Abundant workforce and laborer-favorable labor laws Religious consideration Use of Indonesian language

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3 INDEX 1. Points to consider regarding labor management in Indonesia, characteristics of labor practice in Indonesia, and the status of recent labor policy Regulations Abundant workforce and laborer-favorable labor laws Religious consideration Use of Indonesian language 4 2. Overview of basic labor laws of Indonesia Legal system regarding labor issues Labor law Other laws Duty to prepare enterprise rules and regulations in Indonesia, and contents of such employment handbook Duty to prepare enterprise rules and regulations Contents of enterprise rules and regulations Dissemination Changing enterprise rules and regulations Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia Definition of wage Manner of payment Minimum wages Retirement allowance Bonus and religious festivity allowance General Holidays Method of and points to consider regarding ordinary dismissal, punitive dismissal, and dismissal on grounds of reorganization in Indonesia Dismissal Ordinary dismissal Punitive dismissal Dismissal on grounds of reorganization Dismissal allowance Types of foreigner passes and acquisition requirements General information Visas regarding immigration Working permit Points to note 31 About this document 32 About the information compiled in this document 32

4 Contact information regarding this document 32

5 1. Points to consider regarding labor management in Indonesia, characteristics of labor practice in Indonesia, and the status of recent labor policy 1-1. Regulations Indonesia is a country consisting of many islands including Java and Sumatra. This geographical characteristics make its citizens diversified in religion, culture, and language. Due to this characteristic, Indonesia has a pluralistic legal system, encompassing community based customary law called Hukum-Adut, Islamic law in varying degrees in different provinces, and civil law transplanted during Dutch colonial rule. Indonesia uses a civil law system similar to Japan. Indonesia s legal system is structured such that the 1945 Constitution is sovereign. Various individual laws including, law (Undang-Undang), government regulation in lieu of law (Peraturan Pemerintah Pengganti Undang-Undang), government regulation (Peraturan Pemerintah), presidential regulation (Peraturan Presiden), other regulations (including regional regulation (Peraturan Daerah)) are subordinate to the 1945 Constitution. However, since some inconsistency exists within these legal orders which remain unremedied, it is sometimes necessary to cooperate with local lawyers to be kept abreast of updates to the laws and legal system of Indonesia Abundant workforce and laborer-favorable labor laws Indonesia has the world s fourth largest population (250 million) and has been getting attention for having a potential labor force that is estimated at more than half of its population. The size of the working population is increasing along with the economic upturn, with the national economy realizing a GDP growth rate of 5% for past 5 years. Although it is estimated that the size of the labor force is increasing, in terms of labor laws, there are some considerations for business enterprises that are launching a new business in Indonesia. For example, an employer needs to get permission from the institute for the settlement of industrial relations disputes to fire its employees. In addition, in some cases, an employer is obligated to pay dismissal allowance even if it is a punitive dismissal. Moreover, in Indonesia, employees tend to demand their own rights and labor unions play an active role in defending workers rights. Therefore, in some industrial areas, employers are advised to put in place measures to weather strikes and demonstrations. An employer that has above a certain number of employees is also advised to establish a labor-management council consisting of representatives of both the employer and the employees to better reflect the opinions of employees. It is also necessary for an employer to have up-to-date information on the retirement age, as the government is planning to gradually increase said retirement age. According to government regulation No.45 of 2015, although retirement age is 57 in 1. Points to consider regarding labor management in Indonesia, characteristics of labor practice in Indonesia, and the status of recent labor policy 3

6 2017, it will be increased to 57 in 2019, and 58 in 2022 respectively; this upwards progression is scheduled to continue until the retirement age reaches 65 in Religious consideration Indonesia is the world s largest Islamic country and Indonesian labor law demands that an employer makes special considerations for prayers and show respect to employees religious values (Act of the Republic of Indonesia Number 13 Year 2003 Concerning Manpower (hereinafter called Labor Law ), Article 86, Paragraph 1). An employer is obligated to provide adequate opportunity for employees to pray and worship God (Labor Law, Article 80), as well as to pay wages if employees have to be absent from work due to their mandated participation in religious rituals (Labor Law, Article 93, Paragraph 2, Item e). In addition, an employer is prohibited from terminating its employees on the grounds that they are absent from work as a result of practicing what is required by their religion (Labor Law, Article 153, Paragraph 1, Item c), or for the reason that they are of a different belief and religion (Labor Law, Article 153, Paragraph 1, Item i). Another characteristic of Indonesian labor law regarding religion is that an employer is obligated to pay a religious festivity allowance (see also 4-5, bonus and religious festivity allowance), which does not exist in Malaysia and Singapore Use of Indonesian language In Indonesia, the use of the Indonesian language is obligatory by law when signing a contract1. Using the Indonesian language is mandatory, even when making a collective work agreement, an individual fixed-term contract and an enterprise s rules and regulations (Labor Law, Article 57, Paragraph 1, Article 116, Paragraph 3). This rule has been instituted both for the government to make administrative procedures smooth and for employees to better understand the contents of contracts so as to protect the worker s rights. Besides, the Labor Law stipulates that if a work agreement is written in both the Indonesian language and a foreign language, and differences in interpretation between the Indonesian text and the one in the foreign language subsequently arise, then the Indonesian version of the agreement shall be regarded as the authoritative one (Labor Law, Article 57, Paragraph 3, Article 116, Paragraph 3, 4). Therefore, an employer is required to draft most legal documents in the Indonesian language. 1.Act no.24 of 2009 National Flag, Language, Coat of Arms and National Anthem 1. Points to consider regarding labor management in Indonesia, characteristics of labor practice in Indonesia, and the status of recent labor policy 4

