In industrial relations practice in Indonesia, it is not uncommon for companies to convert employees working under a Fixed-Term Employment Agreement (Perjanjian Kerja Waktu Tertentu or “PKWT”) into employees under a Permanent Employment Agreement (Perjanjian Kerja Waktu Tidak Tertentu or “PKWTT”) before the expiration of their contract period. This step is generally taken due to the company’s business needs or as a form of appreciation for employees whose performance is considered satisfactory.

However, what happens if, after being appointed as a permanent employee (PKWTT), the employee subsequently decides to resign? Is the employee still entitled to PKWT compensation pay, or is the employee only entitled to receive compensation for outstanding rights (uang penggantian hak) as regulated under Indonesian labor laws?

This question frequently arises in practice and often leads to differing interpretations between employees and employers. Therefore, it is important to understand how labor regulations govern employees’ rights in such circumstances.

Understanding the Difference Between PKWT and PKWTT

Based on Government Regulation of the Republic of Indonesia Number 35 of 2021, PKWT is an employment agreement between an employee and an employer for a specified period of time or for a particular type of work. Meanwhile, PKWTT is an employment agreement between an employee and an employer establishing a permanent employment relationship.

Simply put, a PKWT is commonly known as a fixed-term or contractual employment relationship with a specified duration, whereas a PKWTT is a permanent employment relationship that is not limited by a predetermined end date.

The distinction between these employment statuses also affects the rights available to employees, including rights relating to PKWT compensation pay and compensation for outstanding rights.

Is an Employee Converted from PKWT to PKWTT Still Entitled to PKWT Compensation?

Since the enactment of the Job Creation Law and its implementing regulations, employees working under a PKWT have received additional protection in the form of PKWT compensation pay. The legal basis for this entitlement is provided under Article 61A of Law No. 13 of 2003 concerning Manpower, as lastly amended by Law No. 6 of 2023, which generally requires employers to provide compensation to employees upon the expiration of a PKWT.

This provision is further reinforced by Article 15 of Government Regulation of the Republic of Indonesia Number 35 of 2021, which stipulates that employers are obligated to provide compensation pay to employees employed under a PKWT, and that such compensation must be paid upon the termination of the PKWT. In practice, there is still a common assumption that when an employee is converted to a PKWTT before the expiration of the PKWT period, all rights accrued during the PKWT period are automatically extinguished. This assumption is not entirely accurate.

PKWT compensation pay is a right that arises from the period of service performed by the employee during the employment relationship under PKWT. Therefore, this entitlement remains attached to the employee even if the employee subsequently obtains permanent employee status. In other words, the conversion of an employee from PKWT to PKWTT does not eliminate the employee’s entitlement to compensation that has accrued during the PKWT period.

Under such circumstances, the conversion to PKWTT may be viewed as the termination of the employment relationship under the PKWT, thereby requiring the employer to settle all rights that arose during the PKWT period, including payment of compensation calculated proportionally based on the employee’s completed period of service.

The compensation must be calculated in accordance with Article 16 of Government Regulation of the Republic of Indonesia Number 35 of 2021, namely on a proportional basis according to the employee’s length of service up to the effective date of conversion to PKWTT.

What If the Employee Subsequently Resigns from the PKWTT Position?

After being converted to a PKWTT employee, the employment relationship is no longer governed by the provisions applicable to PKWT employees, but instead by the regulations applicable to permanent employees. If the employee later resigns in accordance with the applicable procedures, the employee may be entitled to certain rights arising from the termination of the employment relationship. One of the rights that may be received is compensation for outstanding rights (uang penggantian hak).

This entitlement is regulated under Article 50 letter a of Government Regulation of the Republic of Indonesia Number 35 of 2021., which provides that employees who voluntarily resign are entitled to compensation for outstanding rights as referred to in Article 40 paragraph (4) of Government Regulation of the Republic of Indonesia Number 35 of 2021

Compensation for outstanding rights generally includes employee entitlements that have not yet been fulfilled, such as:

• Annual leave that has accrued but has not been taken and has not expired;
• Transportation or repatriation expenses for the employee and the employee’s family to the location where the employee was originally hired (where applicable);
• Other rights stipulated in the employment agreement, company regulations, or collective labor agreement.

Accordingly, an employee who was initially employed under a PKWT, subsequently converted to a PKWTT, and later resigns may, in principle, be entitled to both PKWT compensation pay and compensation for outstanding rights, since these entitlements arise from different legal bases and different legal events.

Difference Between PKWT Compensation Pay and Compensation for Outstanding Rights

Although these two concepts are often considered similar, PKWT compensation pay and compensation for outstanding rights have different characteristics. Understanding this distinction is important for companies to ensure compliance with applicable labor regulations while minimizing the potential for industrial relations disputes in the future.

PKWT Compensation Pay

• Arises from a PKWT employment relationship
• Regulated under Article 15 paragraph (1) Government Regulation of the Republic of Indonesia Number 35 of 2021.
• Calculated based on the employee’s length of service during the PKWT period
• May still arise even if the employee is subsequently converted to a PKWTT
• Intended to provide compensation to contractual employees

Compensation for Outstanding Rights

• Arises from the termination of an employment relationship
• Regulated under Article 50 in conjunction with Article 40 paragraph (4) of the Government Regulation of the Republic of Indonesia Number 35 of 2021.
• Calculated based on employee rights that have not yet been fulfilled
• Arise when the employment relationship ends
• Intended to compensate employees for outstanding normative rights that have not been fulfilled

If you have questions regarding employment agreements, employee compensation, industrial relations, or other employment law matters, the legal team at Schinder Law Firm is ready to assist.

For further information or legal consultation, please contact us at info@schinderlawfirm.com.

Author:
Budhi Satya Makmur