Important Aspects of Job Creation Law related to Employment Sector


Employment sector is one of the most crucial sectors affected by the issuance of the Law No. 11 of 2020 concerning Job Creation (“Job Creation Law”). As we are aware, Job Creation Law amends several important provisions under Law No. 13 of 2003 on the Employment (“Employment Law”) leaving uncertainties on the employment practices among the business practitioners. The Government of Indonesia, however, responses such uncertainties by issuing implementing regulations related to the employment matters under the Government Regulations (“GR”).

This article discusses several provisions under the Employment Law that have been amended by the Job Creation Law as well as the brief explanation related to the implementing provisions stipulated under the GR. We focus on the several important aspects, namely (i) the Fixed-Term Employment Agreement, (ii) Outsourcing Works, (iii) Overtime, (iv) Salaries, (v) Termination of Employment, and (vi) Utilization of Foreign Workers.

Fixed-Term Employment Agreement

The provisions of Fixed-Term Employment Agreement (“PKWT”) is further stipulated under the GR No. 35 of 2021 concerning Fixed-Term Employment Agreement, Outsourcing, Working Hours, Rest Period, and Termination of Employment (“GR No. 35/2021”). The changes related to the PKWT, among others, are the period of PKWT and the compensation granted during the expiry of the PKWT

Period of PKWT

Job Creation Law removes the provision of period of PKWT under the previous Employment Law. PKWT is formerly made for the maximum period of 2 years and may be extended for another 1 year. The renewal of PKWT is also permitted for 2 years period, provided that such renewal has been exceeded 30 days grace period.

Under GR No. 35/2021, the term-basis PKWT is made for the maximum period of 5 years. It means that if the PKWT is going to be extended, the original period of PKWT as well as its extension shall not exceed 5 years.

Strictly speaking, this amendment does not create major changes in the common practice of PKWT since the previous provision allowed the PKWT to be made for 5 years (ie. 2 years of the original PKWT period + 1 year of extension + 2 years of renewal period). What is missing is only the provision of 30 days of grace period prior to the renewal period of PKWT.


Job Creation Law obliges the employer to grant a compensation to the worker who has an employment relationship based on PKWT. It is granted for the worker who serves continuously for 1 month and it is granted on the expiry of the PKWT. GR No. 35/2021 also illustrates that if the PKWT period is extended, then the compensation is granted on (i) the expiry of the original PKWT period, and (ii) the expiry of the PKWT extension period. There is also a provision stipulating that foreign worker is not entitled to receive such compensation.

The compensation is granted in the amount of a monthly salary if the worker has worked for 12 months. For the employee who works (i) more than 1 month but less than 12 months, or (ii) more than 12 months, the compensation is calculated proportionally by taking into account the working period of the said employee, using the following formula: [(working period / 12) x monthly salary].


With respect to the outsourcing activities, Job Creation Law removes the provision of outsourcing activity under the Employment Law which is distinguished into (i) the assignment of part of the works through the outsourcing agreement, and (ii) the provision of worker services agreement. Job Creation Law introduces the terminology of Outsourcing Company (Perusahaan Alih Daya) which is defined as an incorporated business entity which fulfills the requirements to perform a certain works through an agreement with the company outsourcing the works.

The Outsourcing Company must be established as a legal entity and obtain the Business License issued by the Central Government. With regards to the employment relationship, the Outsourcing Company must have a PKWT or permanent employment agreement made in writing as the basis of the employment relationship with its workers. Furthermore, the Outsourcing Company must be responsible with protection of the worker’s rights, namely the salary, welfare, employment terms, and arising dispute. Such protections must be stipulated under the employment agreement, Company’s regulation, or the collective labor agreement.


Job Creation Law amends the provision on the maximum period of overtime into 4 hours in a day and 18 hours in a week. Previously Employment Law governed that the overtime shall only be conducted for the maximum of 3 hours a day and 14 hours a week.

GR No. 35/2021 provides an exemption for the employer in related to its obligation to pay the overtime salary for the employee who serves in a certain position as the thinker, planner, implementer, and the controller of the company with an unlimited working time and receives higher salary. Such position must be governed specifically under the employment agreement, company’s regulation, or collective labor agreement. If the employer fails to do so, as the consequence, the said exemption is not applied and the employer must pay the overtime salary for the employees who serve in such certain position.


There are several provisions under the Employment Law regarding the salary payment that are amended by the Job Creation Law. Firstly, Job Creation Law provides that if the agreed salary amount is below the minimum wage provision, the said agreement will be null and void. There is also criminal sanction imposed for the employer who pays the salary below the minimum wage provision in the form of 1 year imprisonment and penalty not more than 400 million Rupiah. The similar sanction could also be imposed for the employer who does not pay the salary to the workers in accordance with the agreement.

