November 2019 Issue

A Guide to Indonesia’s Labour Law

The recent announcement of Indonesia’s new Cabinet (hailed as the “Onward Indonesia Cabinet”) will see more focus being placed on human development, job creation and boosting opportunities for the Small and Medium-sized enterprises.

This is an opportune time to review and better understand Indonesia’s Labour Law ahead of the possible changes in policies that will likely arise.

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1. Minimum Wage • Currently set as 3.9 million rupiah (USD260) for Jakarta

• Adjusted annually, based on a required formula

• Differs by regions

• Total number of regions in Indonesia: 34

2. Workers protected by Indonesia’s Labour Law

Fixed-Term

• Employmentagreemetrequiredin

writtenform.

• Otherwisetheywillautomaticallybe-

comeapermanentemployee.

Permanent

• Employmentagreementinwrittenform

orverbal

• Onlypermanentworkagreementsmay

includeaprobationaryperiod,which

cannotexceedthree(3)months.

• Probationaryworkersmustnotreceive

lessthantheminimumwage

Foreign

• Employmentagreemetrequiredin

writtenform.

• Otherwisetheywillautomaticallybecome

apermanentemployee.

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3. Minimum Employment Terms & Conditions

These should include :

• Name, address and line of business

• Name, gender, age and address of employee

• Occupation / type of job

• Place where employment (job) will be carried out

• Amount of wages and how wages will be paid

• Job requirements, including rights and obligations of employer and employee

• Commencement date of work agreement and period of effectiveness

• Place and date where work agreement is made

• Signatures of parties concerned in the work agreement

4. Daily / Hourly Rated Employees

(a) Overtime on ordinary workdays

• 1.5x the hourly pay for the first hour of overtime work

• 2x the hourly pay for each additional hour worked

(b) Where monthly wages comprise basic wages and fixed allowances, 100% of the monthly wage is included when calculating overtime wages.

(c) If monthly wages also include non-fixed allowances and the basic wage plus the fixed allowance is less than 75% of the total wage, the monthly wage used

to calculate overtime payments is 75% of total wages.

5. Overtime

Article 77 of the Labor Law regulates the amount of working hours. In general, an employee can have either:

(a) A work week of six working days, comprising

Seven hours per day and a maximum of 40 hours per week (six-day work week)

(b) A work week of five working days, comprising

Eight hours per day and a maximum of 40 hours per week (five-day work week)

(c) Any extra hours in a day/week are considered overtime hours. Overtime work can be performed by an employee for maximum three hours per day and 14

hours per week. This restriction is not applicable to overtime performed on public holidays or weekly rest days.

6. Overtime Pay

Employers are required to pay overtime based on these rates :

Based on 40 hours of regular work implemented in six (6) workdays Based on 40 hours of regular work implement-ed in five (5) workdays

OTonweeklyrestdayornationalholidaybutnot

ontheshortestworkingdayoftheweek

OTonweeklyrestdayornationalholidayandon

theshortestworkingdayoftheweek

HourofOTworkOTRate(xregularhourlywages)

HoursofOTworkOTRate(xregularhourlywages)

HoursofOTwork OTRate(xregularhourlywages)

1–7thhour 2x 1–5thhour 2x 1–8thhour 2x

8thhour 3x 6thhour 3x 9thhour 3x

9–10thhour 4x 7–8thhour 4x 10–11thhour 4x

7. Social Security (BPJS Ketenagekerjaan)

(a) All workers and their families (including spouses and up to three children below the age of 21 years who are not married and not working) are entitled to

social security.

