Co-funded by the European Union

Indonesia: Revision of 81 laws results in an Omnibus Bill on Job Creation

  • On 5 October 2020, the Indonesian Parliament adopted the “Omnibus Bill on Job Creation” to favour investments and positively impact employment in the country.
  • The labour law component of the Bill introduces important changes for employers on minimum wages, outsourcing and temporary contracts, severance payment, unemployment and other matters.

President Joko Widodo first proposed an “omnibus law” to boost Indonesia’s regional competitiveness in October 2019. He said he wanted to simplify the application process for business licenses across all business sectors, including land acquisition permits, to create more jobs, boost infrastructure development, and attract foreign investment.

Apart from job creation, the expected goals of the law are:

  • Growth rate above 6% to achieve the developed economic status by 2045 (with GDP per capita >USD20,000);
  • Supports for micro and small medium size enterprises and cooperatives to facilitate the transition from the informal to formal sector. Currently over 55% of the labour force is in the informal sector.

By amending previous laws, the Bill addressed four key areas:

  1. Ease of doing business,
  2. Simplification of investment requirements,
  3. Strengthening competitiveness of labor market, and
  4. Boosting the micro, small & medium sectors.

In its labour law component, the Law regulates issues like minimum wages, severance pay, outsourcing, work of expatriates, unemployment insurance, overtime, among others, as follows:

  • With regards to minimum wages, the Law abolishes sectoral minimum wages in favour of provincial minimums that will also take into account the inflation rate and productivity increases. The Law also allows to differentiate between minimum wages for small and medium size enterprises and larger companies.

  • All activities of a company can now be outsourced and there is no time limit for temporary contracts (previously 5 years).
  • Expatriate workers will have easier access to the Indonesian labour market as the permit is no longer required for certain positions and certain type of company (i.e. technology-based start-ups).
  • Severance payment is reduced from 32 months based on Law 13/2003 to 19 months of which 6 are financed by the State.
  • Unemployment Insurance is improved, with a new social security scheme in addition to the existing ones for Death, Accident, Old Age and Pension. Through this scheme, the dismissed workers may access some financial support, as well as training and job placement. Initially the funds will be made available by the government, but then they will most probably derive from the Death, Accident, and Old Age social security schemes.
  • Overtimeis extended.
  • Any administrative violation of the law will no longer result in criminal sanctions but in administrative fines.

Prior to the adoption of the law, the Indonesian Employers’ association (APINDO) welcomed this Bill and acknowledged the importance of its goal, which is to attract investments and create jobs. APINDO’s deputy chairman, Bob Azam, commented on the Bill on The Jakarta Post, stating that “It’s true that we should focus on preventing the spread of COVID-19. However, we also have to simultaneously anticipate the skyrocketing number of layoffs by improving our business climate”. He continued saying that “right now, the business sector is collapsing. There are a number of companies that have closed their operations and sold their assets, and we cannot continue doing business-as-usual to survive.

However, during the adoption of the Law, some criticisms were raised at the national level due to the Bill’s ability to favour investments only in capital intensive sectors, with minimal labour absorption and limited employment creation and the potential negative repercussions on the environmental protection.