Changes to Manpower Law under Job Creation Law

November 5, 2020

On November 2, 2020, the President of the Republic of Indonesia enacted the approved Job Creation Bill (or publicly known as the Omnibus Law) which Bill was passed by the House of Representatives on October 5, 2020. The Job Creation Bill is enacted as Law No. 11 of 2020 dated November 2, 2020 on Job Creation (the “Job Creation Law”).

Under the Job Creation Law, certain provisions of Law No. 13 of 2003 dated March 25, 2003 on Manpower (the “Manpower Law”) are amended.

The amendments to the Manpower Law are found in Chapter 4 Article 81 of the Job Creation Law. The highlights of the amendments are as follows.

WORK TRAINING

A work training shall be organized and directed to provide, enhance, and develop work competence in order to improve capability, productivity, and welfare of employees. Previously, a work training may only be organized by work training institutions held by the Government and/or private sectors. The Job Creation Law stipulates that a work training now may be organized by in-house or within an employer.

A work training business is open for foreign investment with foreign capital ownership limitation up to 67%.

EMPLOYMENT OF EXPATRIATES

As was required under the Manpower Law, under the Job Creation Law an employer that wishes to employ an expatriate must have an approved Foreign Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing – an “RPTKA”). Under the Job Creation Law, an RPTKA is not required in the following cases: (i) for directors or commissioners with certain shares ownership or shareholders in accordance with applicable laws, (ii) for diplomats and consulate officials working at representatives of foreign countries, or (iii) for foreigners who are needed for the production activities that are halted due to an emergency, vocational, start-up companies, business visits, and performing research for a certain period.

Unlike the provision under the Manpower Law, employers who do not possess an RPTKA while employing an expatriate are not subject to criminal sanctions under the Job Creation Law. The Job Creation Law provides that employers who do not have an approved RPTKA would only be subject to administrative sanctions which will be set out in an implementing regulation. Further provisions on the allowed positions and period of employment of expatriates, as well as types of the administrative sanctions, will be stipulated in a Government Regulation.

FIXED-TERM EMPLOYMENT AGREEMENTS

The Job Creation Law no longer stipulates the maximum period of fixed-term employment agreements. But, the Job Creation Law still states that fixed-term employment agreements shall not be entered into for the work that is permanent in nature. So in our view, it is very unlikely that an employer may use a ‘perpetual’ fixed-term employment agreement given the ephemeral nature of a fixed-term employment agreement in the first place.

Previously, fixed-term employment agreements entered in a foreign language only and not in Roman alphabets would convert into indefinite-term employment agreements. This provision is not stated in the Job Creation Law.

The Job Creation Law introduces new provisions regarding compensation pay payable to fixed-term employees upon completion of the employment period or the completion of the work. The amount of such compensation pay is based on the completed year(s) of service. However, there is no change in the provision regarding the compensation entitlement for termination of fixed-term employment prior to the completion of employment period as stipulated in Article 62 of the Manpower Law.

Further provisions on fixed-term employment agreements and compensation pay for fixed-term employees will be stipulated in a Government Regulation.

SUBCONTRACTING AND OUTSOURCING

Subcontracting service (business to business) provisions under the Manpower Law are revoked. This revocation now allows companies to freely subcontract any work to any third party based on commercial terms agreed by the parties.

For outsourcing, the Job Creation Law is now silent on the types of work that may be outsourced to outsourcing companies. The outsourcing arrangement itself remains acknowledged. The Job Creation Law clarifies that the outsourcing company (and not the engaging company) is responsible and liable for the employment of the outsourced employees.

Also, the Job Creation Law requires an outsourcing company to ensure that an outsourced employee will continue to work in the same work if the outsourcing is granted to another outsourcing company. We expect that the Government will issue implementing regulation concerning outsourcing matters.

