Employment law in Indonesia: 10 key facts

Indonesia is the fourth most populous country in the world. It comprises 17,500 islands spanning three time zones. It is a major emerging economy and boasts a higher GDP than Thailand, Malaysia and the Philippines combined.

Fiona Cuming examines the employment law issues facing global employers with operations in Indonesia.

Global employers already present in Indonesia will know that terminating employment is not a simple process.

Employers have a duty to take positive steps to avoid ending an employee’s employment. They must consider changing working hours, altering working methods or providing additional training for the employee. And if, after all this, the employer is convinced that termination is the only solution, it must then follow a statutory termination procedure; this is the first of our 10 key facts…

1. Statutory termination procedure

Except in certain exceptions, the employer must follow the statutory procedure to terminate someone’s employment.

This involves the employer entering a negotiation period with the employee and any representative. If no agreement is possible after 30 days, the dispute must be filed with the Ministry of Manpower.

Both parties are then offered conciliation services by the ministry, and if either or both are unwilling to accept, the case is referred to compulsory mediation.

But this may not be the end of the process because if no agreement is reached after 30 days of conciliation or mediation, the case moves to the Industrial Relations Court. The court will then decide whether or not to approve the dismissal.

2. Severance payments

Termination can be expensive. In the majority of cases, the employer must make a severance payment. This may include a compensation payment, a length-of-service award and a statutory severance payment.

3. Ill-health dismissals

Employers cannot consider dismissing an employee for absence from work due to illness if the length of the absence is under 12 consecutive months. After that period, an employer may start the dismissal process but must follow the statutory termination procedure. Employees dismissed for ill-heath absence receive an enhanced termination package.

4. Religious holiday allowance

Employers must pay employees a religious holiday allowance for one religious festival each year, according to their religion. The purpose of the allowance is to contribute to the costs employees incur celebrating the particular festivals.

The amount of the allowance depends on the employee’s length of service. For example, employees with at least one year’s continuous service receive an amount equal to one month’s wages.

5. Holiday

Employees are entitled to take 12 working days as paid holiday after one year’s continuous service. In theory, the full holiday entitlement must be taken in a single block but, if the employer is agreeable, holiday may be taken separately, provided that at least six working days are taken in one chunk.

6. Other leave

Employees are able to take short periods of paid other leave for a variety of personal reasons. For instance, they are allowed three days’ leave for their marriage, two days for the marriage of their child or two days’ leave for the circumcision of their child. Female employees who suffer from pain during menstruation are able to take paid leave on the first and second day of their cycle.

Muslim employees have a statutory entitlement to take up to three months’ paid leave to perform the Haj pilgrimage to Mecca. An employee may take this leave once only during his or her lifetime.

7. Maternity leave

Women are entitled to three months’ paid maternity leave, but half of this period must be taken before the expected date of childbirth and half after. The maternity leave period may be extended on the advice of an obstetrician or midwife.

8. Sick pay

Employers must pay full wages for the first four months of sickness absence, 75% for the fifth to eighth month and 25% for any remaining period of absence prior to termination of employment.

9. Rest breaks

Employers must allow employees to take a rest break of at least half an hour after working for four consecutive hours.

10. Employing foreign nationals

The employment of foreign nationals is subject to various restrictions and a permit is required in all cases. The Indonesian Government tightened the law in July 2015 and introduced tougher rules.

Generally, foreign nationals can be employed only in specific roles, on a temporary basis, and provided an Indonesian is not available to fulfil the role.

Employers of foreign nationals must ensure a ratio of one foreign national to at least 10 Indonesian employees.