EMPLOYMENT

The development of Indonesian employment regulations is progressive and further changes are expected in the coming years. Due to the active involvement of various NGOs, the awareness of Indonesian laborers has also increased during the last 10 years.

Principally, labor matters in Indonesia are regulated in the following laws:

· Law Number 13 of 2003 concerning Manpower;

· Law Number 22 of 1957 concerning Settlement of Labor Disputes and Law Number 12 of 1964 concerning Employment Termination in Private Companies, both of which will be revoked on January 14, 2006 upon the effectiveness of Law Number 2 of 2004 concerning Industrial Labor Relationship Dispute Settlements in connection with Government Regulation in lieu of Law Number 1 of 2005 concerning Postponement of Law Number 2 of 2004;

· Law Number 1 of 1970 concerning Work Safety;

· Law Number 7 of 1981 concerning Mandatory Report of Manpower;

· Law Number 3 of 1992 concerning Worker Social Security;

· Law Number 21 of 2000 concerning Labor Unions;

· Law Number 11 of 1992 concerning Pension Funds.

Employment Agreements

Employment agreements in Indonesia are categorized into:

· Employment Agreements for a definite period in which an employment relationship has a definite term or based on the completion of a certain job (e.g., employment between a company and an interim worker; or a contract in which a company employs someone to set-up a computer network)

· Employment Agreements for an indefinite period in which the employment agreement does not have specific term or require a completion of a certain job.

Labor Union

A company with ten or more employees may have a Labor Union, and more than one Labor Union may be established at a company. An employee cannot become a member of more than one Labor Union in a company.

Minimum Wage

The term minimum wage in Indonesia relates to the Regional Minimum Wages that vary from province to province, with each province having the authority to regulate its own minimum wage. Regional Minimum Wages are determined by the Department of Manpower and are subject to the annual review by the Employers Association.

Company Regulations

Every company in Indonesia employing at least 10 persons is required to have a set of “Company Regulations” (Peraturan Perusahaan) which state in detail the terms and conditions of the employment and the rules of conduct to be observed by the employers. The Company Regulations must be approved by the Regional Department of Manpower where the Company is domiciled, and once approved, are valid and binding upon both the employer and the employees for a period of 2 years. Approval for an extension to the validity of the Company Regulations must be obtained every 2 years and any amendments must also be approved by the Regional Department of Manpower.

Collective Labor Agreements (“CLA”)

A CLA is an agreement between a Labor Union registered with the Department of Manpower and the Employer . The CLA generally contains the following:
· parties to the agreement;
· the terms of employment;
· wage system;
· agreed medical and health services;
· rights to vacation leave;
· the benefits due when an employee is injured while on duty;
· provisions on amending the CLA; and
· procedure for the settlement of a difference of opinion or a dispute between an employer and its employees.

In a company which has had a CLA, the CLA cannot be replaced by the Company Regulation. A company having a CLA is not obliged to have the Company Regulation.

In the event that the Labor Union wants to negotiate a CLA with an employer, the employer is obligated to do so.

Bipartite Cooperative Agency (“BCA”)

A BCA will be established at every company or enterprise that comprises 50 or more employees as an initiative of both the employees and the relevant company representatives. Essentially, the BCA will serve as a communication forum to ensure timely communication between its members and to assist in the resolution of disputes by facilitating discussion, debate and consensus building. The BCA will be required to meet at periodic intervals or as required to ensure that the above duty is met.

Working Hours

An employer is not permitted to make its employees perform work for more than 7 hours a day for 6 work days per week or 40 hours a week. However, the total working hours may be distributed into 5 work days per week with no more the than 8 hours work per each day. Employees who have to work for more than 40 hours per week are entitled to receive overtime payment. The law also stipulates that an employee must be given a meal if he or she works overtime for 3 hours or more .

Employee Training Programs

Indonesian companies employing expatriate workers are required to implement training programs to ensure the transfer of knowledge. The Skills and Development Fund in the amount of USD 1,200 per year for each expatriate employee is to be paid to the Department of Manpower.

Allowances

Employees are entitled to an annual allowance which normally equals one month’s salary at the time of the Idul Fitri (Hari Raya Lebaran) or Christmas holidays. Maternity leave must be granted for 3 months with salary fully paid. In addition, it is a common practice to provide other allowances or benefits, such as meal allowances and transportation allowances. All allowances are treated as part of salary for tax purposes and are deemed to form part of the basic wage for purposes of termination payment calculations.

