Law No. 13 of 2003

### LEGAL ANALYSIS & STATUTORY PROVISIONS (ENGLISH) #### 1. Overview & Current Legislative Status Law Number 13 of 2003 on Manpower ("**Manpower Act / Law No. 13/2003**") serves as the primary governing statutory framework (*lex generalis*) regulating all aspects of labor and industrial relations in Indonesia. Substantive statutory provisions of Law No. 13/2003 have been significantly amended by: 1. **Law Number 6 of 2023** on the Enactment of Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation into Law ("**Job Creation Law / Law No. 6/2023**"); 2. **Constitutional Court Decision Number 168/PUU-XXI/2023** dated October 31, 2024, which reviewed, struck down, and reinterpreted key manpower provisions in Law No. 6/2023 (specifically regarding fixed-term contracts, outsourcing scope, minimum wage formulas, and termination procedures); 3. Implementing regulations, including: * **Government Regulation Number 35 of 2021** on Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Times, and Termination of Employment ("**GR No. 35/2021**"); * **Government Regulation Number 36 of 2021** in conjunction with **Government Regulation Number 51 of 2023** on Wages. --- #### 2. Key Statutory Provisions & Structural Analysis ##### A. Employment Relationships & Agreement Types (Articles 50–59 Law No. 13/2003 jo. GR No. 35/2021) An employment relationship is established based on an Employment Agreement between an Employer and an Employee, requiring compliance with general contractual validity conditions under Article 1320 of the Indonesian Civil Code (*KUHPerdata*) and Article 52 of Law No. 13/2003: 1. **Fixed-Term Employment Agreement (*Perjanjian Kerja Waktu Tertentu* / "PKWT"):** * May only be executed for specific types of work which, by their nature or execution, will be completed within a specified duration (cannot be applied to permanent/continuous operational work). * Pursuant to Constitutional Court Decision No. 168/PUU-XXI/2023, the maximum cumulative duration for a PKWT is restored to a maximum limit of 5 (five) years, including any extensions. * Employers are statutorily required to pay **PKWT Compensation Pay** upon contract expiration to any employee who has completed at least 1 (one) continuous month of service (Article 61A Law No. 13/2003 jo. Article 15 GR No. 35/2021). 2. **Indefinite-Term Employment Agreement (*Perjanjian Kerja Waktu Tidak Tertentu* / "PKWTT"):** * May stipulate a statutory probationary period not exceeding 3 (three) months, during which the wage paid must not fall below statutory minimum wage standards. ##### B. Outsourcing / Business Process & Labor Supply (Articles 64–66 Law No. 13/2003 jo. MK Decision No. 168/PUU-XXI/2023) * Outsourcing arrangements are strictly restricted to partial work execution. * Constitutional Court Decision No. 168/PUU-XXI/2023 mandates that permissible categories of outsourced work must be clearly delimited by the Minister of Manpower to prevent companies from outsourcing core business operations. ##### C. Working Hours, Overtime, and Rest Periods (Articles 77–79 Law No. 13/2003 jo. Law No. 6/2023) * **Standard Statutory Working Hours:** * 7 (seven) hours per day and 40 (forty) hours per week for a 6-day workweek; or * 8 (eight) hours per day and 40 (forty) hours per week for a 5-day workweek. * **Overtime:** * Capped at a maximum of 4 (four) hours per day and 18 (eighteen) hours per week (excluding overtime rendered during weekly rest days or public holidays). Requires written employee consent and statutory overtime pay calculation. * **Rest Periods & Leave:** * Weekly rest: 1 or 2 days per week depending on the work schedule. * Annual leave: a statutory minimum entitlement of 12 (twelve) working days after 12 (twelve) months of continuous service. ##### D. Remuneration & Wages (Articles 88–90 Law No. 13/2003 jo. GR No. 36/2021 jo. MK Decision No. 168/PUU-XXI/2023) * Employers are strictly prohibited from paying wages below statutory Minimum Wage rates (Provincial Minimum Wage / UMP or Regency/City Minimum Wage / UMK). * Constitutional Court Decision No. 168/PUU-XXI/2023 reinstates Sectoral