Understanding Fixed-Term and Indefinite-Term Employment Agreements in Indonesia

In Indonesian employment practice, the employment relationship between an employee and an employer always begins with an employment agreement. This agreement serves as the legal basis for determining the rights and obligations of the parties, and provides certainty regarding the employee’s employment status. In general, Indonesian employment law recognizes two main types of employment agreements, i.e., Fixed-Term Employment Agreements (Perjanjian Kerja Waktu Tertentu, “PKWT”) and Indefinite-Term Employment Agreements (Perjanjian Kerja Waktu Tidak Tertentu, “PKWTT”). Each type carries distinct characteristics, functions, and legal consequences. Accordingly, a basic understanding of PKWT and PKWTT is essential for both employees and employers to ensure compliance with applicable laws and regulations.

Employment Agreements under Indonesian Employment Law

Law Number 13 of 2003 on Manpower, as partially amended by Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation (“Employment Law”), defines an employment agreement as an agreement between an employee and an employer that sets out the terms of employment, as well as the rights and obligations of the parties.¹ Under an employment agreement, an employment relationship is established and characterized by work, wages, and authority.² Furthermore, the Employment Law distinguishes employment agreements by duration: PKWT and PKWTT.³

Fixed-Term Employment Agreement (PKWT)

PKWT is an employment agreement entered into for a specific period or for the completion of specific, temporary work. The Employment Law emphasizes that PKWTs must be based on a defined term or the completion of a specific job.⁴ The use of PKWT is strictly limited, as it can only be applied to certain types of work which, by their nature, characteristics, or activities, are expected to be completed within a specified period and can not be used for permanent employment.⁵

In general, PKWTs have the following key characteristics:

PKWTs must be made in writing and in the Indonesian language;⁶
PKWTs are limited by a specific period or the completion of specific work, whereby the employment relationship ends by operation of law upon completion of that period or work; and
PKWTs do not provide long-term employment certainty as permanent employment agreements do, as they are designed from the outset to meet temporary or non-continuous employment needs.

Indefinite-Term Employment Agreement (PKWTT)

In contrast to PKWTs, which are expressly limited by a specific period or the completion of specific work, PKWTTs are not based on a predetermined time limit but rather on the continuity of the employment relationship itself. Accordingly, PKWTTs are principally used for permanent and ongoing employment.

In general, PKWTTs have the following key characteristics:

PKWTTs may include a probationary period, provided that the probation does not exceed three (3) months and is expressly stipulated in writing;⁷ and
An employment relationship under a PKWTT does not end due to the lapse of a certain period of time, but rather as a result of specific legal grounds in accordance with the applicable laws and regulations.

In essence, PKWT and PKWTT serve different functions and have distinct characteristics under Indonesian employment law, particularly in relation to the duration of the employment relationship, the nature of the work, and the legal consequences for both employees and employers. Therefore, a proper understanding of these types of employment agreements from the outset is crucial to ensure compliance with applicable laws and regulations and to safeguard the rights and obligations of the parties.

Should you require further assistance or clarification regarding the implementation of employment agreements or other employment-related matters, please contact our Employment Practice Group at ADCO Law.

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