Key Changes in Indonesian Labour Law: What Employers Need to Know

On 31 October 2024, Indonesia’s Constitutional Court announced a ruling that impacts Indonesian labour law significantly. This decision followed a judicial review petition (No.168/PUU-XXI/2023) challenging Law No. 11 of 2020, also known as the Omnibus Law. The law had introduced extensive changes to Indonesia’s labour regulations. Below are the key changes and what employers should know. 

Key Changes for Employers 

Employers in Indonesia should focus on these areas affected by the new ruling: 

• Prioritisation of Indonesian Workers: Employers must prioritise hiring Indonesian workers over foreign nationals. Exceptions apply only to roles requiring specialised skills. 

• Five-Year Limit on Fixed-Term Employment (PKWT): All fixed-term employment agreements, or PKWT, are limited to five years. These agreements must also be documented in writing. 

• Changes to Outsourcing Practices: Employers may need to adjust outsourcing practices. The Minister of Manpower will determine which roles can be outsourced. 

• Wage Structure and Scale Compliance: Employers must align wage structures with new indicators and calculation methods in the ruling. 

• Updated Termination and Dispute Processes: Companies should prioritise employee payments in bankruptcies and follow the revised dispute resolution protocols. 

Background of the Judicial Review 

This review was filed by prominent labour groups, including: 

• The Labour Party, 

• The Federation of Indonesian Metal Worker Union (FSPMI), 

• The Confederation of Indonesian Trade Unions (KSPSI), 

• The Confederation of Indonesian Trade Unions (KPBI), 

• The Confederation of Indonesian Trade Unions (KSPI). 

These groups argued that parts of the Job Creation Law, especially those on manpower and labour, were unconstitutional under Indonesia’s 1945 Constitution. They requested a reinterpretation of these sections to enhance worker protection or reinstate parts of the previous Labour Law. Out of 69 points raised, the Constitutional Court approved and reinterpreted 21, rejecting the remaining 48. 

Implications for Foreign Worker Employment 

The ruling gives the Minister of Manpower sole authority to approve Foreign Worker Utilisation Plans (RPTKA). Employers must secure an RPTKA before hiring foreign workers. Furthermore, the ruling emphasises prioritising Indonesian nationals for non-specialised roles, ensuring more employment opportunities for locals. 

Impact on Fixed-Term Employment and Outsourcing 

The ruling limits all PKWT agreements to a maximum of five years, including extensions. These agreements must also be in writing, in Indonesian, and use the Latin alphabet. This change aims to provide transparency for both employers and employees. 

Outsourcing practices face more scrutiny as well. The Minister of Manpower will establish guidelines on job types suitable for outsourcing. This additional clarity should help companies set up more secure outsourcing arrangements, reducing employee concerns over job stability and benefits. 

Conclusion 

This Constitutional Court ruling marks a turning point for Indonesian labour law. Employers should carefully review their hiring, wage, and outsourcing practices to ensure compliance. For further assistance in navigating these changes, reach out to SAS’ HR team for expert guidance.