Understanding Manpower Law in Indonesia

Manpower Law is one of the many regulations that apply in Indonesia to ensure social justice for all Indonesian people as stated in the 1945 Constitution. The 1945 Constitution guarantees that every citizen has the right to work and to live a decent life for humanity. That is the legal ideal of the Indonesian state in order to guarantee the welfare of the community, especially labors and employers as parties in employment relationships. Thus, it is necessary to enforce a manpower law that regulates various rights, obligations and responsibilities of the parties so as to guarantee legal certainty, the value of justice, the principle of benefit, order, protection and law enforcement.

A. Understanding Manpower Law

According to M.G. Levenbach, Employment Law is a law relating to employment relationships, where employees work under the employer’s direction or control, and under the conditions agreed upon in the employment agreement, as long as the employment agreement complies with the applicable provisions.

Legal Basis of Manpower Law

Law Number 21 of 2000 on Trade Unions/Labor Unions (“Law 21/2000”)
Law Number 13 of 2003 on Manpower (“Law 13/2003”)
Law Number 2 of 2004 on Settlement of Industrial Relations Disputes (“Law 2/2004”)
Law Number 11 of 2020 on Job Creation (“Law 11/2020”)
Government Regulation Number 35 of 2021 on Fixed Term Employment, Outsourcing, Working Hours and Rest Times, and Termination (“GR 35/2021”)
And other related regulations

B. Subject of Manpower Law

Employment Law regulates the various parties involved as follows:

Labor is any person who works and receives wages or other forms of remuneration (Article 1 point 3 of Law 13/2003)
Employer is:
- an individual, partnership, or legal entity that operates a self-owned company;
- an individual, partnership, or legal entity that independently operates a company that is not its own;
- an individual, partnership, or legal entity residing in Indonesia representing a company domiciled outside the territory of Indonesia. (Article 1 number 5 of Law 13/2003).
Company is any form of business, either a legal entity or not, owned by individuals, partnerships, or legal entities, both privately owned and state owned, which employs labors by providing wages or other forms of remuneration. (Article 1 point 6 of Law 13/2003).

Manpower Law

C. Nature of Manpower Law

The nature of Manpower Law is as follows:

To protect the weak and put them in a position worthy of humanity.
To maintain social justice in the labor or employment field, the implementation of which is carried out by protecting labors from the unlimited power of the employers.

D. Purpose of Manpower Law

Article 4 of the 1945 Constitution regulates the objectives of Manpower Law, as follows:

To empower and utilize labors optimally and humanely.
To realize equal distribution of work and the provision of manpower in accordance with the needs of national and regional development.
To provide protection to labors in realizing welfare.
To improve the welfare of labors and their families.

E. Employment Relations in Manpower Law

Employment relationships between labors and employers are set forth in two types of employment agreements as regulated in Article 56 paragraph (1) of Law 13/2003 as amended by Law 11/2020 and Article 4 and Article 5 of GR 35/2021 as follows:

Temporary Employment Agreement (Perjanjian Kerja Waktu Tertentu, “PKWT”), which is made on the basis of a certain period of time, or completion of a particular job.
Permanent Employment Agreement (Perjanjian Kerja Waktu Tidak Tertentu, “PKWTT”), which may require a probationary period of maximum of 3 months during which the employers are prohibited from paying wages below the applicable minimum wage.

F. End of Employment Agreement

Article 61 of Law 13/2003 as amended by Law 11/2020 stipulates that an employment agreement ends if:

a labor dies
the term of the employment agreement expires.
there is a court decision or decision from Industrial Relations Court (Pengadilan Hubungan Industrial, “PHI”) that has permanent legal force.
There are certain circumstances/events listed in the employment agreement, company regulations or collective employment agreement that can cause the labor relationship to end.

Manpower Law

G. Termination of Employment

According to Prof. Iman Soepomo, Termination of Employment is divided into 4 types, namely:

Termination of Employment by employers.
Termination of Employment by labors.
Termination of Employment by court.
Termination of Employment for the sake of law.

Article 36 of GR 35/2021 describes that termination of employment can occur for the following reasons:

The company merges, consolidates, takes over, or separates the company itself, and the worker is not willing to continue the employment relationship, or the entrepreneur is not willing to accept the worker/laborer
The company performs organizational efficiency either followed by company closure or not followed by company closure because the company experiences losses
The company is closed because it experiences continuous losses for 2 (two) years
The company is closed due to force majeure
The company is in a state of suspension of debt payment obligations
Bankruptcy and Insolvency
Application for Termination of Employment submitted by Workers
Decision of industrial relations court
Workers resign of their own willingness
Workers are absent for 5 (five) working days or more in a row without written information
Workers violate the provisions stipulated in the Employment Agreement, Company Regulations, or Collective Labor Agreement
Workers are unable to work for 6 (six) months because they are detained by the authorities
Workers experience prolonged illness or disability due to work accidents and are unable to carry out their work after the time limit of 12 (twelve) months has passed
Workers enter retirement age
Worker dies

H. Severance pay, Service Pay, Entitlement Compensation

Employers are required to pay 1) Severance pay as regulated in Article 156 paragraph (2) of Law 13/2003 as amended by Law 11/2020 2) Service Pay as regulated in Article 156 paragraph (3) of Law 13/2003 as amended by Law 11/2020 and 3) Entitlement Compensation, which should be received in the event of a Termination of Employment as regulated in Article 156 paragraph (4) Law 13/2003 as amended by Law 11/2020, as follows:

Annual leave that has not been taken/not yet fallen,
Return costs—costs for the labors and their families to the place where the labors were initially accepted for work, and
Other matters stipulated in the employment agreement, company regulations or collective employment agreement.

Meanwhile, the procedure and calculation refer to the provisions of Article 40 to Article 57 of GR 35/2021

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