7 2. Overview of basic labor laws of Indonesia 2-1. Legal system regarding labor issues The Indonesian Labor Law and the Indonesian Civil Code both define what is a work agreement. The Indonesian Civil Code stipulates that a work agreement is an agreement in which one party, the laborer, agrees to render his services to the other party, the employer, for a specific term in return for remuneration (Indonesian Civil Code, Article 1601, Item a). The Civil Code also stipulates the obligations of employers and employees, how contracts are terminated, and the general provisions of a work agreement. Labor issues are under the control of Department of Manpower and Transmigration which issues cabinet orders to complement the Labor Law Labor law The Labor Law is the fundamental code relating to labor issues and it stipulates minimum standards as to the conditions of work. (1) Applicable Scope A worker/laborer is every person who works for a wage or other forms of remuneration (Labor Law, Article 1, Paragraph 3). Due to this broad definition, under the Labor Law, a wide variety of people fall within the definition of worker/ laborer, including migrant workers and corporate board members. The Labor Law defines an employer as individuals, entrepreneurs, legal entities, or other bodies that employ manpower by paying wages or other forms of remuneration (Labor Law, Article 1, Paragraph 4). (2) Work agreement An individual work agreement is defined as an agreement made between a worker/laborer and an entrepreneur or an employer, which specifies work requirements, rights and obligations of both parties (Labor Law, Article 1, Paragraph 14). Any individual work agreement shall not violate what is stipulated in the collective work agreement (Labor Law, Article 127, Paragraph 1), and any above-mentioned violation shall be null and void by law (Labor Law, Article 127, Paragraph 2). 2. Overview of basic labor laws of Indonesia 5

8 When an employer hires a worker/laborer, there are 3 types of agreement as follows: 1) work agreement without a fixed term, 2) fixed-term work agreement, and 3) daily employment contract. It is assumed that, in most cases, an employer needs to hire its workforce directly, because the Labor Law prohibits an employer from utilizing workers from enterprises that provide workers/laborers services [a contractor] for work in its core business activities (Labor Law Article 66). If an employer contravenes this law, the employment relationship between the worker/laborer vis-à-vis the contractor shall cease and instead change into that of an employment relationship between the worker/laborer and the enterprise that commissioned the contractor to carry out the work (Labor Law Article 65, Paragraph 8, 9, Article 66, Paragraph 4). A work agreement shall be made in 2 equally legally binding copies, 1 copy of which shall be kept by the entrepreneur and the other by the worker/laborer (Labor Law Article 54, Paragraph 2). A work agreement cannot be withdrawn and/ or changed unless both sides in the agreement agree to do so (Labor Law, Article 55). A written work agreement must include the following items (Labor Law Article 54, Paragraph 1); a. The name, address and line of business b. The name, sex, age and address of the worker/laborer c. The occupation or the type of job d. The place, where the job is to be carried out e. The amount of wages and how the wages shall be paid f. Job requirements stating the rights and obligations of both the entrepreneur and the worker/laborer g. The date the work agreement commences and the period during which it is effective h. The place and the date of where and when the work agreement is made i. The signatures of the parties involved in the work agreement A work agreement for a specified period of time must be made in writing and be written in the Indonesian language (Labor Law, Article 57, Paragraph 1). If a work agreement for a specified period of time contravenes this provision,, said work agreement shall be regarded as a work agreement for an unspecified period of time (Labor Law, Article 57, Paragraph 2). It also should be noted that if a work agreement is written in both the Indonesian language and a foreign language and differences in interpretation between the Indonesian text and the one in the foreign language subsequently arise, then the Indonesian version of the agreement shall be regarded as the authoritative one (Labor Law, Article 57, Paragraph 3). 2. Overview of basic labor laws of Indonesia 6

9 Types of direct employment are as follows; (i) A work agreement for an unspecified period of time Those laborers who made a work agreement for an unspecified period of time are allowed to work in any part of the employer s business. Work agreements can be made either orally or in writing (Labor Law, Article 51, Paragraph 1)1. In addition, an employer is obligated to provide severance pay for those who made a work agreement for an unspecified period of time (Labor Law, Article 156). (ii) A work agreement for a specified period of time An employer shall register such an agreement at the department of Manpower and Transmigration within 7 days after the individual work agreement has been made (Minister of Manpower and Transmigration Decree No.100 of 2004). Unless any reservations exist either in the collective agreement, the individual work agreement or the enterprise rules and regulations, an employer does not have to provide severance pay. The agreement may have a maximum term of no longer than 2 years (Labor Law, Article 59, Paragraph 4). Entrepreneurs who intend to extend work agreements for a specified period of time shall notify the laborers contracted under the said work agreements of the intention to do so in writing no later than 7 days prior to the expiration of the said work agreements and may only extend the work agreement for no more than 1 year (Labor Law, Article 59, Paragraph 5). The renewal of a work agreement for a specified period of time may only be made after a period of 30 days has passed since the work agreement for a specified period of time comes to an end; the renewal of a work agreement for a specified period of time may only be made once and for a period of no longer than 2 years (Labor Law, Article 59, Paragraph 6). Any work agreement for a specified period of time that does not fulfill the above-mentioned requirements shall become a work agreement for an unspecified period of time (Labor Law, Article 59, Paragraph 7). 1.If a work agreement for an unspecified period of time is made orally, the entrepreneur is under an obligation to issue a letter of appointment (surat pengangkatan) for the worker/ laborer. The letter should include a) the name and address of the worker/ laborer, b) the date the worker starts to work, c) the type of job or work that the worker is supposed to do, and d) the amount of wage that the worker is entitled to (Labor law, Article 63). 2. Overview of basic labor laws of Indonesia 7