Minimum Wages (UMSK) and orders an indexation formula reflecting decent living needs (*kebutuhan hidup layak*) alongside purchasing power parity and inflation. * Wage structure may comprise Basic Wage and Allowances. The Basic Wage component must constitute at least 75% of the aggregate total of the basic wage and fixed allowances (Article 94 Law No. 13/2003). ##### E. Termination of Employment (*PHK*) & Severance Packages (Articles 150–156 Law No. 13/2003 jo. GR No. 35/2021) * Employers, employees, and the state must make all efforts to prevent termination. Where termination is unavoidable, a written notification of termination must be served at least 14 (fourteen) working days in advance. Disputed terminations must undergo bipartite negotiation, tripartite conciliation/mediation, and adjudication by the Industrial Relations Court (*PHI*) pursuant to Law No. 2 of 2004. * **Post-Termination Statutory Entitlements (Article 156):** 1. **Severance Pay (*Uang Pesangon* / "UP"):** Calculated based on length of continuous service, capped at 9 (nine) months of wages (for service of 8 years or more). 2. **Long-Service Pay (*Uang Penghargaan Masa Kerja* / "UPMK"):** Applies starting from 3 (three) years of service (2 months' wages), capped at 10 months' wages (for service of 24 years or more). 3. **Compensation of Rights (*Uang Penggantian Hak* / "UPH"):** Encompasses accrued, unexpired, and untaken annual leave, repatriation expenses (where contractually committed), and other benefits stipulated in the Employment Agreement/Company Regulations/CBA. * Statutory multipliers applicable to UP and UPMK depend strictly upon the underlying legal grounds for termination (e.g., efficiency, company liquidation, force majeure, disciplinary dismissal following Warning Letters, or retirement). --- #### 3. Statutory Rights and Obligations of the Parties | Subject | Core Statutory Rights | Core Statutory Obligations | | :--- | :--- | :--- | | **Employee / Laborer** | • Right to statutory minimum remuneration.<br>• Right to occupational safety and health (OSH/K3) protection.<br>• Right to freedom of association and collective bargaining.<br>• Right to statutory PKWT compensation or statutory severance package upon termination. | • Perform contractual employment duties under lawful management direction.<br>• Comply with company discipline, Company Regulations, or CBA.<br>• Maintain corporate trade secrets and standard duty of loyalty. | | **Employer** | • Right to assign tasks and enforce operational discipline.<br>• Right to issue statutory disciplinary sanctions (Warning Letters I, II, III).<br>• Right to terminate employment strictly in accordance with statutory procedures. | • Pay wages and statutory overtime promptly.<br>• Mandatory enrollment and contribution to social security programs (BPJS Ketenagakerjaan & BPJS Kesehatan).<br>• Promulgate Company Regulations (PP) or negotiate a Collective Bargaining Agreement (PKB).<br>• Satisfy post-termination compensation entitlements. | --- #### 4. Corporate Compliance Guidance 1. **Employment Contract Restructuring:** Audit all PKWT templates to verify that fixed-term employees are not assigned to continuous core operational tasks. Verify that end-of-contract compensation calculation algorithms comply with GR No. 35/2021. 2. **Alignment with Constitutional Court Decision No. 168/PUU-XXI/2023:** Review existing outsourcing structures and monitor forthcoming Ministry of Manpower sectoral regulations regarding restricted outsourcing job classifications and revised sectoral minimum wage thresholds. 3. **Company Regulations (*Peraturan Perusahaan* / PP) Certification:** Any business entity employing 10 (ten) or more personnel must establish and register written Company Regulations with the competent Manpower Office, subject to mandatory renewal every 2 (two) years. 4. **Industrial Dispute Mitigation:** Ensure comprehensive, signed, and dated bipartite minutes of meeting (*Risalah Perundingan Bipartit*) are kept during any formal employment grievance or termination proceeding to satisfy procedural requirements under Law No. 2 of 2004.