Indonesian Employment Contracts: Fixed vs. Non-Fixed

When hiring employees from Indonesia, understanding local employment contracts is essential. These documents govern the rights and responsibilities of both parties, emphasizing clarity and compliance.

Prioritizing clear and transparent contracts ensures employees understand their roles fully. Dive into our detailed articles on Indonesian employment contracts to navigate these crucial legal aspects effectively.

The legal basis for employee work contracts in Indonesia can be found in Law No. 13 of 2003 concerning Manpower. Article 1, paragraph 14 of this law defines a work contract as an agreement between an employer and an employee that must adhere to the rights, obligations, and terms of work for both parties.

Article 52, paragraph 1 of Law No. 13 of 2003 also establishes several important points regarding employee work contracts:

• The contract must include agreements between the employer and the employee.

• Parties involved must have the capability to perform legal actions.

• The contract must specify the agreed-upon work and must not contradict applicable laws, public order, and morality.

This emphasizes the importance of clear agreements that comply with legal norms in a work contract.

Under Law No. 13 of 2003 concerning Manpower, there are two types of employment agreements based on the duration of the employment relationship between the employee and the company.

Fixed-Term Employment Agreement (PKWT)

Which covers temporary employment relationships with a specific time limit or specific tasks, typically temporary contracts or freelance work. PKWT contracts have a maximum duration of 3 years and cannot include a probationary period.

Non-Fixed-Term Employment Agreement (PKWTT)

Indicating a permanent employment relationship between the employee and the company. PKWTT contracts can be either written or oral and are not bound by specific time limits, although the probationary period is limited to a maximum of 3 months.

The structure of employment contracts is largely regulated in Article 53, paragraph (1) of Law No. 13 of 2003 concerning Manpower. Here are 9 points that must be included in an employee work contract according to these regulations:

• Company identity, including name, address, and business type.

• Employee identity, including name, gender, age, and address.

• Position or type of work to be performed by the employee.

• Location where the work will be carried out.

• Employee's salary and payment procedures.

• Rights and responsibilities of both the employee and the company.

• Duration or term of the employment agreement.

• Place and date of the employment agreement.

• Signatures of the parties involved in the employment agreement.

In addition, there are several important points to consider in employment contracts, including:

Holiday Allowance (THR) and Benefits

Ensure clarity on holiday allowances and benefits as these are rights of the employees.

Resignation and Termination Rules

Understand the rules regarding resignation and Termination of Employment (PHK), including entitlements during resignation and reasons for termination, ensuring employees' rights in such situations.

Employment Status

Contracts typically specify whether the employee is permanent, temporary, or on contract, clarifying procedures for contract extension or becoming a permanent employee.

Working Hours and Leave

Details on working hours and procedures for taking leave should also be clearly outlined in the contract.

Once you understand the aforementioned aspects of work contracts, it's important to know examples of employee work contracts.

PKWT Contract

Template of PKWT employment contract: https://halohubungankerja.kemnaker.go.id/contoh_pkwt.php

A Fixed-Term Employment Agreement (PKWT) is a document that includes various aspects such as:

• Contract duration

• Employee and company rights and responsibilities

• Position, facilities, salary, employee benefits, and allowances.

However, Indonesian labor law restricts the use of PKWT to specific jobs like one-time jobs with a maximum completion period of 3 years, seasonal work, and jobs related to new products or processes under trial. The maximum duration of a PKWT is 2 years, with one extension of up to 1 year.

PKWTT Contract

Template of PKWTT employment contract: https://halohubungankerja.kemnaker.go.id/contoh_pkwtt.php

According to the Decree of the Minister of Manpower and Transmigration of the Republic of Indonesia Number KEP. 100/MEN/VI/2004, a Non-Fixed-Term Employment Agreement (PKWTT) is a permanent employment agreement between an employee and an employer. If you plan to create a contract for permanent employees, PKWTT is the appropriate option.

Employee work contracts, whether PKWT or PKWTT, are vital aspects of recruitment. Creating the right contract can avoid risks not only for the company but also for the employees.

How long is the contract work system in Indonesia?

Contract employee agreements have a maximum duration of 5 (five) years. If the contract period ends and the work is not completed, the company can extend the Fixed-Term Employment Agreement (PKWT) with a duration agreed upon by both the company and the employee.

What's the difference between PKWT and PKWTT?

PKWT is suitable for temporary work or probationary periods, while Pkwtt provides more stable job security for permanent employees.

Is there a difference in salary between permanent and contract employees?

In addition to the base salary, permanent employees usually receive benefits such as health allowances, holiday bonuses, and workplace safety benefits. Meanwhile, contract employees typically receive only a base salary adjusted to the regional minimum wage (UMR).

Find your ideal Indonesian employees with Epicareer for Employers.

Get more valuable insights:

• Indonesian Employees Working Hours According to Business Type

• Leave Application Guide for Singapore Employers Hiring Indonesian Employees

• Maternity Leave Rules for Employees in Indonesia

• Hiring Employees in Indonesia: Employment Laws and Regulations

• Payroll System in Indonesia: Rules, Regulations, and Compliance

Refer to the Career Guide for comprehensive HR resources.