Legal UpdatesRegulationGovernment Regulation No. 35 of 2021. What’s The Impact?

Government Regulation No. 35 of 2021

An Overview of Government Regulation No. 35 of 2021

Law No. 11 of 2020 on Job Creation (“the Job Creation Law”) is now entering a new phase. The Indonesian Government has officially enacted 49 implementing regulations for Job Creation Law which are expected to restore and improve the national economy.

Until today, there are at least 4 Government Regulations (“GR”) that have been enacted in the Manpower sector. One among the others is GR No. 35 of 2021 on Fixed-Term Employment, Outsourcing, Working Hours and Rest Times, and Employment Termination (“Government Regulation No. 35 of 2021”).

Therefore, this article is intended to provide a general overview of Government Regulation No. 35 of 2021, especially regarding the highlight of the provisions under GR 35/2021, distinctions with the previous regulations, and what to be expected in the future after the enactment of the GR.

A.    Legal Basis

  1. Law No. 13 of 2003 on Manpower (“Manpower Law”);
  2. Job Creation Law;
  3. GR 35/2021.

B.    Highlighted Provisions

The following are the highlighted provisions under GR 35/2021 that should be noticed:

Fixed-Term Contracts (“FTC”):

  1. Basic Requirements for the FTC

In Article 6, FTC is extendable as long as the total term of the initial contract and its extension(s) does not exceed 5 years. Further, in accordance with Article 5, the FTC applies:

  1. for work of which the completion will not take very long, seasonal work, or work related to a new product, new activity or additional product that is on trial; or
  2. until the completion of certain work (work that is temporary in nature, or one-off work).

 

  1. General Provisions of FTC

In accordance with Article 13, FTC must at least contain the following provisions:

  1. Name, company address, and type of business;
  2. Name of worker/laborer, gender, age, and address;
  3. Position or type of work;
  4. Workplace;
  5. Amount and method of Wage payment;
  6. The rights and obligations of the Employer and Worker/Laborer in accordance with the provisions of the applicable laws, and/or terms and conditions as stipulated in Company Regulations or Collective Working Agreements;
  7. The start and the period of validity of FTC;
  8. Place and date of the FTC signing;
  9. Signatures of the parties in the PKWT.

 

  1. FTC Registration

In accordance with Article 14, FTC must be registered through the online system within 3 working days of the signing. In the event that the online system is not yet available, the FTC must be registered to the related institution no later than 7 working days from the signing date of the FTC.

 

  1. Compensation at the End of FTC

Article 15 stipulates that if a fixed-term employee has worked at least one month continuously in a company, the compensation must be provided when the contract ends. Furthermore, Article 16 regulates the formula of the compensation, which is as follows:

  1. if the employee has worked for 12 consecutive months, the compensation is in the amount of one (1) time monthly salary.
  2. If the employee has worked less or more than 12 consecutive months, the compensation must be calculated on a prorated basis in accordance with the employees’ tenure.

Moreover, under Article 17, if one of the parties terminates the contract before the FTC expires, the employer must pay the compensation in the same amount as what has been calculated above. However, please note that this provision does not apply to foreign employees.

 

Outsourcing

  1. Basic requirements for Outsourcing

In accordance with Article 18, the employment relationship between an outsourcing company and its employees is based on a written fixed-term or permanent employment agreement.

 

  1. Protection of the Outsourcing Employee

In accordance with Articles 18 (3) and (4), the outsourcing company will be responsible for the protection of its employees under the outsourcing mechanism.

 

  1. Business License

An outsourcing company must be a legal entity and hold the relevant business license.

 

Working Time and Rest Time

  1. Working hours

In principle, the employee working hours under Government Regulation No. 35 of 2021 are 7 hours per day or 40 hours per week for 6 working days, or 8 hours per day or 40 hours per week for 5 working days. However, certain sectors or certain jobs may govern differently.

 

  1. Rest Times

Employers must provide employees with a weekly resting time of at least 1 day for 6 working days, and 2 days for 7 working days.

 

  1. Overtime

Overtime on normal working days can be done from 4 hours per day, and a maximum of 18 hours per week. However, this provision does not apply to certain industries.

 

Termination of Employment

In accordance with Article 36, termination of employment can happen if one of the following reasons occur:

  1. merger, consolidation, takeover, or separation of the company;
  2. efficiency;
  3. company closure;
  4. force majeur;
  5. when the company is in a state of postponement of debt payment obligations;
  6. bankruptcy;
  7. when there is an application for termination of employment submitted by the employee;
  8. court decision;
  9. employee resignation;
  10. whenthe employee is absent for 5 (five) working days or more consecutively;
  11. when the employee violates the provisions stipulated under the employment agreement or the company regulations;
  12. when the employee cannot do the obligation for 6 (six) months as a result of being detained by a relevant authority for allegedly committing a criminal act;
  13. prolonged illness of employee;
  14. retirement; or
  15. death of employee.

 

Further, the employer must make every effort to prevent termination, but if it is unavoidable, the intention and grounds for employment termination must be notified to the employee.

 

Furthermore, notification of employment termination and grounds must be delivered in writing at least 14 working days before the date of the employment termination. If the employee is terminated during a probationary period, the notification must be delivered at least 7 working days before the date of the employment termination.

 

If the employee does not accept the employment termination, the employee must convey the reasons in writing within 7 working days of receipt of the notification.

 

Once the dispute between the employee and the employer arises, the industrial dispute settlement procedure must be followed.

