company and foreign workers in Indonesia, leaving no room for ambiguity or irregularities.

    Currently, the utilization period of foreign workers is regulated under Government Regulation Number 34 of 2021 concerning the Use of Foreign Workers (“GR 34/2021”). This regulation specifies that every company employing foreign workers must possess an RPTKA, which outlines the objectives of utilizing foreign workers in certain positions for a predetermined period, subject to approval from the government.

    For your reference, the following are the provisions regarding the utilization period of foreign workers as stipulated by GR 34/2021:

      1. RPTKA for temporary employment with a maximum duration of 6 months cannot be extended;
      2. RPTKA for employment of more than 6 months is granted for a maximum period of 2 years, with the possibility of extension;
      3. Non-Compensated Foreign Worker Utilization Plan (RPTKA Non-DKPTKA) is granted for a maximum period of 2 years, with the possibility of extension;
      4. RPTKA for Special Economic Zones (RPTKA KEK) is granted for a maximum period of 5 years, with the possibility of extension. However, the approval for RPTKA KEK for the positions of director or commissioner is only given once and remains valid as long as the foreign worker concerned occupies the position.

    Based on the aforementioned explanation, foreign workers are barred from acquiring permanent employment status in Indonesia. This underscores the understanding that their stay in the country is conditional upon the explicitly specified contractual terms, with no provision for indefinite or permanent employment opportunities.

  3. Payment Obligations Upon Termination

    Government Regulation Number 35 of 2021 concerning Fixed-Term Employment Agreement, Outsourcing, Working Hours and Rest Time, and Termination of Employment Relationships (“GR 35/2021”) establishes distinctions between the rights of foreign workers and those of Indonesian workers.

    Article 15 (5) of GR 35/2021 stipulates that foreign workers engaged under a PKWT are not entitled to receive any compensation (referred to as “compensation pay”) at the end of their tenure. It is crucial to note that compensation pay is exclusively granted to local workers under a PKWT agreement.

    Nevertheless, in accordance with Article 62 of the Employment Law, if a company prematurely terminates the employment of a foreign worker before the PKWT ends, the company is still obligated to provide the foreign worker with indemnity (referred to as “uang ganti rugi”). It is crucial to highlight that this indemnity should not be construed as compensation (referred to as “uang kompensasi”), as explicitly stated in Article 15 (5) of GR 35/2021.

    Foreign Worker Contacrt
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  4.  Positions That Cannot Be Occupied

    To prevent any ambiguity and emphasize the preceding provisions, the Government explicitly states that foreign workers are prohibited from occupying personnel management positions while carrying out their work in Indonesia.

    This firm stance by the Government must be diligently adhered to by employers as this provision serves as a proactive measure to mitigate potential conflicts in the future. It is important to note that the prohibition on occupying certain positions extends beyond personnel roles; it also includes other positions as outlined in separate government regulations, as referenced in Article 42 (6) of the Employment Law. Employers should exercise caution and ensure compliance since failure to adhere to these restrictions could potentially lead to sanctions.

    Subsequent to the enactment of the new Employment Law, it is crucial to underscore that any employee-related matters in Indonesia, including the employment of foreign workers, must adhere to these new regulations. Consequently, any prior provisions stating otherwise and those declared revoked are no longer considered valid.

Furthermore, strict adherence to these regulations is imperative for all parties involved to ensure a lawful employment process in Indonesia. It is advisable to seek professional legal guidance to gain a comprehensive understanding of the legal landscape and ensure compliance with all applicable laws and regulations.

For comprehensive insights and expert guidance on navigating the intricate terrain of foreign worker employment regulations, ADCO Law stands ready to provide the assistance you require. Stay informed, and stay compliant. Ensure the success of the engagement of your foreign workers in Indonesia.

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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.

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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.