Understanding the Dynamics of Fixed-Term Employment Agreements

General Overview of Fixed-Term Employment Agreements

Pursuant to Article 1 Number 10 of the Government Regulation Number 35 of 2021 on Temporary Employment Agreement, Outsourcing, Working Hours and Breaks, and Termination of Employment Relationships (“GR 35/2021”), fixed-term employment agreements delineate the contractual relationships between employers and employees for a specified duration or certain tasks that are outside the scope of work of permanent employment.

These temporary contracts establish a clear operational framework for both parties, delineating the time limit and scope of the employment arrangement. Unlike permanent employment agreements, which do not have a defined endpoint, fixed-term agreements provide a structured timeline for employment, offering employers flexibility in managing staffing requirements while presenting opportunities for employees to engage in short-term engagements or project-oriented roles.

Additionally, fixed-term agreements can also be considered a double-edged sword since they offer employers the agility to adjust their workforce as per organizational exigencies, while providing employees with the potential to gain diverse experience and skill development within varying roles and projects.

Understanding Fixed-Term Employment Agreements

Requirements and Consequences of Violations

Type of Work

Pursuant to GR 35/2021, fixed-term employment agreements can be applied to the following types of work:

No.	Basis	Type of Work	Remarks
1.	Period	work that is estimated to be completed in not too long a time.	The term of a fixed-term employment agreement and its extension is a maximum of 5 (five) years.
		seasonal work, which is based on: a. season or weather; or b. certain conditions.
		work related to new products, new activities, or additional products that are still in an experimental or try-out phase.
2.	Completion of certain work	work that is completed at once.	The fixed-term employment agreement shall contain: a. scope and limitations for a work to be declared complete; b. the length of time for completing work that is adjusted to the target completion of work.
		work that is temporary in nature.
3.	Other works with temporary activities		a. certain work that changes in terms of time and volume of work; b. certain work that uses attendance-based wage payment for employees. This type of work can be arranged based on a daily employment agreement.

Please note that Article 59 Paragraph (3) of Law Number 13 of 2003 as amended lastly by Government Regulation in Lieu of Law Number 2 of 2022 (“Employment Law”) stipulates that a fixed-term employment agreement, which are not bound by statutory provisions, shall be construed as a permanent employment agreement.

Formality, Language, and Standard Provision
Pursuant to Article 57 paragraph (1) of employment law, fixed-term employment agreements must be formally documented in writing. While the agreement may be drafted in a language other than Bahasa Indonesia, it is important to note that in the event of any inconsistency between the interpretations of different language versions, the Indonesian version shall prevail.

Additionally, as outlined in Article 13, Paragraph (1) of GR 35/2021, fixed-term employment agreements are mandated to include the following fundamental provisions:

1. name, company address, and type of business;
2. name, sex, age, and address of employees;
3. designation or nature of the assigned tasks;
4. location of employment;
5. specification of the remuneration and payment method;
6. articulation of the rights and obligations of both employers and employees in accordance with pertinent laws, regulations, and/or stipulations within a company’s regulations or collective employment agreement;
7. commencement date and validity period;
8. location and date of execution; and
9. signature of the parties.

Probationary Period

Article 58 of the Employment Law explicitly states that a fixed-term employment agreement cannot include a probationary period. This means that employers are not permitted to require a probationary period for employees hired under fixed-term contracts.

Despite being nullified, the time spent in the probationary period still counts towards the overall duration of employment. In other words, even though the probationary period is not recognized in the fixed-term contract, that period is still considered part of the employee’s tenure.

Registration Obligation

In accordance with Article 14 of GR 35/2021, employers are mandated to register fixed-term employment agreements online with the Ministry of Manpower within three (3) business days from the date of signing. Should online registration not be available, employers must complete the registration process in writing at the local manpower agency office in the regency/city within seven (7) business days of the agreement’s execution.

Although GR 35/2021 does not regulate the sanctions for violating registration obligation within the above-mentioned period, Constitutional Court Decision Number 6/PUU-XVI/2018 states that the legal consequence of employers’ failure to register the fixed-term employment agreement on time is that the fixed-term employment agreement shall be deemed as a permanent employment agreement.

Compensation

Pursuant to Article 15 of GR 35/2021, compensation is to be provided to employees (excluding foreign workers) who have worked for at least 1 (one) month continuously, with the following provision:

No.	Employment Period	Formula
1.	12 (twelve) months continuously	1 (one) x monthly wage
2.	1 (one) month ≥ x < 12 (twelve) months
3.	> 12 (twelve) months

In accordance with Article 61 paragraph (1) of GR 35/2021, failure to provide compensation to employees under fixed-term employment agreements incurs a spectrum of sanctions from the government, such as written warnings, restrictions on business activities, temporary suspension of part or all production tools, and even suspension of business activities.

Understanding Fixed-Term Employment Agreements

Benefits of Fixed-Term Employment Agreements for Employers and Employees

Fixed-term employment agreements offer benefits to both employers and employees. For employers, this type of agreement provides flexibility in managing project-based demands and workforce fluctuations. They allows businesses to hire specialized expertise for a defined period without the long-term commitment or potential legal complications associated with permanent employment. Moreover, fixed-term employment agreements often streamline the termination process, as they typically terminate automatically upon expiration, reducing the need for severance pay or extended notice periods.

On the other hand, from an employee’s perspective, fixed-term employment agreements provide opportunities to acquire valuable experience, especially in sectors with seasonal or project-driven workloads. This type of contract can serve as a stepping stone to a permanent role, giving employees the opportunity to demonstrate their skills and potentially to secure long-term employment with the employer.

For comprehensive insight and expert guidance in navigating the intricate terrain of fixed-term employment agreements, ADCO Law stands ready to provide the assistance you require. Stay informed, and stay compliant.

For more information about fixed-term employment agreements in Indonesia, please contact our firm.

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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.