Employment Law in Indonesia

Based on the PP. No 35 Year 2021

• Full time Workers / Indefinite Contracts (PKWTT)
  • Employment agreement between workers/labourers and employers to maintain a permanent working relationship. Can have probation period with maximum 3 months.
• Contract Workers / Definite Contracts (PKWT)
  • Employment agreement between workers/labourers and employers to maintain a periodic time of working or for certain job. Not exceeding 5 years. Do not have a probation period.
• Contract Workers / Definite Contracts (PKWT) are only for:
  1. Jobs which are estimated to be completed within fixed period of time;
  2. Jobs that are seasonal in nature; or
  3. Jobs related to new products, new activities, or additional products that are still in trial or exploration period.

Religious Bonus / THR

Religious Holiday Allowance, hereinafter referred to as Religious THR (Tunjangan Hari Raya), is non-wage income that must be paid by Employers to Workers/Labourers or their families prior to Religious Holidays.

THR is paid in accordance with the Religious Holidays of each Worker/Labourer, unless otherwise stipulated in accordance with the agreement between the Employer and the Worker/Labourer as stated in the work agreement, company regulations or collective work agreement.

THR must be paid by the employer no later than 7 (seven) days before the Religious Holiday.

Employers who violate the regulations will be subject to administrative sanctions as regulated in the PP No 36 YR 2021 art 79 as below.

• Written warning
• Restriction on business activities
• Temporary cessation of production equipment
• Suspension of business

• Workers/Labourers who have worked 12 (twelve) months continuously or more, are given 1 (one) month’s wages
• Workers/Labourers who have a continuous working period of 1 (one) month but less than 12 (twelve) months, are given proportionately according to the working period by calculating:

*Period of working / 12 x 1 month salary

Overtime Pay and Salary Regulations

Overtime in Indonesia is regulated by law, with workers entitled to additional compensation for hours worked beyond the standard 40-hour workweek. The maximum overtime per day is 4 hours and 18 hours in one week.

Overtime pay is calculated by 1/173 x salary based on the labour law. The 173 is calculated from the average working hours in the 1 month.

• In 1 year, there are 52 weeks so in 1 month the average is 4,33 weeks (52 weeks / 12 months).
• In 1 week , there are 40 hours of working hours so the average of one month is 40 x 4,33 = 173 (rounding).

The government strictly enforces these regulations to prevent exploitation and ensure workers are fairly compensated for their extra efforts.

For example: Employee has 5 working days a week:

• Weekdays – 1.5x hourly rate of pay for the first hour and 2x hourly rate afterwards.
• Weekends or Public Holidays – 2x hourly rate for the first 8 hours, 3x for the next 1 hour and 4x for the next 3 hours.

Certain Categories are not entitled for overtime:

• Employees with responsibili­ties as thinkers, planners, executors and controllers of the company’s operations whose working hours cannot be limited. It is widely thought that employees with these responsibilities are those at or above the management level or professional employees.

Key Aspects of the Employment Act in Indonesia

1. Employment Contracts: Employment contracts in Indonesia must be provided in writing and include essential details such as job description, salary, probation period, and termination conditions. Contracts can be fixed-term, open-ended, or task-specific. Clear and comprehensive contracts help avoid disputes and ensure mutual understanding between employers and employees.
2. Working Hours and Overtime: The standard working hours in Indonesia are 40 hours per week, typically 8 hours per day over a 5-day workweek. Overtime must be compensated according to legal standards. Employers must keep accurate records of working hours to comply with labour laws.
3. Social Security: Employers and employees contribute to social security schemes covering pensions, medical insurance, and work-related injury insurance. Contributions and benefits are regulated by the BPJS Ketenagakerjaan (Employment Social Security).
4. Termination and Severance: Employers must follow legal procedures for terminating employees. Termination can be based on mutual agreement, employee misconduct, or economic reasons. Employers are required to provide:

• Notice Period: Generally, 30 days’ notice or payment in lieu of notice.
• Severance Pay: Calculated based on the employee’s length of service and last drawn salary.

5. Employee Benefits: In addition to statutory benefits, many employers offer additional perks such as health insurance, transportation allowances, and meal subsidies. These benefits help attract and retain top talent.

Compliance and Best Practices

Employers must ensure compliance with all aspects of the Employment Act to avoid disputes and potential lawsuits. Best practices include:

• Regular Audits: Conduct regular audits of employment practices to ensure compliance with current laws and regulations.
• Clear Policies: Establish clear policies and procedures for hiring, termination, and other employment matters.
• Employee Training: Provide training to HR personnel and managers on labour law compliance and best practices.

Dispute Resolution

Employment disputes in Indonesia can be resolved through:

• Mediation: An informal process to reach a mutually agreeable solution.
• Arbitration: A formal process where an arbitrator makes a binding decision.
• Legal Proceedings: Involves court intervention if mediation and arbitration fail.

Please note that all the information listed below are to be used as a general guideline. For more detailed accounts of Indonesia employment laws and regulations, please visit the official governmental websites.

Updated on: August 2025