(b) Under new regulations, it is mandatory for expatriates working in Indonesia for more than six (6) months to participate in both the health care and security

programs

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(c) Due to the lack of a comprehensive social security system, the BPJS Ketenagekerjaan represents the worker’s social security program and provides work

accidents protection, death insurance, old-age savings, healthcare and pension. This program is maintained by the designated, state-owned company BPJS

Ketenagekerjaan

8. Social Security Contribution Rates

Areas coveredAs a percentage of regular salaries/wages

Borne by employer(%) Borne by employee(%)

Workingaccidentprotection 0.24-1.74 -

Deathinsurance 0.3 -

Oldagesaving 3.7 2

Healthcare 4 1

Pension 2 1

• Calculation base is basic salary plus fixed allowance

• Maximum calculation baes is updated annual by BPJS regulation

9. Maternity and Family Leave

(a) Maternity Leave

• 90 days before birth

• 90 days after birth

• Can be further extended depending on the medical condition as certified by a Doctor

• Entitled to full salary (includes basic salary and allowances) and medical reimbursement

• Additional rights may be regulated in the employment agreement, company agreement or Collective Labour Agreement (CLA)

(b) Paternity Leave

• Two (2) days, excluding annual leave

• Other paternity rights apply

10. Termination of Employment

Indonesia does not recognise termination at will. Termination must be with cause and must be in accordance with the procedures under the Labour Law.

(a) Termination Notice

• No termination notice under Indonesia Law

• Companies must obtain approval from the IRC or if they have signed a Mutual Agreement, this must be registered with the Industrial Relations Court

(IRC).

(b) Gardening Leave

• Not recognized under Indonesia Law

• Similar to a notice period given by the company during the termination process, companies are still obliged to pay the employee’s salary.

(c) Termination of Employees

• Employees cannot be terminated unilaterally.

• Termination can only be done after approval is obtained by the Industrial Relations Court (IRC).

• The Employer and Employee may settle the dismissal by signing a Mutual Termination Agreement registered with the Industrial Relations Court (IRC),

failing which a lawsuit can be filed.

(d) Special Protection Against Dismissal

i. Indonesia Law prohibits dismissing employees for the following reasons :

- Employee is absent from work due to illness (as attested by a Doctor who has treated the Employee), provided the employee has not been absent for

from work for a period of twelve (12) months consecutively.

- Employee is absent from work to fulfil obligations required by the State in accordance with

- Employee is absent from work in practicing his/her religion

- Employee is getting married

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- Employee is absent due to pregnancy, the birth of a child, has suffered a miscarriage or breast-feeding

- Employee is a member of the Labour Union

- Employee reports any crimes committed by the employer / organization

- Discrimination related to the employee’s personal beliefs, race, gender, marital status, etc

- Employee is permanently disabled or ill as a result of a work accident, or ill because of an occupational disease where the recovery cannot be ascer-

tained in writing by a Doctor treating the employee.

ii. Employers may terminate employees for the following reasons :

- Violation of the Employment Agreement or Collective Labour Agreement (CLA)

- Employee has been detained by the Authorities and after six (6) months is still unable to return to work due to criminal proceedings

- Employee is ill for 12 consecutive months (as certified by a Doctor)

- Employee has been absent from work for five (5) days without notifying the Employer, and has been served notice twice

- Employee has reached the retirement age

- Demise of the employee

iii. In the event of business-related reasons, employers may terminate employees :

- Change of status, change of ownership, M&A, consolidation

- Insolvency

- Employer has suffered continuous losses of two consecutive years, as proven by its financial reports (audited by a Public Accountant)

- Permanent closure of business by the employer

11. Severance Pay and Compensation

The settlement and compensation for the termination of an employment relationship can be divided into four (4) types of compensation :

• Severance Pay

Paid by the employer to the employee as a result of the termination of employment

• Long-service Pay

Paid by the employer to the employee as a reward based on the length of service

• Compensation rights

Paid by the employer to the employee to compensate for annual leave which has not been taken yet, long leave, return travel expenses to the original point

of hire, medical facilities, housing facilities, etc

• Separation Pay

Voluntary award provided by the employer to the employee as compensation for the employees service to the employer.