10 Laborers who made a work agreement for a specified period of time are only allowed to work under the following conditions (Labor Law Article 59): a. Work to be performed and completed at one go or work which is temporary by nature; b. Work whose completion is estimated at a period of time which is not too long and no longer than 3 years; c. Seasonal work; or d. Work that is related to a new product, a new activity or an additional product that is still in the experimental stage or try-out phase. It is also possible to make work agreement for a specified period of time in the form of a daily contract. In the case of a daily contract, an employer cannot permit workers to work more than 21 days a month. If the employer makes its workers work for more than 21 days a month for 3 consecutive months, the work agreement for a specified period of time shall become a work agreement for an unspecified period of time (Minister of Manpower and Transmigration Decree No.100 of 2004). In the case of a daily employment contract, it is mandatory to submit a written labor agreement and to register said agreement at the Ministry of Manpower and Transmigration within 7 business days from the start of the contract (Minister of Manpower and Transmigration Decree No.100 of 2004). In a work contract, it is necessary to specify 1) the name and the location of the enterprise, 2) the name and address of the worker, 3) the content of the work, and 4) the amount of wages and remuneration (Minister of Manpower and Transmigration Decree No.100 of 2004). In the case of daily employment contracts, instead of individual labor contracts, employers may instead prepare a list of applicable workers (Minister of Manpower and Transmigration Decree No.100 of 2004). In cases where such a worker list is compiled, the employer is required to submit said worker list to the Department of Manpower and Transmigration within 7 business days. (3) Probation Period A work agreement for an unspecified period of time may only require a probation period for no longer than 3 months (Labor Law, Article 60). In case that the contract is made orally, it is necessary to state that a probation period is set in the work agreement. If the contract is silent in relation to a probation period, the probationary period will be deemed non-existent (Interpretation of Labor Law, Article 60). Terminating workers/laborers during a probation period does not require a decision made by the institute for the settlement of industrial relation disputes (Labor Law, Article 154, Paragraph 1, Item a). On the other hand, a work agreement for a specified period of time cannot stipulate a probation period and if a work agreement stipulates a probation period, it shall then be declared null and void by law (Labor Law, Article 58). (4) Working hours The working hours shall be arranged as followings: 7 hours a day for a total of 40 hours a week, for 6 workdays in a week; or 8 hours a day for a total of 40 hours a week for 5 workdays in a week (Labor Law, Article 77, Paragraph 2). Entrepreneurs are under an obligation to allow their laborers to take a breaks and leave. The period of rest or a break between working hours shall be no shorter than half an hour after working for 4 consecutive hours and this period of rest shall not be included in the calculation of the Employee s working hours (Labor Law, Article 79, Paragraph 2, Item a). 2. Overview of basic labor laws of Indonesia 8

11 (5) Collective work agreement A collective work agreement is an agreement resulting from negotiations between an employer and a labor union2. Provisions in any individual work agreement shall not run contrary to the collective work agreement and should there be any stipulations under the individual work agreement that runs contrary to the collective work agreement, then those particular provisions in the individual work agreement shall be declared null and void by law (Labor Law, Article 127, Paragraph 1, 2). As a result, what shall then apply is what is stipulated in the collective work agreement (Labor Law, Article 79, Paragraph 1, 2). If an employment/work agreement does not contain the rules and regulations that are stipulated in the collective work agreement, then the stipulations specified in the collective work agreement shall apply (Labor Law, Article 128). In each enterprise, only 1 collective work agreement can be made that shall apply to all laborers working in the enterprise in question (Labor Law, Article 118)3. A collective work agreement that has been signed by those making the agreement must be submitted to the prefecture/city (if the employer is located in the same prefecture or city), the state (if the employer is located in the different prefecture or city) and the Director General of Industrial Relations and Labor Social Security Development (if the employer is located in the different state). After being reviewed by the person in charge, the collective work agreement shall be signed and registered at the department of Manpower and Transmigration (Labor law, Article 132, Paragraph 1, 2). A collective work agreement shall at least contain the following (Labor Law, Article 124, Paragraph 1): a. The rights and obligations of the employer b. The rights and obligations of the trade/labor union and the worker/laborer c. The period during which and the date starting from which the collective work agreement takes effect d. The signatures of those involved in making the collective work agreement The entrepreneur and the trade/labor union are under an obligation to inform all the enterprise s workers/laborers of the contents of the collective work agreement or any changes made to it (Labor Law, Article 126, Paragraph 2). The entrepreneur must print and distribute the text of the collective work agreement to each worker/laborer at the enterprise s own expense (Labor Law, Article 126, Paragraph 3). A collective work agreement shall remain in force for no longer than 2 years from commencement and the time which the collective work agreement remains in force may be extended for no longer than 1 year based on a written agreement between the entrepreneur and the trade/labor union(s) (Labor Law, Article 123, Paragraph 1, 2). 2.A labor union is defined as an organization composed of a majority (6 out of 10) of all workers/laborers or an organization that received a majority of votes of all workers (Labor law, Article 119, 120). 3.If there is only one trade/labor union in an enterprise, the only trade/labor union in the enterprise shall have the right to represent workers/laborers in negotiating a collective work agreement with the entrepreneur of the enterprise provided that more than 50% of the total number of workers/laborers who work in the enterprise are members of the trade/labor union in question (Labor Law, Article 119, Paragraph 1). In case there is only one trade/labor union in an enterprise but the number of its members does not exceed 50% of the total workforce in the enterprise, the trade/labor union in question may represent workers/laborers provided that a vote is held on this issue that confirms that the trade/labor union has the support of more than 50% of the total number of workers in the enterprise (Labor law, Article 119. Paragraph 2). If the support of more than 50% of the enterprise s workforce is not obtained, the trade/labor union concerned may once again put forward its request to negotiate a collective work agreement with the entrepreneur after a period of six (6) months is passed subsequent to the initial vote (Labor law, Article 119, Paragraph 3). 2. Overview of basic labor laws of Indonesia 9

