Employment Agreement in Indonesia

The sources of labor laws in Indonesia are widely dispersed among a number of national laws and regulations, presidential decrees and ministerial decrees. The main sources of employment law in Indonesia are:

  1. Law No. 13 of 2003 regarding Manpower (March 25, 2003) (“Manpower Law 13/03”);
  2. Law No. 2 of 2004 regarding Industrial Relations Dispute Settlement (January 14, 2004) (“Law No. 2/2004);and
  3. Law No. 21 of 2009 regarding Labor Unions (August 4, 2000) (“Law No. 21/2009”)


In general, these laws and regulations are applicable to all “employee”, regardless of their position (i.e. whether they are managerial or non-managerial employees) or their status (i.e. whether they are indefinite or definite period employees).  However, there are some provisions that exempt certain groups of employee from receiving certain benefits, for example: managerial employees are not entitled to overtime.


Written employment agreement must at least contain the following (Art. 54):

  1. The name, address and line of business;
  2. The name, sex, age and address of the employee;
  3. The type of job;
  4. The place, where the job is to be carried out;
  5. The amount of salary and how that shall be paid;
  6. Job requirements stating the rights and obligations of both the employer and employee;
  7. The date the work agreement starts to take effect and the period during which it is effective;
  8. The place and the date where the work agreement is made; and
  9. The signatures of the both parties who involved in the work agreement


Besides the general content requirements as abovementioned, there are special requirements also applicable to employment agreements, as follows:


  1. Terms of Employment: Please be advised that in general, employment in Indonesia consist of Indefinite Term Employment Agreement and Definite Term Employment Agreement.


  1. Indefinite-term employment agreements (permanent employee): Indefinite-term employment agreements may be made either orally or in writing (Arts. 50 and 51 of Manpower Law). In the case of an oral employment agreement, the employer is obligated to issue an appointment letter (“surat pengangkatan”) containing somewhat less detail regarding the terms of employment (Art. 63 of Manpower Law) at least contain information concerning:
  2. The name and address of the employee;
  3. The date the employee starts to work;
  4. The type of job or work; and
  5. The amount of salary.


In general, following an initial three-month probation period, indefinite-term employees can be dismissed only with the approval of the relevant industrial dispute settlement institution on the basis of repeated, well-documented violations of written rules. The calculation of severance pay for indefinite-term employment agreement type is stipulated in Art. 156(2) of Manpower Law.


  1. Definite/fixed-term employment agreements: This type of employment agreement does not carry the same severance payment obligations as indefinite-term agreements, but termination by the employer still requires the approval from Industrial Dispute Settlement Court (PPHI).


A fixed-term employment agreement must be made in writing in the Indonesian language using the Latin alphabet.  An agreement that does not fulfill these requirements shall be regarded as an indefinite-term employment agreement (Art. 57(1) and (2) Manpower Law).  In the event that a fixed-term employment agreement is written in both the Indonesian language and a foreign language, then the Indonesian text shall prevail in case of any discrepancy (Art. 57(3)).


Definite term employee may only work for a definite period of time, specific or definite project or on a daily or part-time basis. Definite term employee can be divided into full-time as well as part-time employee.


  1. Period, Extension and Renewal: A fixed-term employment agreement may not exceed two (2) years.  Such contract may be extended only once for a period that is no longer than one (1) year (Art. 59 (4)).


An employer who intends to extend a fixed-term employment agreement shall notify the relevant employee in writing no later than seven (7) days prior to the expiration of the initial term (Art. 59 (5)).


Fixed-term contracts may also be renewed.  A renewal can only be made after a period of thirty (30) days has passed from the completion period of the initial fixed-term employment agreement.  Such renewal can only be done once for period of no longer than two (2) years (Art. 59 (6)).


In light of the above, a fixed-term employment agreement can last for a maximum of five (5) years, i.e., three (3) years for the initial term plus the extension thereof and two (2) years for the renewal.


A fixed-term employment agreement that does not fulfill these requirements shall be regarded as an indefinite-term employment agreement (Art.59 (7)).


  1. Language: A fixed-term employment agreement must be made in writing and in Indonesian using the Latin alphabet. If the subject agreement does not comply with these requirements, it shall be regarded as an indefinite-term employment agreement (Art. 57 (1) and (2)).  In the event that a fixed-term employment agreement is written in both Indonesian and a foreign language, then the Indonesian version shall prevail in case of any discrepancy (Art. 57 (3)).


There is no specific provision in the Manpower Law that requires an indefinite-term employment agreement to be made in Indonesian language. However, with regard to the Law No. 24 of 2009 regarding State’s Flag, Language, Emblem and National Anthem, which states that Indonesian language shall be used in memorandum of understanding or agreement involving Indonesian private institution or Indonesian private individual, it is advisable that an indefinite-term employment agreement is also made in writing using Indonesian language.


Simbolon and Partners Law firm is as one of Leading Indonesian Corporate Legal Services and IPR consulting in Indonesia. Simbolon and Partners Lawfirm have extensive experience in corporate and commercial law, investment law, intellectual property law and versatile legal matter. We assist foreign investors in establishing their business in Indonesia through various forms of investment pursuant to the prevailing laws and regulations in Indonesia. Our knowledge, experience, and connections will help you to protect your business and avoid any legal troubles and business interruption.


Disclaimer: This article designated to provide general information only. It is not offered as advice on any particular matter, whether it be legal, procedural or other, and should not be taken as such. This article is not intended to cover all issues related to the topic discussed.