Government Regulation (PP) No. 35 of 2021: What are the Implementation Instructions for the Omnibus Law

October 2023

Government Regulation (PP) Number 35 of 2021 is a regulation that contains Specific Time Work Agreements, Outsourcing, Working Time and Rest Time, and Termination of Employment Relations.

How is this employment policy implemented? Here's a summary:
 

1. The Changes Related to Work Agreements in PP 35 of 2021
    
   When talking about work agreements, the terms commonly used within companies are Fixed-term Employment Contracts (PKWT) and Permanent Employment Contracts (PKWTT). Both are types of employee and company work contracts.
   Usually, PKWT is applied to contract employees or casual employees as described in this article.
    
2. The Changes to Work Agreements for Types of Work in PP 35 of 2021

   PP Number 35 of 2021 on employment includes several changes, specifically in Article 4 and Article 5.

    

   A PKWT based on a time period is now divided into:

   • Work that is estimated to be completed in the not-too-distant future

   • Workers who are seasonal or

   • Work related to new products, new activities, or additional products that are still under trial or exploration.
3. The Term of Employment Agreement in PP 35 of 2021

   In the PP on employment, PKWT, which is based on a period of time, is valid for a maximum of five years (wages and compensation for contract extensions are adjusted to PP Number 35 of 2021) for workers. The PKWT can be extended several times if the work carried out has not been completed, provided that the total term of the PKWT and the extension is not more than five years.

    

   If the work is still not completed, the PKWT period can be extended until the work is finished (the contract can only be adjusted until the work in question is declared complete). For other types of work that are not permanent in nature, a daily work agreement can also be made, provided that the worker works less than 21 days a month.
    
4. Employment Agreement Based on Legal Consequences

   The maximum time limit for a PKWT contract is five years. If the 5-year period is exceeded, the company is obliged to change the employee work agreement to a PKWTT.

    

   The employee's working period is still calculated from the time the work agreement was first made based on the PKWT. For employees with daily work agreements, if the employee has worked 21 days or more a month for three consecutive months or more, the company must change the work agreement to PKWTT.
    
5. Compensation if a PKWT Ends

   PP 35 of 2021, states that companies are obliged to provide workers with compensation when their PKWT ends. Compensation money is given to workers who have worked for at least one month.

    

   In the latest labor PP, if the PKWT or work agreement is extended, compensation money should be given when the extension period ends. The amount of compensation money is determined as follows:

   • PKWT for 12 (twelve) continuous months, amounting to 1 (one) months’ wages

   • PKWT for 1 (one) month or more and less than 12 (twelve) months, calculated proportionally to the calculation of work period/12 x 1 (one) months’ wages

    

   Example: 

   For a 6-month work period, compensation is 6/12 x 1 month's wages, or 0.5 x wages/month.

   A PKWT of more than 12 (twelve) months is calculated proportionally using the following calculation: work period/12 x 1 (one) months’ wages.

    

   Example: 

   For an 18-month work period, compensation is 18/12 x 1 months’ wages, or 1.5 x wages/month.

   This compensation does not apply to foreign workers who are employed based on PKWT.
    
6. Terms of layoffs/PHK (layoffs before a PKWT ends)

   According to the most recent labor law, the employer is required to provide compensation, the amount of which is determined based on the PKWT period that has been implemented by the employee, if one of the parties, in this case, the worker or the company, terminates the employment relationship while the contract period is still in effect.

    

   Layoff (PHK) mechanism in PP Number 35 of 2021

   In the latest labor PP, when a company wants to fire or lay-off an employee, the company must notify the worker no less than 14 days beforehand.

    

   When terminating employment during a trial or probation period, a notification letter must be submitted no less than 7 days before the layoff date.

    

   In Government Regulation (PP) Number 35 of 2021, if an employee does not refuses to be laid off, the company must report the status of the layoff to the Ministry of Manpower and/or the agency that manages the employment sector at the provincial, city, or district levels.

    

   If an employee who has received a layoff letter refuses to be laid off, they must write a letter of refusal, including reasons, no more than 7 days after receiving the layoff letter.
    
7. Employee Compensation or Severance Pay Related to Layoffs in PP Number 35 of 2021 Concerning Employment

    

   The company is obliged to pay severance pay and/or service gratuity and compensation for rights that should have been received.

    

   The calculation itself is the same as in the previous regulation. It's just that in PP Number 35 of 2021, the government deleted one point in the section that replaces the rights that employees who have been laid off should receive. The point in question is this:

    

   **Note: Replacement for housing as well as treatment and care is set at 15% (fifteen percent) of severance pay and/or service pay for those who meet the requirements. 
    

   For an explanation regarding the regulations for determining severance pay in PP Number 35 of 2021, see the following PDF file regarding the calculation of severance pay.
    
8. The amount of severance compensation that employees should receive

   When calculating the amount of severance pay, there are three components that employees who are laid off will receive. The three components include severance pay (UP), long service reward pay (UPMK), and replacement pay (UPH).

    

   Based on PP Number 35 of 2021, the amount of Severance Pay (UP)] granted is stated in Article 40, paragraph (2), where the provisions are as follows:

   • Work periods of less than 1 year: will receive severance pay of 1 months’ salary.

   • Work periods of 1 year or more but less than 2 years: will receive severance pay of 2 months’ salary.

   • Work periods of 2 years or more but less than 3 years: will receive severance pay of 3 month’s salary.

   • Work periods of 3 years or more but less than 4 years: will receive severance pay of 4 months’ salary.

   • Work periods of 4 years or more but less than 5 years: will receive severance pay of 5 months' salary.

   • Work periods of 5 years or more but less than 6 years: will receive severance pay of 6 months' salary.

   • Work periods of 6 years or more but less than 7 years: will receive severance pay of 7 months' salary.

   • Work periods of 7 years or more but less than 8 years: will receive severance pay of 8 months' salary.

   • Work periods of 8 years or more: will receive severance pay of 9 months' salary.

    

   Meanwhile for Long Service Award Money (UPMK), the provisions for calculating employee layoff severance pay are as follows:

   • Work periods of 3 years or more but less than 6 years: 2 months’ salary

   • Work periods of 6 years or more but less than 9 years: 3 months’ wages

   • Work periods of 9 years or more but less than 12 years: 4 months’ wages

   • Work periods of 12 years or more but less than 15 years: 5 months’ wages

   • Work periods of 15 years or more but less than 18 years: 6 months’ wages

   • Work periods of 18 years or more but less than 21 years: 7 months’ wages

   • Work periods of 21 years or more but less than 24 years: 8 months’ wages

   • Work periods of 24 years or more: 10 months’ wages

    

   For Rights Replacement Money (UPH), the components that employees will receive include:

   • Annual leave that has not been taken

   • Costs or return costs for workers and their families to the place where the worker accepted work

   • Other matters stipulated in the work agreement, company regulations, or collective work agreement

    

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