Australia: Employment in Indonesia: Differences worth labouring

Indonesia's employment laws are quite different to Australia's. Engaging expatriates, employee entitlements, termination and outsourcing are all arguably more complex.

This has implications for Australian businesses working, hiring and firing there.

FOREIGN WORKERS

A foreigner travelling on a business visa to Indonesia may only undertake limited business activities, such as attending business discussions, participating in seminars and exhibitions and inspecting branch offices. Activities beyond these risk violating the Immigration Law.

In order for Indonesian companies to employ foreigners – including under a joint venture, secondment or sponsorship arrangement with a foreign company – the company must obtain approval for its foreign worker recruitment plan and secure a foreign worker recruitment permit.

Any foreigner employed in Indonesia must have appropriate educational qualifications, relevant competency or work experience, declare their willingness to transfer knowledge and skills to Indonesian co-workers and be able to communicate in Bahasa Indonesia.

The foreigner will be required to train at least one Indonesian co-worker, with a view to the co-worker assuming the foreigner's role.

The Ministry of Manpower and Transmigration will consider the proposed position and whether foreigners are required for it. Relevantly, foreigners cannot be employed as Office Managers or in 18 other human resource related positions. Foreigners also cannot be employed by more than one company.

Foreigners can be appointed as directors (including the President Director, the Indonesian equivalent to CEO) or commissioners of a foreign investment limited liability company (PMA Company).1 The employment requirements outlined above do not apply to these positions.

While the Employment Law applies to a PMA Company and its Indonesian employees, not all of its provisions apply to foreign workers.

EMPLOYMENT AGREEMENTS

Indonesian employees have substantial rights under the Employment Law.

Employment agreements must contain minimum statutory information and agreements with Indonesian citizens must be in Bahasa Indonesia or at least bilingual versions.2 In contrast to general contracts, the Employment Law provides that in the event of any inconsistency in bilingual versions of employment agreements, the Bahasa Indonesia version prevails.

Fixed term employment agreements are available for only limited types of work and with a maximum duration of 2 years (subject to statutory extension or renewal periods).

Permanent employment agreements may include a probationary period of up to three months, during which both the employer and employee may unilaterally terminate the employment (without any severance package).

Standard working hours are up to 40 hours per week. Employees, other than those in senior positions, are entitled to overtime.

Provincial governments set minimum pay rates for different regions and industries. An employer with 10 or more employees, or collective monthly salaries of at least 1,000,000 Rupiah (A$90), must make contributions to the Employee Social Security Program (Jamsostek) for each employee, which encompasses accident, death, retirement and health security elements.

Permanent employees are entitled to 12 days annual leave and a variety of other leave, including unlimited sick leave and Hajj leave for Muslim employees.

In 2013, the Constitutional Court held that the 1945 Constitution precludes statutory timelimits on employee claims for unpaid salary and other amounts accrued during employment (including severance packages upon termination).

TERMINATION

Employers and employees may agree on termination of employment. While employees may unilaterally resign with 30 days notice, employers cannot unilaterally terminate employees (even on performance grounds). Instead, employers must provide employees with three written warnings each valid for 6 months. Alternatively, employment agreements, Company Regulations or Collective Labour Agreements may specify certain violations which entitle the employer to serve a first and final warning.

After the requisite warnings, the employer must obtain an order from the Industrial Relations Court before proceeding to termination. This can be a lengthy process of at least 6 months.

In 2012, the Constitutional Court held that the Employment Law provision contemplating employer initiated termination due to rationalisation must involve permanent closure of the employer. Previously, employers had used the rationalisation provision as a basis for downsizing or efficiency redundancies (without any closure).

Upon termination, permanent employees are entitled to receive a severance package, service pay and compensation calculated under the Employment Law. The package may amount to the equivalent of over 32 months salary for long-term employees.

A change in the status of the employer, whether by way of acquisition, merger or other change in ownership of the employer, entitles employees to terminate their employment and receive a severance package. This complicates corporate transactions. The only alternatives are for the employees to "voluntarily" resign or agree to be terminated and re-employed for an agreed consideration, although the amount to which they would be entitled under a termination severance package will inevitably inform any such consideration.

OUTSOURCING

Indonesian companies are permitted to outsource supporting, non-core work. The non-core work constitutes those activities without which the company would still be able to undertake its "production process". This is determined by reviewing an "activities flow chart" of the relevant business company association for the relevant industry.

A company may also outsource for external personnel to provide certain limited services, such as cleaning, security and catering or transport services for employees.

In both cases, any outsourcing company offering to provide such services through a labour hire arrangement requires an operational business licence and can only outsource Indonesian employees, not foreigners (given they can only be employed by one company).

Outsourcing, other than in accordance with these requirements, may create direct, permanent employment between the company procuring the services and the outsourced employees.

Footnotes

1For more information on PMA Companies and their directors and commissioners, refer to the article available here.

2For more information on these language requirements, refer to the article available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions