Returning to Indonesia 1998/1999

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Section IV: Now You Are Home

Labor Law in Indonesia

The basic philosophy of Indonesian labor law is similar to that of other countries in that its purpose is to protect the worker from the presumably more powerful resources of the employer. In this regard, there are two forms of employment contract recognized under Indonesian labor law which favor the protection of the worker.

Direct permanent employment   A direct permanent employee is on probation during the first three months of employment, and thereafter becomes a permanent employee. During the probationary period, the employment agreement may be terminated by either party (employer or employee) without notice or reason. Following successful completion of the probationary period, there are generally few ways for an employer to terminate the employment relationship, nearly all of which require government approval. An amicable approach to contract termination is advisable for both the employer and the employee.

Fixed term contracts   A fixed term contract of employment is often utilized by companies for project type work. Under the terms of such a contract, the employee is not subject to a probationary period. There is no minimum duration for contracts. An employment agreement for a fixed term contract can be for a duration of at most 2 years. Regardless of their duration, contracts may be renewed or extended only one time. Following such extension of contractual employment, the employer must release the contract employee for a period of at least 30 calendar days; otherwise, the contract employee becomes a permanent employee. Following the 30-day release, the employee may again be contracted. Contracts can be extended only for a period no longer than the original contract period. Such contractual arrangements may be extended for no more than 3 years or permanent employment is deemed.

Although there is no probationary period provided under the law, cancellation of a fixed-term employment contract by the employer can be accomplished by paying the employee for the full value of the services contemplated under the terms of the contract. The employee may cancel the employment contract at any time, but normally at least two weeks written notice must be given to the employer.

Under Act 25 of 1997, all companies are required to file a copy of their personnel policy (Peraturan Perusahaan) with the Minister of Manpower for legalization. Although the implementation of Act 25 has been delayed until October 1, 1999, most companies have prepared this document.

These company policies state the terms and conditions of employment for all employees and provide rules of conduct and other provisions of employment. When interviewing with a company, it may be a good idea to ask the recruiter for the employee's benefit package. Most good companies are proud of the benefits that they offer which are often above the statutory benefits required by the labor law. Reviewing the various benefit packages available from different employers may influence your job hunting decision; however, it is not wise to base your employment decision on salary and benefits alone. Other factors such as opportunity for advancement, working environment, professional challenge, and location are also important factors. Remember, while you are being interviewed, you are also interviewing your prospective employer. Both you and your employer have choices to make for the position available.

Insurance/Social Security

Jaminan Sosial Tenaga Kerja (JAMSOSTEK)   As a social security system, the basic purpose of JAMSOSTEK is to contribute to the protection and welfare of workers by providing protection against loss of earnings resulting from sickness, disability, old age, and death.

Employees are required to contribute 2% of their gross monthly income for JAMSOSTEK coverage. In addition, employers contribute an amount ranging from 0.24 to 6.0% of the employee’s gross payroll cost (the rate is determined by economic sector of the company's activities). On July 1,1993, health insurance coverage for the employee, spouse and up to three dependents became mandatory. Health insurance is paid for by the employer, at 6% for married employee’s payroll costs up to a maximum salary of Rp.1,000,000 per month.