12 2-3. Other laws (1) Laws related to labor unions Indonesia is a signatory of and has ratified the Freedom of Association and Protection of the Right to Organize Convention (ILO convention No. 87) and the Right to Organize and Collective Bargaining Convention (ILO convention No. 98). Indonesia thus pays careful attention to labor-management relations compared to its neighboring countries. The law in relation to labor unions is as follows. (i) Act No.21 of 2000 Concerning Trade Union/Labor Union The law stipulates that a properly registered Trade Union/Labor Union has the the right to a) Negotiate a collective labor agreement with the management, b) Represent workers/laborers in industrial disputes, c) Represent workers/laborers in manpower institutions, d) Establish an institution or carry out activities relating to efforts to improve workers/ laborers welfare, and e) Carry out other manpower or employment-related activities that do not run contrary to national statutory rules and regulations currently in force (Article 25). (ii) Act No. 2 of 2004 Concerning Industrial Relations Disputes Settlement The entrepreneur and the worker/laborer or the trade/ labor union are under an obligation to make efforts to settle any industrial relations dispute they have through deliberations aimed at reaching a consensus, but if a consensus is not reached after the deliberations, then the entrepreneur and the worker/ laborer or the trade/ labor union shall have the industrial relations dispute settled through procedures for the settlement of industrial relations disputes that are determined and specified by legislation (Labor Law, Article 136, Paragraph 1, 2). Act No. 2 of 2004 Concerning Industrial Relations Disputes Settlement (Industrial Relations Disputes Settlement Law) applies to the issues relating to worker s rights, benefits (such as changes to the work contract), or termination of employment between an employer and laborers including labor unions, as well as to disputes within labor unions, which stipulates procedures for methods of dispute settlement such as bilateral negotiations and arbitration. It should be noted that the organization in charge differs depending on the method of dispute resolution, such as mediators, arbitrators, the institute for the settlement of industrial relations disputes and the Supreme Court. (2) Social security Act No.24 of 2011 Social Security Organizing Agencies Indonesia had a social security system called Jaminan Sosial Tenaga Karja (JAMSOSTEK), but, since 2014, this was replaced by a new system called Badan Penyelenggara Jaminan Sosial (BPJS) which was created by new legislation 2. Overview of basic labor laws of Indonesia 10

13 introduced in Under the new legislation, foreign laborers who are working in Indonesia for more than 6 months, as well as Indonesian laborers, are obligated to join the Old Age Security Program, Pension Security Program, Health Care Security5, Occupational Accident Security Program, and Death Security Program. Laborers are required to fund these insurances at a specified rate excluding worker s accident compensation insurance; which employers are required to fund excluding death insurance. (3) Occupational safety of workers and social welfare Act No.1 of 1970 Occupational Safety and Health (4) Foreign workers Act No.9 of 1992 Concerning Immigration The law regulates immigration including passports, discontinuation, rejection, and investigatory authority. 4.Jaminan Sosial Tenaga Karja (JAMSOSTEK) is no longer valid (Article 64) The new social security system is under the control of Social Security Organizing Agency for Manpower and Social Security Organizing Agency for Health. 5.Presidential regulation No.111 of Overview of basic labor laws of Indonesia 11

14 3. Duty to prepare enterprise rules and regulations in Indonesia, and contents of such employment handbook 3-1. Duty to prepare enterprise rules and regulations (1) Duty Every enterprise which employs no less than 10 workers/laborers is under an obligation to create a set of enterprise rules and regulations that shall come into force after being made legal by a Minister or another government official appointed to act on behalf of the Minister (Labor Law, Article 108, Paragraph 1). The obligation to have a set of legalized enterprise rules and regulations, however, does not apply to enterprises that already have a collective work agreement (Labor Law, Article 108, Paragraph 2). (2) Things to consider It should be noted that a) enterprise rules and regulations are only effective for a maximum of 2 years, b) both interviews and recommendations of representatives of workers are required, c) it is obligated that enterprise rules and regulations are written in the Indonesian language, d) it is obligated that an employer informs and explains its enterprise rules and regulations to its laborers. Also, where individual work agreements are concerned, binding provisions will be contained in the following; 1) labor related legislation setting labor laws, 2) a collective work agreement, 3) an individual work agreement, and 4) the enterprise rules and regulations Contents of enterprise rules and regulations (1) Matters to be included in the articles of incorporation Enterprise rules and regulations shall at the minimum, contain stipulations concerning (Labor Law, Article 111): a. The rights and obligations of the entrepreneur b. The rights and obligations of the worker/laborer 3. Duty to prepare enterprise rules and regulations in Indonesia, and contents of such employment handbook 12