Severance Pay Long-service Recognition Payment

Service Period<1year =1monthsalary>1year,but<2years =2monthsalary>2years,but<3years =3monthssalary>3years,but<4years =4monthssalary>4years,but<5years =5monthssalary>5years,but<6years =6monthssalary>6years,but<7years =7monthssalary>7years,but<8years =8monthssalary>8years =9monthssalary

Service Period>3years,but<6years =2monthssalary>3years,but<9years =3monthssalary>9years,but<12years =4monthssalary>12years,but<15years =5monthssalary>15years,but<18years =6monthssalary>18years,but<21years =7monthssalary>21years,but<24years =8monthssalary>24years =9monthssalary

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12. Useful Pointers

• The basic policy of Indonesia Labour Law is that the termination of an Employee should be prevented where possible.

• Before dismissing an Employee, it is important to hold “bipartite” negotiations between the Employer and Labour Union (or with the Employee if he/she is

not a member of a Labour Union.

• The Labour Union must be registered with the Manpower Department.

• Bipartite negotiations must be settled within 30 calendar days from the commencement of negotiation. Once a settlement consensus has been reached, a

Mutual Agreement is then drawn up and signed. This Mutual Agreement along with all relevant evidence must be registered by both parties with the Industrial

Relations Court.

• Therefore, ample care and consideration must be given prior to the termination / dismissal of any employee.

Effective 1 October 2019, BIPO’s award-winning HRMS platform (Payroll solution) has been certified compliant with the Malaysian Government’s Potongan

Caruman Bulanan or Monthly Tax Deduction (MTD) requirements.

As one of the approved suppliers by Malaysia’s Lembaga Hasil Dalam Negri Malaysia (Inland Revenue Board of Malaysia – IRBM), users of BIPO’s payroll

solutions are assured that they stay compliant with all local regulatory standards in Malaysia.

BIPO’s integrated HRMS platform also offers seamless connectivity to the Malaysian Social Security Organisation’s (SOCSO) portal, in addition to being com-

pliant with Employees Provident Fund (EPF) contributions and payments. Users can take advantage of the easy-to-use functions available on BIPO’s HRMS

platform to upload the relevant (txt) files to make the necessary contributions and payments.

Isn’t it about time that you started using BIPO’s award-winning, integrated HRMS platform to #MakeLifeEasier.

Malaysia | 1 October 2019

Celebrating the different cultures and heritage of our teams across Asia by commemorating Hari Batik Nasional Day (Batik Day) with team BIPO Indonesia

on 2 October

In 2009, Batik was recognised by UNESCO as a Masterpiece of Oral and Intangible Heritage of Humanity and has since been recognised as the National Fab-

ric of Indonesia. Indonesians are encouraged to wear Batik every Friday to celebrate and create awareness of this beautiful fabric that has its roots in the

country's traditional artwork.

At BIPO, embracing and celebrating the different traditions, cultures and heritage of our teams is just as important as our journey of helping industries digitize

and transform.

Indonesia | 2 October 2019

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Our global teams were in Ho Chi Minh City recently for our annual management

meeting and team retreat.

Two full-days of presentations and strategy meetings led by Michael Chen (Founder &

CEO) with lots of key insights and industry trends shared, including an update of the

much-anticipated Workio APP.

Developed over two years by our in-house R&D and Project teams, Workio’s easy-to-

use functions and innovative platform aims to help SMEs adopt digitized HR solutions

and seamlessly integrate these with their business. Workio fully embodies BIPO’s

vision to #MakeLifeEasier for businesses (and HR professionals) as they embark on

their digital transformation journey.

Also on-hand to share their vision for the region were our Managing Directors, Karen

Lee (SEA & Oceania) and Florence Mok (North Asia), who set the tone for Country

Managers from Singapore, China, India, Indonesia, Malaysia, Philippines, Taiwan,

Thailand to map out their strategy, unveil new initiatives and strategic partnerships

for 2020.

At BIPO, we’re huge advocates of using technology to digitize and streamline HR

processes. HR transformation done #theBIPOway also means that we empower our

teams with the right knowledge and tools to stay future-ready as we help industries

and HR professionals #transform.

Ho Chi Minh City, Vietnam | 16 – 20 October

Congrats to our team in Taiwan for putting together our first-ever HR seminar on 8

October.

