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Workplace
Workplace relations
General
A new labor law came into effect in March 2003 in the form
of Labor Law No. 13 of 2003. Additional laws and Presidential and Ministerial
Decrees have been passed to implement the new regime.
The Indonesian government is working closely with the
International Labor Organization (ILO) to resolve Indonesia’s labor problems.
The government is pushing for greater foreign investment to increase business
activities in Indonesia and consequently this may provide further employment
opportunities. According to the Representative Office of the ILO in Indonesia,
most of the provisions of the Labor Law have complied with the ILO’s
Conventions, including prohibition of discrimination in the workplace and
employing child labor.
Regional autonomy laws have also had a major impact on labor
relations. The standard minimum wage has been raised in each province on a more
frequent, almost annual basis. This has a significant impact on companies in
the import and export sectors, which rely on wage specific rates to maintain
international competitiveness.
Minimum rates of pay
Minimum rates of pay are decided by the Department of
Manpower and Transmigration on the basis of regional considerations. Therefore,
wages vary significantly according to industry and location within Indonesia.
Companies are free to compensate above the set minimum wage level. It is
commonplace for the employers and employees to negotiate individual and/or
collective labor agreements.
The Labor Law provides for a six-day week with a total of 40
hours. The Ministry of Manpower and Transmigration can permit, upon request, a
40-hour, five-day week and can also provide permits for overtime.
Statutory
contributions
There is no social security system in Indonesia. Therefore,
the employer is the prime provider of social welfare for employees in
Indonesia. Employees receive a number of fringe benefits that add to labor
costs significantly. Employees are paid a compulsory annual allowance
(Tunjangan Hari Raya or THR) at Christmas or Hari raya Lebaran holiday period.
Employers generally provide medical care for employees and their families and
may also subsidize employee housing. A cash allowance for meals, transportation
and work clothing is also a common practice.
Employers of all national, private, foreign and government
companies with a labor force in excess of 10 or with a monthly payroll of rp1
million or more must register their employees with Jaminan Sosial Tenaga Kerja
(Jamsostek), a state-owned company, which provides a Worker’s Social Security
Programme. Jamsostek manages compensatory payments in case of death and accident
to employees or surviving family members. Contributions to Jamsostek are made
by the employee and by the employer. They consist of accident insurance,
retirement, death insurance and medical care insurance. The latter may,
however, be taken out by the company with another insurance company. Foreign
employees are not required to be included under the Jamsostek programme.
Employers in various high-risk industries, including mining,
construction, fisheries and plantations are required to set up compensation
schemes for payments to employees or their families to cover employee injuries
incurred during the course of their duties.
The Safety Act requires the employer to maintain facilities
to ensure the health and safety of employees and specifically to prevent
industrial accidents and to provide protection against fires and defective
building structures.
Leave entitlements
Maternity leave with full pay is provided for female
employees only up to a three-month period which can be taken before or after
birth.
Employees are
entitled to a minimum leave period of 12 working days with full wages after 12
months’ continuous service. This increases to 20 days after six years’ service.
Whilst the Labor Law allows for forfeiture of the paid holiday entitlement if
it is not taken within six months of entitlement, it is not common for foreign
companies to enforce this forfeiture sanction.
Expatriate employees
In order for a PMA company to employ an expatriate, the
company must prepare an employee utilization plan (Rencana Penggunaan Tenaga
Kerja Asing or RPTKA) for submission to BKPM for validation. On the basis of
the validated BKPM work permit and letter of recommendation for the foreign
personnel, the regional office of the BKPM issues a work permit/license for the
employment of expatriates (Ijin Kerja Tenaga Asing or IKTA).
Termination of
employment
The Labor Law regulates the procedures for, and compensation
payable to, permanent employees of companies in Indonesia on termination of
their employment.
The categories of employment termination include:
- voluntary resignation of an employee
- termination of employment by an employee due to employer’s fault
- termination of employment due to an employee’s fault.
The law provides for three categories of compensation to
employees on termination of payment: service payments, severance payments and
“other” compensation. “Other” compensation will be paid if the employer has
provided any housing, medical or relocation benefits or if there are any
outstanding entitlements for unused annual leave or unused long service leave
during the employee’s term of employment.
The formal procedure for termination of the employment of an
employee starts with initial negotiation between the employer and employee or
union. If agreement is reached, it is not necessary for the Ministry of
Manpower and Transmigration and/or the Industrial Relations Court to get
involved. If agreement is not reached, the termination must be consented to by
the Ministry of Manpower, which consent may be appealed to the Industrial
Relations Court (formerly a system of dispute settlement tribunals). The new
Industrial Relations Court was established in January 2006. The new system aims
to reduce the costs of, and speed up, the former tribunal system. However, some
concerns have been expressed that the forum for industrial dispute resolution
will move from the control of government-appointed mediators to the judiciary.