15 c. Working conditions/ requirements d. Enterprise discipline and code of conduct e. The period of validity (maximum 2 years) (2) Procedure to make enterprise rules and regulations Enterprise rules and regulations shall be formulated by taking into account the recommendations and considerations from the enterprise s worker/laborer s representatives. If a trade/labor union has already been established in the enterprise, the worker/laborer s representatives shall be the trade/labor union s officials (Labor Law, Article 110, Paragraph 1, 2, and 3). If the period of 30 thirty workdays for legalizing the enterprise rules and regulations has elapsed but the Minister or the appointed government official1to act on behalf of the Minister has not legalized them yet, then the enterprise rules and regulations in question shall be assumed to have been legalized (Labor Law, Article 112, Paragraph 2). Approval will be given by the government authorities within 7 business days of the acceptance of the enterprise rules and regulations (Minister of Manpower and Transmigration regulation, No 16 of 2011). Within a period of no later than 14 workdays after the date on which the written notification that the submitted enterprise rules and regulations do not meet the requirements is received by the entrepreneur, the entrepreneur is under an obligation to resubmit a corrected version of the enterprise rules and regulations to the Minister or government official appointed to act on the Minister s behalf (Labor Law, Article 112, Paragraphs 3, and 4). There is no regulation stipulating the contents of enterprise rules and regulations. The contents are subject to corporate needs including grounds of disciplinary actions, warning letters, confidentiality clauses, non-compete clauses, and matters concerning working conditions such as wages, paid holidays, and bonuses Dissemination The entrepreneur is under an obligation to communicate and explain to workers/laborers all of the enterprise rules and regulations and of all changes made to said enterprise rules and regulations (Labor Law, Article 114). These rules and regulations are, in practice, communicated through notices, distribution of said rules and regulations, and orientations. 1.Depending on the location of the enterprise, the government authority to be submitted differs. If the enterprise has branch offices across the country, the government authority in charge should be the one that governs a larger jurisdiction (If the enterprise has no branch office, it will be the official of the Department of Manpower and Transmigration in the prefecture/city where it is located. If the enterprise has branch offices across the country, it will be the Director General of Industrial Relations and Labor Social Security Development. If the enterprise is located across prefectures/cities, but they are all within the same state, the government authority in charge will be the officials of the department of Manpower and Transmigration in the state). 3. Duty to prepare enterprise rules and regulations in Indonesia, and contents of such employment handbook 13

16 3-4. Changing enterprise rules and regulations Any changes to enterprise rules and regulations prior to their expiration can only be made on the basis of an agreement between the entrepreneur and the workers/ laborers representatives. Should such changes be made, the new enterprise rules and regulations resulting from the agreement shall then be made legal by the Minister or another government official appointed to act on behalf of the Minister (Labor Law, Article 113, Paragraph 1, 2). This legislation prevents laborers from being pushed into a disadvantaged position. The entrepreneur is under an obligation to tell and explain to the worker/laborer all the enterprise rules and regulations and all changes made to them (Labor Law, Article 114). 3. Duty to prepare enterprise rules and regulations in Indonesia, and contents of such employment handbook 14

17 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 4-1. Definition of wage (1) Wage Wages consist of 1) fixed pay, consisting of base salary and fixed allowance, 2) variable compensation, and 3) overtime payment. It should be noted that there is a legislation that stipulates that basic salary must be more than 75 % of fixed allowance (Labor Law, Article 94). (2) Payment system An employer should devise a payment system that takes into account the length of service and performance of laborers and must submit it to the government authority (Government regulation No.78 of 2015). The payment system should be submitted together with the enterprise rules and regulations as well as the collective work agreement. If an employer violates this regulation, the government authority will issue a warning letter and may restrict business activity. An employer should make an effort to set wages by considering laborers job scope, responsibilities, and difficulties (Minister of Manpower and Transmigration Decree No.49 of 2004) 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 15

18 (3) Overtime allowance The working hours shall be 7 hours a day to a total of 40 hours a week for 6 workdays in a week or 8 hours a day to a total of 40 hours a week for 5 workdays in a week (Labor Law, Article 77, Paragraph 2). The maximum overtime work permitted is 3 hours per day and a cumulative total of 14 hours per week with the consent of laborers. Entrepreneurs who require their workers/laborers to work overtime are under an obligation to pay overtime pay. On the other hand, persons bearing of certain duties such as executives and managers can be excluded benefiting from overtime allowance (Minister of Manpower and Transmigration Decree No.102 of 2004). However, because the decree does not define such persons clearly, employers are advised to make the relevant inquiries of the government authority. In cases where an employer would like laborers to work more than above mentioned maximum amount of overtime, the employer must submit an application for exempting regulations regarding working hours and break time Ijin Penyimpangan Waktu Kerja dan Waktu Istirahat to the Department of Manpower and Transmigration to obtain approval. The basic wage is defined as the calculation of the quotient of dividing the monthly wage by 173 (monthly wage/ 173). Overtime payment is calculated by using the basic wage as a multiplicand, with a multiplier applied according to the following chart: On top of that, if overtime work exceeds 3 hours a day, the employer is required to provide laborers with food and drinks, which contain more than 1400 kcal (Minister of Manpower and Transmigration Decree No.102 of 2004). 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 16

