Indonesia’s Employment Laws Overhauled: Key Takeaways for Employers and Workers

On 31 October 2024, the Constitutional Court of Indonesia issued a landmark ruling under Decision No. 168/PUU-XXI/2023, which affects 21 articles of the Manpower Law. This ruling imposes new hiring restrictions, wage adjustments, employment contract limitations, and severance pay obligations, requiring businesses to reassess their HR policies.

Additionally, the Court has mandated a new Manpower Law by 1 November 2026, making it crucial for businesses to stay updated and compliant with Indonesia’s evolving employment landscape.

Key Takeaways

1. Employers must prioritize Indonesian workers before hiring expatriates.
2. PKWT contracts now have a maximum five-year limit, after which employees become permanent.
3. Sectoral minimum wages will now be determined at provincial and district/city levels.
4. Long leave benefits must continue if previously provided by companies.
5. Termination must follow strict bipartite negotiations, and severance pay obligations may increase.
6. Work permits (RPTKA) and stay permits (KITAS) for expatriates require careful compliance with Ministry of Manpower regulations.

Key Employment Law Changes Employers Must Adapt To

BPJS consists of two main programs:

• Stricter Rules for Hiring Expatriates
  • Before employing a foreign worker, businesses must prioritize hiring Indonesians with “similar qualifications.”
  • The Ministry of Manpower is now the sole authority overseeing expatriate employment.

This means that businesses hiring foreign talent must ensure work permits (RPTKA) and stay permits (KITAS) are properly managed.

• Definite Period Employment Agreements (PKWT) Now Have a Maximum Limit
  • Employment contracts under PKWT (Perjanjian Kerja Waktu Tertentu) are now capped at five years, including extensions.
  • After five years, employees automatically transition to permanent status (PKWTT).
  • All contracts must be in Indonesian and use Latin script to be legally valid.
• Wage Structure Aligned with Decent Living Standards
  • Employers must adjust salary structures to meet minimum living standards, factoring in food, housing, education, and healthcare costs.
  • Sectoral minimum wages will now be determined at provincial and district/city levels.
  • In cases of financial distress, the government may approve alternative wage formulas for businesses affected by economic crises or natural disasters.
• Mandatory Long Leave and Weekly Rest Days
  • Companies that previously provided long leave must continue offering it.
  • Employees working six-day weeks must receive one day off, while those working five-day weeks must get two days off.
• Termination and Severance Pay Now More Stringent
  • Termination must prioritize bipartite negotiations (consensus-based discussions). If no agreement is reached, the dispute must go through the industrial relations court.
  • Severance pay calculations must comply with legal minimums, potentially increasing financial obligations for employers.
  • In cases of bankruptcy or liquidation, employees’ rights now take precedence over most creditors.

How Permitindo Can Help Your Business Stay Compliant

Adapting to Indonesia’s evolving employment regulations requires strategic workforce planning, compliance with HR policies, and proper management of expatriate work permits.

• PEO Services & Payroll Services – We help adjust employment contracts, implement wage structures, and manage severance pay calculations to align with the new regulations.
• Immigration Advisory Services – Our team assists businesses in obtaining work permits (RPTKA) and stay permits (KITAS) for foreign employees, ensuring full compliance with the Ministry of Manpower’s stricter policies.

With Indonesia’s labor laws changing rapidly, staying ahead ensures smooth business operations and risk mitigation. Let Permitindo help you navigate these complexities with ease.

Conclusion

The Constitutional Court’s ruling has reshaped Indonesia’s employment landscape, affecting contract durations, wages, expatriate hiring, and severance pay. With a new Manpower Law expected by 2026, businesses must proactively comply with these new mandates.

By partnering with Permitindo, your company can adapt to these regulatory changes while securing the necessary work permits and HR compliance strategies to ensure continued success.