(16 October 2020) The Indonesian House of Representatives (DPR) recently passed the Omnibus Bill on Job Creation (the “Omnibus Bill”). The stated aim of the Omnibus Law is to bolster investment and create jobs by streamlining regulations and simplifying the licensing process to improve the ease of doing business in Indonesia.
The Omnibus Bill revises various provisions in cross-sectoral laws, including the labor-related Law No. 13 of 2003 on Labor (“Law 13/2003”), Law No. 40 of 2004 on the National Social Security System (“Law 40/2004”). Law No. 24 of 2011 on the Social Security Administrating Body (BPJS) (“Law 24/2011”) and Law No. 18 of 2017 on the Protection of Indonesian Migrant Workers (“Law 18/2017”).
The Omnibus Bill contains numerous potential changes, in particular to Law 13/2003. We highlight here some of the most significant changes to the above laws.
Continuing the Government’s reform of expatriate employment requirements introduced in 2018, the Omnibus Bill amends the relevant parts on expatriate employment in Law 13/2003, most notably the Expatriate Manpower Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or “RPTKA”), which serves as the work permit issued by the Central Government. An RPTKA is not required for directors or commissioners with certain share ownership, shareholders, diplomatic and consular staff at representative offices of foreign countries, or expatriate workers needed for production activities that have stopped due to an emergency, vocational activities, business visits, technological startups, or performing research for a set period of time.
A new Government Regulation will be issued to regulate the allowed positions and period of employment for expatriate manpower.
The biggest change to Law 13/2003 is the revocation of the maximum statutory period of a fixed-term employment agreement, which currently uses the “2-1-2 rule” (i.e. a maximum two years, extendable once for a maximum one year, and which can be renewed for a maximum two years after a “clean break” period of 30 days). The Omnibus Bill also provides that the period or completion of work should be determined in the relevant employment agreement. A new Government Regulation will be issued to regulate further provisions on fixed-term employment agreements based on the period or completion of work.
Completion of work is added as a reason to terminate an employment relationship, and the Omnibus Bill provides that compensation must now be paid to certain fixed-term employees upon the termination of their employment agreement, which will be regulated in a Government Regulation.
The Omnibus Bill revokes the articles on the outsourcing of service in Law 13/2003 and focuses on the outsourcing of labor, emphasizing the obligation of labor suppliers to be responsible for the protection of their employees.
Law 13/2003 stipulates that labor suppliers can be used only for supporting services or activities not directly related to the production process. The Omnibus Bill revokes this restriction on using labor suppliers to carry out core activities or activities directly related to the production process. Labor supplier companies must obtain a license from the Central Government and a new Government Regulation will be issued to regulate the licensing of labor suppliers and the protection of employees of labor supplier companies.
Termination of Employment
Among the most notable changes with respect to employment termination provisions in Law 13/2003 are the revocation of Articles 161-172, which basically provide the different severance package calculations for the various reasons of employment termination, and the revocation of the mandatory housing and medical allowance payment equal to 15% of the severance and/or service pay. It remains to be seen if implementing regulations will clarify whether payment of severance and/or service pay and compensation will be necessary in case of a voluntary resignation.
Similar to Law 13/2003, the Omnibus Bill provides reasons for termination as well as the list of severance and service pay components in accordance with the length of employment. However, the Omnibus Bill does not provide any formula for calculating termination benefits. Further provisions regarding the payment of termination benefits are to be provided in a Government Regulation that is to be issued.
Another notable change is that evidence of two years of losses in an audited financial report is no longer required in an employment termination due to efficiency purposes with or without closing the company.
The Omnibus Bill adds a crucial protection for employees in cases of termination, whereby the failure of an employer to pay termination benefits will result in criminal sanctions.
Social Security Benefits Due to Loss of Jobs and BPJS
The Omnibus Bill introduces a new type of social security benefit in Law 40/2004, i.e. loss of job security, which shall be administered by the Employment Social Security Administrator (BPJS Ketenagakerjaan) and the Central Government. The loss of job security shall be in the form of cash money, capped at the equivalent of six months’ wages, access to information on the labor market and job training. A Government Regulation will be issued to regulate this new social security benefit.
The Omnibus Bill also amends a few provisions in Law 24/2011 and adds the abovementioned loss of job security to the relevant articles.
The Omnibus Bill provides that six billion Rupiah in state funds will be used as the initial capital to administer the loss of job security program.
Protection of Indonesian Migrant workers
The Omnibus Bill moves the licensing authority for Indonesian migrant worker placement companies in Law 18/2017 from the Minister of Manpower to the Central Government. The Bill also provides that all branches of migrant worker placement companies must obtain a license issued by the relevant provincial government.
For more information, contact:
Stephen I. Warokka, Partner
Indrawan D. Yuriutomo, Associate
This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user’s own risk. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK. As of the date of this publication, we are not aware of any formal announcement from the Indonesian Government on the official final version of the Omnibus Bill. The contents of this publication may change subject to the issuance of the Omnibus Law and its various implementing regulations.