Social Security For Manpower

An employer with 10 employees or more or having a payroll of at least one million rupiah a month is obligated to insure its employees, including expatriate employees, in the Social Security for Manpower (Jaminan Sosial Tenaga Kerja, “Jamsostek”) program.

The Jamsostek program covers:
· Occupational Accident Security;
·Death Coverage;
·Old Age Security; and
·Health Maintenance Security.

Pension Funds

A company in Indonesia can provide a pension scheme for its employees by way of:

· a special fund set aside for such purpose administered through a separate accounting or a separate legal entity for the Pension Fund set up and controlled by the Employer (“Employer’s Pension Fund”);

· a pension scheme administered through an independent pension fund financial institution (“Financial Institution Pension Fund”); or

· any employer’s Pension Fund in which the contributions come only from the Employer, which are determined by a specific formula related to the Employer’s profits (“Profit Based Pension Fund”).

The Pension Fund Law provides that the pension programs can be conducted in the form of Defined Benefit Plans or Defined Contribution Plans. The Defined Benefit Plans are pension programs under which the benefits are determined by the pension funds regulations. Defined Contribution Plans are pension programs where contributions are determined under the pension fund regulations and all contributions as well as the proceeds of investments are booked as pension benefits.

Obligation to Report on Manpower

Any employer with 6 or more employees is obligated to report in writing certain details concerning its manpower to the Minister of Manpower within 30 days from establishment of its business or any significant change in its activities. This report must be filled annually and failure to file will result in the liability of the employer or manager for an imprisonment of up to 3 months or a fine of up to one million rupiah.

Strike

Every employee or labor union has a right to strike. However, any strike action must be conducted within the prevailing laws and regulations with respect to strike action. Strike will be considered as illegal if certain conditions as provided by the laws and regulation are violated.

In the company which serves public needs or which activities endangering to human life, the strike action conducted by the on-duty employees is classified as an illegal strike and such employees will be marked as absent from the place of work.

Employment Termination

If termination cannot be avoided, a permit is required for either the termination of an individual employee or mass termination. The government entities which can issue such a permit are the Regional Committee for Settlement of Labor Disputes (Panitia Penyelesaian Perselisihan Perburuhan Daerah – “P4D”) and the Central Committee for Settlement of Labor Disputes (Panitia Penyelesaian Perselisihan Perburuhan Pusat – “P4P”). Termination by an employer is null and void by operation of law if it is done without a permit from the P4D or P4P, except for certain cases such as termination in definite period contract.

Termination of employment by the employer with the permission of the P4D or P4P will have the legal consequence that a severance allowance must be paid to the terminated employee which consists of three elements:

Employment Termination

If termination cannot be avoided, a permit is required for either the termination of an individual employee or mass termination. The government entities which can issue such a permit are the Regional Committee for Settlement of Labor Disputes (Panitia Penyelesaian Perselisihan Perburuhan Daerah – “P4D”) and the Central Committee for Settlement of Labor Disputes (Panitia Penyelesaian Perselisihan Perburuhan Pusat – “P4P”).

Termination by an employer is null and void by operation of law if it is done without a permit from the P4D or P4P, except for certain cases such as termination in definite period contract.

Termination of employment by the employer with the permission of the P4D or P4P will have the legal consequence that a severance allowance must be paid to the terminated employee which consists of three elements:
· Severance Pay;
· Service Appreciation Pay; and
· Compensation.

In January 2004, the Government enacted Law Number 22 of 2004 on Industrial Labor Relationship Dispute Settlements, that addresses the issues that concern the termination of industrial employment relationships. Although promulgated in 2004, this law will take its effect only on January 14, 2006. As a result, at the latest on January 14, 2006 both the P4D and P4P must have been liquidated and replaced by another tribunal that comprises of judges who are representatives of both the legal and industrial spheres.

Based on Law Number 22 of 2004, before an industrial dispute is brought to the special tribunal, initial efforts to settle the dispute must be made by way of the following:
– Bipartite negotiation;
– Mediation;
– Conciliation; and/or
– Arbitration.

If the initial efforts are successful and a settlement is reached by way of any of the abovementioned means, the disputing parties who have reached a mutual settlement agreement must execute the agreement in writing in the form of a deed, and have the deed registered with the local tribunal.

If the efforts fail to produce a mutually agreed amicable settlement by way of the above, the dispute is to be brought before the specific tribunal as meant by the law.

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