WORK HOURS

Previously, the Manpower Law provided that overtime work is allowed for a maximum of 3 hours per day and 14 hours per week. The Job Creation Law stipulates that overtime work may be performed for a maximum of 4 hours per day and 18 hours per week. While there is an increase of the overtime hours, the approval of the employees for any overtime is still required.

WAGES

Wages are determined based on time units and/or output units. This provision is not new as this is contained under Government Regulation No. 78 of 2015 dated October 23, 2015 on Wages. Article 88C of the Manpower Law provides that Governors must determine the provincial minimum wages and may also determine regency/city minimum wages subject to regional economic growth and inflation. The determination of a Governor on minimum wages shall taking into account the economy and manpower conditions based on data derived from the statistics agency. Note that micro and small businesses are exempt from the minimum wages requirement. We note that further detailed provisions on wages will be stipulated under a Government Regulation.

In addition, the amended Article 95 of the Manpower Law accommodates the previous Constitutional Court Decision against the Manpower Law regarding payment of wages during bankruptcy or liquidation of an employer. When a company is bankrupt or liquidated, the Job Creation Law provides that the payment of employee’s outstanding wages are prioritized over payment to other creditors, including secured creditors’ claims, claims of state’s rights, auction houses, and public institutions established by the Government. Meanwhile the payment of other employees’ rights are paid in advance against all creditors except secured creditors.

PAID LEAVE

Under the Job Creation Law, a long leave may be given by certain companies and it shall be governed under an employment agreement, a company regulation, or a collective work agreement.

Other provisions on paid leave regulated under the Manpower Law remain unchanged, including paid menstrual leave and maternity leave.

TERMINATION OF EMPLOYMENT AND TERMINATION BENEFITS

Consistent with the Manpower Law, the Job Creation Law does not recognize the concept of termination-at-will. Therefore, employers may not dismiss employees without cause. In the event of employment termination and the employee does not accept the termination, the amended Article 151 of the Manpower Law requires the parties in dispute to go through the dispute settlement procedures (i.e., the bipartite negotiation, the tripartite mediation, and the court proceeding at the Labor Court) as regulated under Law No. 2 of 2004 dated January 14, 2004 on Industrial Relation Dispute Settlements.

Under the Job Creation Law, there are no longer multipliers of the termination benefits arising from termination of employment under specific circumstances (e.g., in the event of efficiency measures, mergers, acquisitions, changes of ownership, consolidations, spin offs, death, retirement, or prolong illnesses). We understand that these changes appear to be the most controversies and objection from the labor workforce, since these entitlements in the event of employment termination are reduced.

The formula to calculate the amount of termination pay and service pay under the Job Creation Law remains the same with that of the Manpower Law. However, we note that the Job Creation Law omits one of the components of the compensation pay which was previously regulated under the Manpower Law, namely the ‘housing, medical, and health care allowance’ which was determined to be 15% of the total amount of the severance and the service pay.

Note that the Job Creation Law now regulates a significant protection for employees in the event of termination of employment, whereby the failure of an employer to pay termination benefits to an employee will result in criminal sanctions (i.e., imprisonment of 1 – 4 years and fines of Rp100 – 400 million).

NEW SOCIAL SECURITY PROGRAM DUE TO JOB LOSS

While there are no multipliers of severance pay and service pay like in the Manpower Law, the Job Creation Law introduces a new social security program called the job loss security/coverage. The job loss security/coverage will be organized by the Social Security Administrator Agency for Manpower (BPJS Ketenagakerjaan) and the Government. The program will provide benefits for employees whose employment is terminated in the form of cash (capped at six months’ wages), job training, as well as access to job market information. This additional security/coverage is subject to payment of a premium or contribution to BPJS Ketenagakerjaan. The Job Creation Law states that the Government shall be responsible for the premium or contribution for the job loss security/coverage.

Further provisions on the job loss coverage/security will be stipulated in a Government Regulation. So it remains to be seen how the job loss security/coverage will be implemented and paid to the employees whose employment is terminated.

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November 5, 2020