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The Duration of Fixed-Term Employment Contracts in The Omnibus Law: from 3 Years to 5 Years

Significant changes in Indonesian labor law occurred with the enactment of the Omnibus Law in 2023, Law No.6 of 2023. One of the notable changes pertains to the provisions regarding Fixed-Term Employment Contracts (known as Perjanjian Kerja Waktu Tertentu (PKWT) in Indonesia), which previously PKWT had a maximum duration of 3 years. However, under the Omnibus Law and Government Regulation No. 35 of 2021 concerning Fixed-Term Employment Agreements, Outsourcing, Working Hours and Break Times, and Termination of Employment (GR 35/2021), the duration of PKWT has been extended to a maximum of 5 years.

The Omnibus Law amended Article 59 of the Labor Law concerning the duration of PKWT, with specific provisions on the duration and extension limits of fixed-term employment agreements regulated by Government Regulations. Article 8 of GR 35/2021, which explicitly states that PKWT based on a fixed duration can be made for up to 5 years. This represents a significant change from the previous law that limited the duration of PKWT to 3 years. Furthermore, PKWT extensions can be made by mutual agreement between employers and workers, with the condition that the total duration of PKWT and its extensions does not exceed 5 years.

Changes in the duration of PKWT have direct implications for the employment relationship between employers and workers. With the extended duration, employers have more flexibility in utilizing labor resources through PKWT. This can provide employers with additional time to complete specific projects or address seasonal work. On the other hand, workers may feel more job security over a longer period. There are also concerns associated with this change. Some parties are worried that the longer duration of PKWT may make workers more vulnerable to exploitation or abuse by employers. Therefore, it is crucial for the government and relevant stakeholders to ensure that workers' rights are protected, and the regulations for extending PKWT are applied fairly.

However, with regard to PKWT employees, at the end of their contract, the company is obliged to provide compensation, as stipulated in Article 15 paragraph (1) of GR 35/2021, which states that employers must provide compensation to workers whose employment is based on a PKWT. PKWT employees entitled to compensation are those who have had at least 1 month of continuous service and are not foreign workers employed under PKWT.

Furthermore, Article 15 paragraph (2) of GR 35/2021 states that compensation is given upon the completion of the PKWT period. If the contract is extended, then compensation is provided upon the completion of the initial PKWT period before the extension, and for the duration of the extended PKWT, the subsequent compensation is given after the extension period of the PKWT ends or is completed.

The changes of PKWT resulting from the Omnibus Law and GR 35/2021 represent a significant step in the ongoing labor law reform efforts in Indonesia. This change reflects the evolution in labor policies in Indonesia and will be a crucial part of discussions on achieving the right balance between the needs of employers and the rights of workers in an ever-changing labor landscape.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author: Dewi Susanti

Schinder Consultant London Ltd.


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