Job Creation Law also removes the provision regarding the expiry period for the salary claim. Previously, Employment Law was determined that the claim for the salary payment is expired after exceeding 2 years since the right to receive salary is risen. This provision has been previously declared as does not have a binding power by the Constitutional Court Decision No. 100/PUU-X/2012.

Job Creation Law also stipulates that micro and small business are exempted from the obligation to pay the salary in accordance with the minimum wage provision. This exemption is further governed under the GR No. 36 of 2021 concerning Salary Payment ("GR No. 36/2021”).

Under GR No. 36/2021, the salary payment by the micro and small businesses is determined based on the agreement between the employer and the worker, provided that the total amount of the agreed salary (i) is not below 50% of the average consumption of the public in the provincial level, and (ii) is not less than 25% above the provincial poverty line. The average public consumption and the provincial poverty line are based on the data provided by the Central Statistical Bureau. Furthermore, GR No. 36/2021 stipulates that the micro and small business that are exempted from the obligation to pay the minimum salary shall (i) utilize the traditional resources, and/or (ii) not operate in advanced technology business and capital-intensive (padat modal).

Termination of Employment

The provision on the mechanism of employment termination is amended by the Job Creation Law. If the termination of employment is inevitable, the employer must submit the notification to the worker stipulating the purpose and reason of the termination. The worker who refuses the termination shall convey the letter of refusal within 7 days after the receipt of the notification letter. Disagreement on the employment termination must be settled initially by the bipartite negotiation. If the bipartite negotiation does not achieve mutual consent between the disputing parties, then the termination of employment settlement shall be conducted through the industrial dispute settlement mechanism in accordance with the prevailing regulations.

GR No. 35/2021 stipulates that the employer must notify such termination to the Ministry of Manpower and/or the Manpower Agency Office, if the worker does not refuse the termination.

Below are the flowchart of the mechanism of employment termination:Table 1

GR No. 35/2021 provides an exhaustive list on the reasons of termination. The reasons of termination determine the calculation of the worker’s entitlements. The table below describes the reasons of terminations as well as the calculation of the worker’s entitlement:

Kev Table 01

The worker’s entitlement elements are not changed significantly. Only the components of the compensation pay for entitlement are changed. It consists of (i) annual leave that has not been taken and has not been expired, (ii) cost for transporting the worker to the point of hire, and (iii) any other matters which are stipulated under the employment agreement, company’s regulation, or the collective labor agreement. Job creation law removes the cost for housing and medical reimbursement as the component of the compensation pay for entitlement.As the above table, we can see the multiplier for the payment of the severance pay is ranged from 0.5x, 0.75x, 1x, or 2x. Meanwhile, the previous provision under the Employment Law determined the said multiplier is either 1x or 2x.

Utilization of Foreign Workers

Following the enactment of the Job Creation Law, The Government of Indonesia also issued a new GR concerning the use of foreign workers under GR No. 34/2021 (“GR No. 34/2021”) which revokes the Presidential Regulation No. 20 of 2018 (“PR No. 20/2018”). Most of the provisions stipulated under GR No. 34/2021 reflects the revoked PR No. 20/2018. There are some changes, however, which we further explain below, namely with regards to (i) the employer of the foreign workers, (ii) exclusion of some obligations, and (iii) foreign workers in start-ups and vocational.

Employer of Foreign Workers

The provision of the employer that is able to employ foreign worker is the same as the provision under PR No. 20/2018. However, since Job Creation Law introduces the concept of individual-owned limited liability company for a micro businesses, GR No. 34/2021 emphasizes that such limited liability company is prohibited to employ foreign worker.

Exclusion of Some Obligations

The obligations of the foreign workers employer, namely: (i) appoints a Indonesian worker as the foreign worker counterpart for the technological transfer and skills transfer; (ii) conducts a training for the foreign worker counterpart in accordance with the position served by the foreign worker; (iii) transporting the foreign worker to his country of origin after the expiry of the employment agreement; and (iv) facilitates the Indonesian language education and training to the foreign worker; these obligations are exempted for the foreign worker who sits as (a) the director or commissioner, (b) chief of foreign representative office, (c) governing board, executive board, and supervisory board of the foundation; and (d) foreign worker who is employed for the temporary works. Under the revoked PR No. 20/2018, the above-mentioned obligations are only excluded for the foreign worker who serves as the director or commissioner.

Foreign Workers in Start-Ups and Vocational

GR No. 34/2021 exempts foreign workers employer from the obligation to obtain RPTKA legalization for the foreign worker in a vocational or technology-based start-up. In order to employ the foreign workers in vocational and start up, the employer must submit the data of the workers online to the Minister of Manpower. Subsequently, the Minister of Manpower will transmit the data to the Minister of Law and Human Right as the recommendation to obtain the visa and resident permit.

Foreign workers in start-up and vocational are only permitted to work for the maximum period of 3 months. If the foreign workers exceed such work period, the employer must obtain the RPTKA legalization.

Kevin Samuel Fridolin Manogari

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