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Sweeping Employment Law Reform in Indonesia

New Legislation Enacted

Authors: Syahdan Z. Aziz, Partner and Head of Employment, and Richard D. Emmerson, Of Counsel – SSEK Law Firm

As of Q2 2023, Indonesia has codified several years of sweeping employment law reforms with the promulgation of the Job Creation Law No. 6 of 2023 which fundamentally amends the main Manpower Law No. 13 of 2003. These reforms are described as fairly employer friendly. The highlights include the following topics:

• Notice of Termination Procedure: Indonesia has adopted the notice of termination concept whereas all terminations were previously subject to approval by the Labor Court unless previously agreed to by the employer and employee. Under the new law, employers must give 14 working days’ notice of termination and notice is effective unless the employee objects in writing within seven working days.
   
• Reduction of Termination Entitlements: The Manpower Law sets out specific statutory benefits for resignation, retirement, and termination depending on the grounds. With the passage of Law 6 together with Government Regulation 35 of 2021, these statutory benefits have been reduced across the board and one specific entitlement known as the “health and housing allowance” has been eliminated.
   
• Foreign Employees: Work permit procedures have been simplified but the prohibition on employing foreigners in human resources positions has been continued. Foreign employees can only be hired on fixed-term employment agreements.
   
• Fixed-term Employees: Fixed-term employment agreements can now be made for a maximum of five years without any break. Indonesian fixed-term employees are now entitled to a modest new entitlement upon expiration of the agreement, and that entitlement is payable in addition to the existing entitlement for early termination.
   
• Outsourcing: Outsourcing of work is permitted in certain circumstances which will be clarified by an upcoming implementing regulation.

The authors can be contacted at SyahdanAziz@ssek.com and RichardEmmerson@ssek.com.