Issue: November 2020

INDONESIA - Omnibus Law on Job Creation; General Overview on Employment Cluster

By: Cornel Juniarto, Hermawan Juniarto & Partners (Member of Deloitte Legal Network), Jakarta

Despite the continuing opposition and a series of rallies from labor unions and various groups against the long awaited Omnibus Law,  the President of Indonesia, Joko Widodo signed the Bill on Job Creation into Law No. 11 of 2020 on Job Creation, or publicly known as the Omnibus Law (“Omnibus Law”) on November 2, 2020. Omnibus Law amends 77 laws, and is aimed at improving the ease of doing business and attract investment in Indonesia. The Government believes that 90 percent of the provisions in the Omnibus Law are intentionally designed to stimulate private investment and business.

Omnibus Law covers 9 clusters: (1) business licensing; (2) investment ecosystem; (3) manpower; (4) micro, small and medium-sized enterprises and cooperatives; (5) research, innovation and ease of doing business; (6) taxation; (7) economic zones and land procurement; (8) government administration; and (9) government investment and facilitation to national strategic projects. The Omnibus Law still require a number of implementing regulations, and 3 months period is already set for the Government to issue around 34 Government Regulations following the enactment of the Omnibus Law. This article will describe only the employment cluster.

In light of the above, the Omnibus Law amends, deletes, and/or stipulates new provisions under various existing laws and regulations, including employment-related laws and regulations, namely (i) Law No. 13 of 2003 on Employment (Indonesian Employment Law - “IEL”), (ii) Law No. 40 of 2004 on the National Social Security System, (iii) Law No. 24 of 2011 on Social Security Provider (Badan Penyelenggara Jaminan Sosial), and (iv) Law No. 18 of 2017 on Protection of Indonesian Migrant Employees.

The Omnibus Law contains numerous changes from the abovementioned laws and regulations. Some changes are considered to be detrimental, whereas some changes are considered to be beneficial for the Indonesian workers. The key regulatory changes of the employment-related matters include the following:

A.     Utilization of Foreign Employee
The Omnibus Law reiterates that, in order to utilize a foreign employee, the employer is required to obtain Foreign Employee Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja asing – RPTKA”) which has been ratified by the Minister of Manpower. Such ratified RPTKA shall then serves as the working permit for the foreign employee.

Furthermore, the Omnibus Law expands the scope of exemptions on the RPTKA obtainment requirements. Based on the Omnibus Law, the following are exempted from obtaining the RPTKA: (i) members of Board of Directors or Board of Commissioners with shares ownership in the company or shareholders; (ii) diplomatic and consular officials at representative offices of foreign countries; (iii) foreign employee who works in types of production activities that have ceased due to an emergency situation, vocation, technology-based start-up, on business visits, and conducting research for a certain period of time.

B.      Employment Agreement for a Specified Period of Time (Perjanjian Kerja Waktu Tertentu – “PKWT”
The Omnibus Law has removed the provisions on the maximum period of PKWT. The Omnibus Law, however, maintains the restriction that a PKWT can only be applied to a work that is temporary in nature. In the event of expiration of PKWT and completion of certain work, the employer is now required to provide a compensation pay to the relevant employee, which shall be provided in accordance with the relevant employee’s years of service

C.      Outsourcing
The Omnibus Law has removed the provision, which stipulates that outsourcing may only be carried out for certain types of works. In this regard, it is noteworthy that the current implementing regulations related to outsourcing still stipulate the limitation on the type of works for outsourcing (i.e. contract of work and provision of labor). However, such implementing regulations may be further amended or revoked to reflect the provisions under the Omnibus Law.

D.     Working Time and Rest Period
The Omnibus Law has extended the permissible overtime period, which now allows the overtime to be performed for a maximum of 4 (four) hours per day and 18 (eighteen) hours per week. Moreover, the Omnibus Law has removed the provisions on the employer’s obligation to provide a long rest period to an employee. However, the employer may still be required to provide a long rest period to its employees in the event that such long rest period entitlement is stipulated in the relevant employment agreement, company regulation, or collective labor agreement.

E.      Wages
The Omnibus Law only recognizes provincial and regency/regional-based minimum wages. In this regard, Micro and Small Enterprises (Usaha Mikro dan Kecil) are now exempted from the minimum wages requirements. Wages for employees that are employed by Micro and Small Enterprises are determined based on the agreement between the employer and the respective employees.

F.       Employment Termination
The Omnibus Law has added new valid causes/reasons that can be used as a basis of employment termination, namely (a) spin-off; and (b) suspension of debt payment obligations. Furthermore, other causes/reasons that can be used as a basis of employment termination may be stipulated under an employment agreement, company regulation or collective labor agreement.

Another notable change is that the Omnibus Law has removed the formula for calculating the severance package and the compensation for housing and medical allowance from one of the components of compensation pay (uang penggantian hak).

G.     Social Security
Omnibus Law has added a new social security program, namely job loss security (jaminan kehilangan pekerjaan), the premium of which shall be borne by the Central Government. The benefits of job loss security include cash, access to job market information, and job training.

Public is currently waiting for the Indonesian Government to enact those implementing regulations, as they are expected to fill in the gaps in the Omnibus Law and provide more clarity on the provisions that are stipulated thereunder.