19 4-2. Manner of payment (1) Manner of payment Wages shall be paid in the Indonesian rupiah, and an employer shall issue a detailed statement (Government regulation No.78 of 2015). (2) Payment period A worker/laborer may make an official request to the institute for the settlement of industrial relation disputes to terminate his/her employment relationship with his/ her employer, if the employer has not paid wages at the prescribed time for three consecutive months or more (Labor Law, Article 169, Paragraph 1, c) Minimum wages In order to enable laborers to earn a living that is decent from the viewpoint of humanity, the government shall establish a wage policy that protects the worker/laborer. The wage policy that protects workers/laborers shall include minimum wages (Labor Law, Article 88, Paragraph 2, 3, item a). Entrepreneurs are prohibited from paying wages lower than the minimum wages (Labor Law, Article 90, Paragraph 1, Article 91, Paragraph 1). The specific minimum wages of specific employees is determined by the sector-based minimum wages within a given province or district/ city (Labor Law, Article 89, Paragraph 1). In Indonesia, the minimum wages are decided and publicized in each province, district, and city annually by the end of November. As mentioned, since sector-based minimum wages are determined regionally, it is recommended that an employer should make inquiries in each region regarding the applicable minimum wage. Published minimum wages are revised annually and come into force on 1 January of the following year. The formula of calculating the rate of increase of minimum wages is inflation rate + economic growth rate (Governmental regulation No.78 of 2015). In 2017, it was set at 8.25% which is the sum of 3.07% (the inflation rate of the previous year) and 5.18% (the previous year s economic growth rate). An individual that violates above-mentioned regulation shall be subject to criminal prosecution, and on conviction, carries a custodial sentence of a minimum of one (1) year and a maximum of four (4) years and/or a fine of a minimum of Rp100,000,000 and a maximum of Rp400,000,000 (Labor law, Article 185). 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 17

20 4-4. Retirement allowance Retirement allowance includes Severance Pay, Reward for Service, Compensation Pay and Detachment Money. The method of calculation of the retirement allowance is defined in the Labor Law as follows (Here, wage means fixed pay that includes basic salary and fixed allowance). Since specific formulae for each payment is stipulated in the Labor Law for each grounds of dismissal, it is necessary for laborers to consult the legislation in force at the time of retirement. (1) Severance Pay The calculation of severance pay shall at the minimum, be at least as follows (Labor Law, Article 156, Paragraph (2)); (2) Reward for service The sum of money to be paid as a reward for service rendered during the worker/ laborer s term of employment shall be determined as follows (Labor Law, Article 156, Paragraph 3); 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 18

21 (3) Compensation Pay Compensation pay shall include following (Labor Law, Article 156, Paragraph 4): a. Entitlement to paid annual leave that has not expired that the worker/ laborer has not taken; b. Costs or expenses of transporting the worker/ laborer and his or her family back to the point of hire where he or she was recruited and hired to work for the enterprise; c. Compensation for housing allowance, medical and health care allowance is determined at fifteen percent (15%) of the severance pay and/ or reward for years of service pay for those who are eligible to receive such compensation; and d. Other compensation that is stipulated under the individual work agreement, the enterprise rules and regulations or the collective work agreement. (4) Detachment Money An employer shall pay detachment money when a laborer resigns of his or her own will (Labor Law, Article 162) or when the employer terminates laborers (Labor Law, Article 158, 168). Since the amount of payment and the payment conditions will be stipulated in the collective work agreement, the enterprise rules and regulations, and the individual work agreement, it is in practice, necessary for an employer to acquire the consent of employee to terminate their employment. In addition to this, some employers voluntarily provide certain allowances in the collective work agreement for those employees who were terminated for disciplinary reasons or absenteeism. 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 19

22 4-5. Bonus and religious festivity allowance (1) Bonus The Labor Law does not contain any provisions regarding bonuses. Therefore, an employer is not obligated to pay bonuses, unless if the employer has a collective work agreement or an individual work agreement which contains provisions stating that the employer will pay a bonus. (2) Religious festivity allowance In Indonesia, instead of providing bonus, the Labor Law provides for a religious festivity allowance (Tunjangan Hari Raya (THR)). An employee who is employed for a period of one month or more is entitled to a prorated amount of THR in cash (Minister of Manpower and Transmigration regulation No.6 of 2016). Although the religious festivity allowance should be paid 7 days in advance of each religious festivity, in practice, it is common that the allowance is paid before Idul Fitri Day General Holidays (1) Holidays In principle, when employees work on a public holiday, the same amount of wages will be paid as would be for work on a weekend. Public holidays in 2017 are as follows: 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 20

23 (2) A long period of rest In Indonesia, an employer may establish a long period of rest. The application of the legislation concerning a long period of rest is to be determined and specified in the relevant individual work agreement, the enterprise s rules and regulations or a collective work agreement (Labor Law, Article 79, Paragraph 3). In the 7th and 8th years of an employee s service, a long period of rest if to be awarded to the said employee, where the said employee has worked for 6 consecutive years for the same enterprise. The said long period of rest is to be for at least 1 month of the aforementioned 7th and 8th years of service, for a cumulative total of not less than 2 months. Where such long period of rest has been awarded, the employee to whom the period of rest was awarded to will not be entitled to the annual leave that would otherwise be entitled to had the long period of rest not been awarded. (Labor Law, Article 79, Paragraph 2, Item d). (3) Holiday for prayer Entrepreneurs are under an obligation to provide workers with adequate opportunity to pray to and/ or worship God as required by their religions (Labor Law, Article 80). Entrepreneurs are required to pay the worker/ laborer s wages even if the worker/ laborer does not perform work as a result of practicing or observing religious obligations ordered or required by their religion (Labor Law, Article 93, Paragraph 2, Item e). (4) Congratulatory or compassionate leave The entrepreneur shall be obliged to pay the worker/ laborer s wages if the worker/ laborer does not perform work due 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 21

