Types of employment contracts in Indonesia
Following Manpower Law Article 1 Paragraph 14, "A work agreement is an agreement between a worker or laborer and an employer or employer that contains the terms of employment, rights, and obligations of the parties." This is also in accordance with what is stated in Law Number 13 of 2003 concerning manpower.
In Indonesia, there are several types of employment contracts that employers can use to hire workers. The most common types of employment contracts in Indonesia are:
- Permanent Employment Contract (PKWTT)
This type of contract is the most common in Indonesia and is used for long-term employment. It offers job security to the employee and is renewable after the contract period expires.
The contract includes a probationary period and can last three to six months at most. During the probationary period, the company is required to pay wages at least according to the nominal minimum wage applicable in the area.
Fixed-term Employment Contract (PKWT)
This type of contract is used for a specific period of time, usually for a project or a certain duration. After the contract period ends, the employee's employment will automatically terminate.
Contracts for non-permanent employees must be made in writing, the contract letter must also be registered with the Manpower Office. The longest PKWT period is three years. If it exceeds that, contract employees must be appointed as permanent employees. Refers to the rules for severance pay for contract employees in Article 15 No. 35, Year 2021.
PKWT financial compensation
Employees of PKWT who have worked for at least one month continuously and who are not foreign workers (TKA) hired by PKWT are eligible for compensatory money.
Upon the conclusion of the PKWT term, compensation is to be paid prior to any contract extensions, if any are made. Additionally, the entrepreneur pays for the contract extension after the PKWT extension term has ended.
Outsourcing Employment Contract
This type of contract is used when a company outsources work to a third-party service provider. The employee is technically employed by the service provider, but works at the company as an outsourced worker.
A contract for outsourcing work must also be made in writing and include a Transfer of Protection Employment. In accordance with the Decree of the Constitutional Court Register No. 27/PUU-X/2011, Transfer of Protection Employment itself is the principle of transferring protective measures for workers.
Probationary employment contract
This type of contract is used to assess the suitability of an employee for a particular job. The contract period is usually for a few months, and if the employee performs well, they will be offered a permanent contract.
A probation agreement is an obligation that does not have to be fulfilled and carried out by a company.
This is clearly explained in Article 58 paragraph (1) of Law no. 13/2003 on Manpower (Labor Law). It is stated that for contract employees, in the Specific Time Work Agreement (PKWT), there cannot be a probationary period.
However, if the worker and the company agree to a probation, the company can immediately apply a probationary period for prospective workers as well as permanent employees.
Part-time employment contract
This type of contract is used when an employee is only required to work for a specific number of hours per day, week, or month.
A part-time employee contract itself is a work agreement with a working time of less than 7-8 hours per day or less than 35-40 hours per week. The provision of a salary in the contract is also a mutual agreement. Often, part-time workers are students who want to get additional pocket money.
It is important to note that Indonesian labor law requires employers to provide a written employment contract to their employees, which outlines the terms and conditions of their employment. The contract should include details such as the employee's job title, duties and responsibilities, salary and benefits, working hours, and duration of the contract.
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