Print Back
Compensation for Employees Under PKWT with the Issuance of Job Creation Law and GR 35 of 2021
Compensation for Employees Under PKWT with the Issuance of Job Creation Law and GR 35 of 2021

Compensation for Employees Under PKWT with the Issuance of Job Creation Law and GR 35 of 2021

March 2021

The Government of Indonesia has issued Government Regulation number 35 of 2021 concerning Fixed-Term Employment Agreement, Outsourcing, Work Period and Rest Period, and Termination of Employment ("GR 35 of 2021"). GR 35 of 2021 is one of the implementing regulations of Law Number 11 of 2020 concerning Job Creation ("Job Creation Law"). Both GR 35 of 2021 and Job Creation Law provide significant changes to Law number 13 of 2003 concerning Manpower ("Manpower Law"), namely concerning compensation on the Termination of Fixed-Term Employment Agreement ("PKWT").

 

Article 62 of Manpower Law (as revised under Job Creation Law) provides that should either one of the two sides in a PKWT terminate the employment prior to the expiry of the agreement, or should their work agreement have to be ended for reasons other than:

  1. The Employees passed away, or
  2. The work agreement expires, or
  3. The certain work determined has been completed, or
  4. A court ruling and/or a decision or a resolution of the institute for the settlement of industrial relations disputes, which has permanent legal force, ends the agreement, or
  5. There is a specific situation or incident prescribed in the  Work Agreement, Company Regulations, and/or the Collective Work Agreement that may effectively result in the termination of employment;

The side that terminates the relation is obliged to pay compensation to the other side. The compensation shall be the same as the wages that the employees in the work agreement are entitled to receive from the point of termination until the agreement's expiry.

 

Based on the foregoing provision, it may be concluded that under the Manpower Law, Employees under a PKWT shall receive compensation should the Employer terminate the agreement early. The Employees are entitled to receive the wages that they would have received from the point of termination until the agreement's expiration. Considering that there are no specific stipulations should the agreement expire on the date set forth, the Employees should not receive any compensation (unless specified in the Work Agreement, Company Regulations, and/or the Collective Work Agreement).

 

However, the above stipulation has been updated with Job Creation Law and GR 35 of 2021. Job Creation Law provides Article 61A to the Manpower Law, regulating that should the work agreement end due to the work agreement expires or the certain work determined has been completed, the Employer shall be obliged to provide compensation for the employees. This provision is further regulated in GR 35 of 2021, whereas the amount of compensation to be given shall be as follows:

  1. PKWT for twelve (12) consecutive months, the Employees shall be given 1 (one) month's wages;
  2. PKWT for one (1) month or more but less than twelve (12) months, the Employees shall be given compensation with the following calculation:

work period/12 x one (1) month's wages;

  1. PKWT for more than twelve (12) months, the Employees shall be given compensation with the following calculation:

work period/12 x one (1) month's wages.

 

Concerning early termination, GR 35 of 2021 provides that should either party terminate the employment agreement before the expiry of the period specified in the PKWT, the Employers shall provide compensation which amount shall be calculated based on the PKWT period that the Employees have implemented. GR 35 of 2021 also provides that should PKWT based on the completion of the work ends in a shorter period than the time specified in the PKWT, then the compensation shall be calculated up to the completion time.

 

Upon the entry into force of GR 35 of 2021, compensation for PKWT whose term has not yet ended shall be given following the provisions under GR 35 of 2021; and the amount of compensation shall be calculated based on the work period of the Employees, which calculation starts from the date of promulgation of the Job Creation Law. Another provision in GR 35 of 2021 that is worth noting, is that compensation shall not apply to foreign workers.

 

Based on the foregoing explanation, it may be concluded that the Government of Indonesia (with the issuance of GR 35 of 2021 and Job Creation Law) has obliged Employers to provide Employees with PKWT compensation after the PKWT has ended, with the calculation and criteria as explained in this article. Employees and Employer should be aware that the obligation may deem any provision under the Work Agreement, Company Regulations, and/or the Collective Work Agreement stating that Employees under PKWT are not entitled to compensation is null and void.

 

Marccus Partners will provide the latest updates on the regulations, enabling clients to keep fully up-to-date.

For more information regarding Legal issues in Indonesia, you can contact:

mabel.parengkuan@marccuspartners.id