24 to the following reasons (Labor Law, Article 93, Paragraph 2, Item c, Paragraph 4). (5) Paid annual leave Entrepreneurs are under an obligation to grant their workers/laborers annual leave. The minimum amount of annual leave to be granted is to be no less than 12 workdays if the worker/laborer works for 12 consecutive months (Labor Law, Article 79, Paragraph 2, Item c). Annual leave in accordance with the minimum amount of annual leave shall be determined and specified in the individual work agreement, the enterprise s rules and regulations or the collective work agreement (Labor Law, Article 79, Paragraph 3). (6) Other regulations including medical leave If the worker/laborer is issued a doctor s statement, the said worker/laborer may take medical leave for an unrestricted amount of time. The amount of wages payable to workers who have taken ill shall be determined as follows (Labor Law, Article 93, Paragraph 3). As an employer, it should be noted that the regulation regarding medical leave differs from Japan in that the employer is not allowed to dismiss employees due to said employee taking medical leave of 1 year or more. An employer is required to pay an employee s wages if the employee is absent from work as he/ she is voting in an election. 4. Overview of the wage system (bonus, retirement benefit, overtime payment) and other legal systems in Indonesia 22

25 5. Method of and points to consider regarding ordinary dismissal, punitive dismissal, and dismissal on grounds of reorganization in Indonesia Dismissal (1) General information In Indonesia, the Labor Law imposes severe restrictions on dismissal. For instance, the Labor Law strictly defines the situation where an employer can fire its employees. Also, in order to fire its employees, the employer is required to wait for a decision made by the institutes/ agencies for the settlement of industrial relations disputes. Even in cases of punitive dismissal, the employer is required to pay a dismissal allowance under the Labor Law. The entrepreneur, the worker/ laborer and or the trade/ labor union, and the government must make all efforts to prevent termination of employment from taking place (Labor Law, Article 151, Paragraph 1). If in spite of all efforts, termination of employment remains inevitable, then, the intention to carry out the termination of employment must be negotiated between the entrepreneur and the trade/ labor union to which the affected worker/ laborer is a member of, or between the entrepreneur and the worker/laborer to be dismissed if the worker/ laborer in question is not a union member (Labor Law, Article 151, Paragraph 2). If the negotiation fails to result in any agreement, the entrepreneur may only terminate the employment of the worker/ laborer after receiving a decision from the institute for the settlement of industrial relation disputes (Labor Law, Article 151, Paragraph 3). Any termination of employment that is carried out without fulfilling what is stipulated in Article 151 shall be declared null and void by law and the entrepreneur will be obligated to reemploy the said worker/ laborer and pay all wages and entitlements which the affected worker/ laborer should have received (Labor Law, Article 151, Paragraph 1, Article 170). There are however, circumstances elucidated below where a decision made by the institute for the settlement of industrial relations disputes is not necessary. In cases where a worker/laborer has stolen or smuggled goods, given false or falsified information, has gotten drunk or consumed narcotics in the working environment, has committed immorality/indecency, has attacked, battered, or threatened co-workers, has persuaded co-workers or the entrepreneur to engage in an illegal activity, has destroyed property belonging to the entrepreneur, has committed other wrongdoings within the working environment, which call for imprisonment for 5 years 5. Method of and points to consider regarding ordinary dismissal, punitive dismissal, and dismissal on grounds of reorganization in Indonesia. 23

26 or more (Labor Law, Article 170, Article 158, Paragraph 1)1 In cases where the worker/laborer is unable to perform his or her work after six (6) months from the initiation of the legal process associated with legal proceedings taken against him or her for a crime that he or she is alleged to have committed and not because of a complaint filed by the entrepreneur. (Labor Law, Article 160 Paragraphs 1, 3 and 6, and Article 170). In cases where the court finds the worker/laborer guilty of a crime (Labor Law, Article 160, Paragraphs 5 and 6) In cases where the entrepreneur is found not guilty of committing the following acts after being accused of such by the worker/ laborer by the institute for the settlement of industrial relation disputes (Labor Law, Article 169, Paragraphs 1 and 3, and Article 170) The following cases as defined in Article 154 of The Labor Law. a. The affected worker/ laborer is still on probation provided that such has been stipulated in writing beforehand b. The affected worker/ laborer makes a written request for resignation at his/her own will with no indication of being pressurized or intimidated by the entrepreneur to do so; or the employment relationship comes to an end according to the work agreement for a specified period of time for the first time c. The affected worker/ laborer has reached a retirement age as stipulated under work agreements, enterprise rules and regulations, collective work agreements, or laws and regulations d. The affected worker/ laborer dies (2) The process of dismissal A dismissal must be done accordance with the relevant provisions of the Labor Law and the Industrial Relations Disputes Settlement Law. If the negotiation fails to result in any agreement, the entrepreneur may only terminate the employment of the worker/ laborer after receiving a decision from the institute for the settlement of industrial relation disputes (Labor Law, Article 151, Paragraph 3). Any termination of employment that is carried out without fulfilling the stipulated procedure shall be declared null and void by law (Labor Law, Article 170). In cases where an employee is to be dismissed at the entrepreneur s behest, the process of the dismissal should be as follows. In cases where a worker/laborer resigns of his or her own will, a decision made by the institute for the settlement of industrial relations disputes is not necessary, the worker/laborer must submit a resignation letter [to the management] no 1.In cases that an employer fires its laborers based on the Article 158 of the Labor Law, waiting until the employee is convicted is highly recommended in order to to prevent future conflicts and to hew to the principle of the presumption of innocence. This is because that while there is case law, where the constitutionality of Article 158 of the Labor Law and its related provisions apropos of Article 27 of the Indonesian Constitution was contested in the constitutional court (Case No. 012/PUU-I/2003), the debate over the scope of the decision has not been settled. Another reason is that a subsequent decision made by Minister of Manpower and Transmigration (Minister of Manpower and Transmigration Decree No.13 of 2005) ruled that it is possible for an employer to dismiss an employee after verifying that said employee has been convicted in a criminal trial. 5. Method of and points to consider regarding ordinary dismissal, punitive dismissal, and dismissal on grounds of reorganization in Indonesia. 24