Attended by HR professionals across various industries, our half-day session was

packed full insights. Topics in this specially curated session ranged from future HR

trends and challenges, winning the war for talent in the Digital Economy, using Cloud

to streamline performance and future-proof your business delivered by Team BIPO’s

Florence Mok, Adrian Wong and Joko Yu as well a segment on Digital Transformation

(delivered by our guest speaker, Todd Pong – Associate Director, Business Advisory &

Solution at Deloitte).

An engaging session that ended with a networking session where guests had the

opportunity to interact with fellow HR professionals and exchange ideas on the chal-

lenges ahead in a competitive and talent-short market.

The first of many more sessions to come – we look forward to sharing more content

on digitized HR solutions in the coming months!

Taiwan | 8 October 2019

Michael Chen (Founder & CEO) was invited to share his perspectives and insights on

collaborations between Singapore-China enterprises at the recent Singapore-China

Business Forum 2019.

Addressing a packed audience at the Shangri-La Hotel Singapore, BIPO was proud to

share the spotlight in a panel discussion with distinguished guests such as Ms. Jessie

Yu (Alibaba Cloud), Mr Mr. Jeffrey Tan (YHC Group) and Dr. Zhou Zhao Cheng (Haidilao

International Group).

With the aim of promoting business exchange between Singapore and China, this

highly sought-after (by invitation only) forum is organised annually by the Singapore

Chinese Chamber of Commerce & Industry.

Singapore | 30 October 2019

BIPO Awarded Digital HRTech Awards 2019 for Outstanding Institutions by HRTech

China

On October 18, 2019, HRTechChina Annual Conference was a success in Renaissance

Beijing Wangfujing Hotel, hosted by HRTech China. The Awarding Ceremony was held

during the Conference. BIPO was present at the Ceremony and was awarded Digital

HRTech Awards 2019 for Outstanding Institutions because of its Workio application

and HRMS System.

The Award spoke highly of the achievements BIPO has made regarding digital hu-

man resources technology. BIPO will continue its dedication of helping companies

rebuild their human resources system and achieve sustainable development through

its technology, products and professional services.

Mainland China | 18 October

With four honours this year, BIPO is once again a winner at the annual HRM Asia Readers’ Choice Awards 2019.

BIPO Wins Four Honours at HRM Asia Readers’ Choice Awards 2019

“Extremely proud to win these awards for a second straight year, our sincere thanks to HRM Asia. Above all, to the readers of HRM Asia, the HR community, our

fantastic clients and partners, thank you for your confidence in BIPO! These awards cement our belief and commitment in constantly innovating and enhancing

our suite of products, to deliver the best-in-class solutions to our customers. With an amazing team, we look forward to deepening our partnerships and to more

collaborations ahead”, said Michel Chen, Founder & CEO of BIPO.

Organised by HRM Asia magazine, Asia’s leading publication and web portal for HR professionals and key corporate decision-makers for over 15 years, HRM Asia

Readers’ Choice Awards recognise exceptional vendor organisations and best corporate service providers in Singapore. Winners of this annual award are chosen

through an online poll by HR professionals and readers of the HRM Asia magazine (70%), as well as a panel of independent expert judges (30%).

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BIPO is a leading one-stop human resources provider in Asia Pacific, focused on providing organisations with innovative ways to manage complex

end-to-end HR processes. Through our cloud and mobile-based Human Resources Management system as well as industry-leading solutions such

as Payroll Outsourcing, Attendance Automation, Business Intelligence, HR Consulting, Recruitment & Business Process Outsourcing and Flexible

Employee Management, we help companies transform their HR operations to and beyond their expectations, while achieving business goals rela-

ted to cost and profitability.

Founded in 2004, our APAC headquarters is in Singapore and R&D centre in Indonesia. We have offices in Australia, China, Hong Kong, India, Japan,

New Zealand, Philippines, Vietnam, Taiwan and Thailand with business links in over 10 countries and regions.

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