 

C.    Distinctions with Previous Regulations

The following are some differences between the Government Regulation No. 35 of 2021 and the Manpower Law:

 

  1. Extension and Renewal of FTC

FTC is based on the period or completion of a certain job. Article 8 of GR 35/2021 regulates the period of FTC for 5 years. The term of FTC as stipulated in GR 35/2021 is longer than that of the old provisions in Manpower Law.

 

  1. New Requirements for Business Licensing

In the previous regulation, there was no procedure for obtaining a business license, especially the one required for an Outsourcing Company. Article 66 paragraph 4 of Manpower Law stated that the Outsourcing Company had to apply for the license to the agency responsible for manpower affairs.

 

  1. Overtime Period

The overtime allowed by the provision under GR 35/2021 is longer.

Previously on Manpower Law, it allowed employees to work overtime for 3 hours per day and a maximum of 14 hours per week. However, under the Job Creation Law and GR 35/2021, this provision is amended to 4 hours per day and a maximum of 18 hours per week

 

  1. The Rights Upon Employment Termination

The employee’s rights upon termination under GR 35/2021 are relatively lower if compared to what is stipulated under the Manpower Law. Based on Article 40 – 57 of GR 35/2021 stipulates that in the event that Employment Termination occurred, the employer is required to pay the Severance Pay and/or the Recognition Pay, and the Compensation depends on the different reasons, which as follows:

 

NumberReason of TerminationEmployee’s Rights

 

1.The company is conducting a merger, consolidation, or spin-off and the employee is not willing to continue the employment relationship or the employer is not willing to accept the employee.a.     1 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

2.The employers company is being acquired.a.     1 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

3.The company is being acquired but the employee refuses to continue the employment due to changes to the terms of employment.a.     0.5 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

4.Efficiency due to losses.a.     0.5 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

5.Efficiency to prevent further losesa.     1 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

6.The company closing down due to losses for 2 years.a.     0.5 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

7.The company closing down not due to losses.a.     1 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

8.The company closing down due to force majeur event.a.     0.5 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

9.There is force majeur event, but the company is not closing down.a.     0.75 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

10.The company is undergoing a delay of payment due to losses it has suffered.a.     0.5 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

11.The company is undergoing a delay of payment but not due to losses it has suffered.a.     1 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

12.The company has been declared bankrupt.a.     0.5 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

13.The employee has submitted an application to terminate the employment relationship.a.     1 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

14.A decision has been issued by the industrial relations dispute settlement agency (Industrial Relations Court) declaring that the employer is not guilty of the violation alleged by the employee, and the employer has decided to terminate the employment relationship.a.     Compensation; and

b.     Separation Pay based on employment agreement or company regulation.

15.Voluntary resignation by the employee.a.     Compensation; and

b.     Separation Pay based on employment agreement or company regulation.

16.The employee has been absent for five or more business days without serving written notice supported by valid evidence.a.     Compensation; and

b.     Separation Pay based on employment agreement or company regulation.

 

17.The employee has violated the employment agreement, company regulations, or collective labor agreement.a.     0.5 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

18.The employee is terminated for urgent reasons.a.     Compensation; and

b.     Separation Pay based on employment agreement or company regulation.

 

19.The employee is unable to work for six months because of being detained for an alleged crime that has caused the company to suffer a loss.a.     Compensation; and

b.     Separation Pay based on employment agreement or company regulation.

 

20.The employee is unable to work for six months because the employee has been detained due to an alleged crime that has not caused the company to suffer a loss.a.     1 x the term of Recognition Pay; and

b.     Compensation.

 

21.A court has convicted the employee proven of a crime that has caused the company to suffer a loss before the six months’ period of detainment has lapsed.a.     Compensation; and

b.     Separation Pay based on employment agreement or company regulation.

 

22.A court has convicted the employee of a crime that has not caused the company to suffer a loss before the six months’ period of detainment has lapsed.a.     1 x the term of Recognition Pay; and

b.     Compensation.

 

23.The employee is suffering from a prolonged illness or disability due to an occupational accident and is unable to work after more than 12 months.a.     2 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

24.The employee retires.a.     1,75 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

25.The employee passes away.a.     2 x Severance Pay;

b.     1 x the term of Recognition Pay; and

c.      Compensation.

 

 

In light with the above, the Compensation pay shall include:

  1. Untaken annual leave;
  2. Cost of going back to the employee hometown;
  3. Other compensation as agreed under employment agreement.

 

  1. Changes in Administrative Sanctions

In relation to administrative sanctions, there is no more threat of revoking business licenses under GR 35/2021. This, of course, does not mean that employers should be more comfortable disobeying rules.

 

D.    What Should be Noticed by the Employer

In light of the above, companies should review and adjust their internal company regulations and employment agreements with their employees in order to be in line with this regulation.

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

Dendi Adisuryo

Managing Partner

dendi.adisuryo@adcolaw.com

 

Morales Sundusing

Legal Counsel

morales.sundusing@adcolaw.com

***

ADCO Law earns the trust to represent clients from multinational companies to emerging entities across a wide range of industries to achieve their business objectives in Indonesia

By combining commercial sensibilities and legal expertise, ADCO as a Law Firm Jakarta assists the clients to structure, organize and implement their business ventures and investments, including structuring, financing and securing investments as well as establishing new foreign companies in Indonesia. Should you have more queries regarding this matter, please do not hesitate to contact us.

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Jl. HR. Rasuna Said kav. 62,
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