27 less than 30 days prior to the date on which he or she will cease to work (Labor Law, Article 162, Paragraph 3, Item a). Even when a worker/laborer resigns of his or her own will, some employers register the said resignation at the institute for the settlement of industrial relations disputes in order to pre-empt later disputes between the employer and the worker/ laborer. (3) The process of dismissal It should be noted that the Labor Law stipulates that the entrepreneur is prohibited from terminating the employment of a worker/laborer because of the following reasons (Labor Law, Article 153, Paragraph 1): Restrictions on dismissal a. The worker/ laborer is absent from work because he or she has taken ill as attested by a written statement from the physician who treats him or her provided that he or she is not absent from work for a period of longer than 12 consecutive months consecutively b. The worker/ laborer is absent from work because he or she is fulfilling his or her obligations to the State in accordance with what is prescribed in the valid statutory legislation c. The worker/laborer is absent from work because he or she is practicing what is required by his or her religion d. The worker/laborer is absent from work because he or she is getting married e. The worker/laborer is absent from work because she is pregnant, giving birth to a baby, having a miscarriage, or breast-feeding her baby f. The worker/ laborer is related by blood and or through marriage to another worker in the enterprise unless so required in the collective work agreement or the enterprise s rules and regulations g. The worker/ laborer establishes, becomes a member of and or an administrator/ official of a trade/ labor union; the worker/ laborer carries out trade/ labor union activities outside working hours, or during working hours with permission by the entrepreneur, or according to that which has been stipulated in the individual work agreement, or the enterprise s rules and regulations, or the collective work agreement h. The worker/ laborer reports to the authorities a crime committed by the entrepreneur i. Because the worker/ laborer is of a different understanding/ belief, religion, political orientation, ethnicity, color, race, sex, physical condition or marital status j. Because the worker/ laborer is permanently disabled, ill as a result of a work accident, or ill because of an occupational disease whose period of recovery cannot be ascertained as attested by a written statement made by the physician who treats him or her 5-2. Ordinary dismissal In Indonesia, terminating a worker/laborer by way of a so called an ordinary dismissal meaning dismissal on grounds such as poor performance as would be possible in Japan is prohibited. Therefore, it is necessary for entrepreneurs to scrutinize candidates by contemplating several factors including the various applicable work agreements. 5. Method of and points to consider regarding ordinary dismissal, punitive dismissal, and dismissal on grounds of reorganization in Indonesia. 25

28 5-3. Punitive dismissal (1) Warning letter In Indonesia, the process for the issuing of warning letters is regulated by the Law. The said process governs the issuance for the first, second, and third warning letters. The entrepreneur must define the violations which provide grounds for the issuing of each escalating stage of warning letter in the individual work agreement, the enterprise s rules and regulations, or the enterprise s collective work agreement (Ex: pay reduction2). The entrepreneur may terminate the employee s employment after the entrepreneur precedes the termination with the issuance of the first, second and third warning letters (Labor Law, Article 161, Paragraph 1). It should be noted that unlike Japan, even punitive dismissals require permission from the institute for the settlement of industrial relations disputes settlement. This is elaborated on in the following passage. The process of issuing warning letters is as follows. First, an employer issues a warning letter after confirming that a violation as defined in the various aforementioned documents warranting the issuance of a warning letter has taken place. If any further violation is committed within 6 months from the issuing of the first warning letter, the employer can issue another warning letter in accordance with the table below. After issuing the third warning letter, the employer may then make a disciplinary dismissal. The 6-month period is set such that there are opportunities for the laborer in question to be reevaluated. If the laborer does commit any such violation during the 6 month period, the accumulation of warning letters will be reset and any subsequent violation will be treated as the first violation (see Labor Law, Article 161, Paragraph 2). In relation to the contents of the warning letters, an employer is may not unilaterally define the grounds for issuing the warning letters, because it is necessary for the employer to reach an agreement with the laborer, including the labor union when setting out the said rules. Also, if these grounds were agreed to by the laborer, but are in fact advantageous to the 2.For example, the entrepreneur can define being late for work as a ground for issuing the first warning letter and committing a criminal offense as a ground for issuing the third warning letter. 5. Method of and points to consider regarding ordinary dismissal, punitive dismissal, and dismissal on grounds of reorganization in Indonesia. 26