Indonesia's New Manpower Bill: What Foreign Employers Must Know

If you're an international business hiring in Indonesia or considering it, you've probably heard that currently there’s a major overhaul of the country's Labor Law underway. Indonesia's government is drafting a new Manpower Bill (RUU Ketenagakerjaan) aimed to consolidate Indonesia's employment regulations into a single and unified law.

This new law is still a draft and not an enacted law. The version referenced in this article remains under deliberation in Indonesia's House of Representatives (DPR). Provisions and articles may still change before final passage. However, understanding the direction of this reform now can help foreign employers plan ahead rather than scramble later.

Also Read: What Businesses Should Know Before Using Employer of Record Services in Indonesia

Why Is This Bill Happening?

Indonesia's Constitutional Court (Mahkamah Konstitusi) in Decision No. 168/PUU XXI/2023, instructed the government as the regulator to reorganize labor regulations into one standalone law. As of now, Indonesia's employment rules are split across two laws, the 2003 Manpower Law and the 2023 Job Creation Law which created inconsistencies. This new bill is essentially a consolidation effort aiming to give employers a single and clearer legal standpoint.

Key Provisions Foreign Employers Should Watch

1. Fixed Term Contracts (PKWT) Face Tighter Rules

Fixed term employment contracts are based on a specific time period and or the completion of a specific task. These contracts would be capped at a maximum of 4 years, this include specific work that are designated for duration of 2 years which renewable for maximum 2 times with each renewals for a maximum period of 1 year.

There are several requirements for the contracts, which must be in writing, cannot include a probationary period and can only be used for certain jobs that according to the type and nature or activities of the job will be completed within a certain time. If a contract violates these conditions, the employee automatically becomes a permanent employee by operation of law. These requirements ensure companies whose operations rely on repeated short term contracts for roles that are effectively permanent should treat this as a compliance area worth reviewing to avoid issues.

2. Outsourcing Remains Legal, But More Regulated

Companies can still outsource part of their operations through a written outsourcing agreement. The types and fields of outsourced work must consist of supporting service activities or activities not directly related to the production process. The supporting service activities includes cleaning services, food provision services for workers, security personnel or security unit services, supporting services in the mining and petroleum sectors, and transportation provision services for workers.

The provision put more emphasis on protecting worker entitlements in outsourcing vendors, a common issue point in current practice. These entitlements include working conditions, worker competence increase, protection, wages, social security and welfare, as well as the dispute resolution process.

3. Minimum Wage and Severance Wage Components

Provincial governors retain authority to set minimum wages, with the possibility of higher city or regency level minimums. The minimum wage is calculated using a formula that takes into account variables such as economic growth, inflation, and specific indices.

The wage components used to calculate severance are clarified as base salary plus fixed allowances which are relevant for long term HR budget planning.

4. Working Hours, Overtime, and Leave

The standard regulated working hours are set at 7 hours per day (40 hours per week, 6 day workweek) or 8 hours per day (40 hours per week, 5 day workweek) with overtime hours capped at 4 hours per day and 18 hours per week.

Meanwhile, standard annual leave is a minimum of 12 working days after 12 months of continuous employment, these details are important matters for shift planning and overtime policy design.

5. A More Structured Severance Framework

In the event of the termination of employment, the Employer is required to pay severance pay and long service appreciation pay as well as compensation for the entitlements due.

Severance pay would follow a tiered scale based on tenure, from 1 month's wage for less than a year of service up to 9 months' wage for 8+ years of service plus a separate long service payment for employees with 3 years or more up to 24 years or more of tenure. These provisions will directly affect cost projections for any workforce restructuring.

6. Industrial Relations and Unions

The regulated industrial relations involve three interconnected parties, including the government, workers, and businesses. The three parties function to ensure that the continuity of business operations including policies and the well being of the workforce to ensure the business can function properly and the welfare of the workers is safeguarded.

Industrial relations are implemented through the workers' unions, employers' organizations, bipartite institutions, tripartite institutions, company regulations, collective labor agreements, manpower laws and regulations, industrial relations dispute settlement institutions, and manpower training.

With these provisions, the bill also encourages every worker the right to form and become a member of a trade union/labor union including the right to collect and manage finances as well as to account for the organization's finances including strike funds.

7. Foreign Worker (TKA) Provisions

An employer employing foreign workers is required to have a foreign worker utilization plan (RPTKA) approved by the relevant Minister. Foreign workers may be employed in Indonesia for specific positions and duration which also must possess the competence required for the position to be held.

Whilst these provisions does not apply to several instances such as

• Members of Company management (Board of Director and/or Commissioner) as shareholders;
• Diplomatic and consular staff at foreign representative offices;
• Foreign Workers required by an Employer for types of production activities that halted due to emergencies, vocational training, technology based (start-up companies), business visits, and research for a specific period; or
• Foreign workers who remain in a valid marriage with an Indonesian citizen and/or are children of a valid marriage with an Indonesian citizen.

8. Stronger Oversight and Penalties

Labor inspection is carried out by competent and independent labor inspectors to ensure the workforce and regulatory implementation. Every company is required to provide the necessary access and data to labor inspectors for the purpose of conducting workplace inspections and submit reports on the inspection to the Minister periodically.

The bill also strengthens the labor inspection mechanisms including administrative sanctions such as warnings, written reprimands, fines and criminal provisions for certain serious violations.

Why This Matters for Foreign Companies Right Now

Even whilst this bill is still in draft, these signals where Indonesian labor policy is heading. For foreign companies already employing staff in Indonesia or exploring market entry, the practical risk is not just future compliance but also the complexity of navigating Indonesian employment law while regulations are actively shifting. Contract structuring, statutory benefits, severance calculations, tax withholding, and BPJS (social security) registration are already notoriously easy to get wrong for companies without local legal infrastructure and with regulatory change only raises the stakes.

Also Read: What Happens During Due Diligence If Your Team Is Employed Through EOR

The Simpler Path: Employer of Record (EOR) in Indonesia

This is exactly the kind of complexity CPT Corporate's Employer of Record (EOR) service is built to handle. Instead of setting up a legal entity in Indonesia, a process that can take months and requires ongoing local compliance obligations, CPT Corporate becomes the legal employer of an Indonesia based team on a company's behalf.

That means:

• Employment contracts drafted and maintained in full compliance with current (and evolving) Indonesian labor law
• Payroll, tax withholding, and BPJS (social security) administration handled end to end
• Severance, leave, and overtime calculations managed correctly and updated automatically as regulations change
• Full control retained over the team's day to day work, without carrying the legal employer burden

For foreign companies watching Indonesia's labor reform unfold, an EOR partner means not having to become an expert in Indonesian employment law. CPT Corporate's compliance team tracks these changes instead.

Planning to hire in Indonesia, or want to make sure an existing team stays compliant as labor law evolves? Talk to CPT Corporate's team about Employer of Record solutions in Indonesia, and focus on growing the business instead of navigating local labor bureaucracy.

This article is based on the draft of the Manpower Bill (RUU Ketenagakerjaan), which remains under deliberation and has not yet been enacted into law. The latest status should always be verified through Indonesia's House of Representatives (DPR) and Ministry of Manpower.