Everything to Know about Employment of Foreigners and Their Termination Benefits in Indonesia

If you are looking to hire foreigners to work for your company in Indonesia, you need to familiarise yourself with a guideline called SEMA No. 1.

The 41-page SEMA No. 1 consists of new policies that Indonesian courts must exercise when dealing with civil, criminal, military and religious issues. It also contains the policies of the Labour Court especially in regards to foreign employment and its termination benefits specified under the Manpower Law 13/2003 in Indonesia.

Cekindo will elaborate the labour policy in this article.

Overview of Foreign Employment and Its Termination Benefits in Indonesia

Under the Indonesian Manpower Law, foreigners are only allowed to work under a fixed-term contract. In other words, it means that foreigners are not able to work permanently in Indonesia.

As a result, expats are not able to have the termination benefits such as service pay, severance pay, and compensation pay, as specified in the law.

Foreigners Employed Permanently in Indonesia

So can foreigners be hired as permanent employees in Indonesia? There is a debate going on for this question due to one of the sections under the Manpower Law mentioning that the agreement must specify the employment period of foreign staff.

According to the law, two years’ time is the maximum period for a fixed-term employment contract. The contract can further be extended once for a maximum of one year; and be renewed once for a maximum for two years along with a grace period of 30 days.

The writing in all fixed-term employment contracts is required to be Indonesian language but bilingual employment contracts are also allowed. However, the governing language in a bilingual agreement must be Indonesian.

A fixed-term employment contract will become a permanent employment contract by law if companies violate the mentioned requirements.

Therefore, in other words, foreigners can be either fixed-term employees or permanent employees. The Labor Court does not further state any further decisions on this issue.

SEMA No. 1 and Foreign Employment

The Indonesian Supreme Court released new Labor Court’s policies which are listed below:

• Companies can only employ foreigners with a fixed-term employment agreement (PKWT) for particular positions for a certain period of time
• Foreign employees are only eligible for legal protections when they have acquired a work permit in Indonesia
• Once a foreign employee’s work permit has expired but their fixed-term employment agreement hasn’t, the rest of the period specified in the fixed-term employment contract will not subject to legal protection under the Indonesian Labor Law

In Conclusion

The issuance of SEMA No. 1 helps provide clear provision that is lacking the Manpower Law. SEMA No. 1 has changed the foreign employment status in Indonesia, eliminating the possibility that foreigners can be employed permanently in Indonesia.

Since SEMA No. 1 provides certainty that expats can only work under a fixed-term employment agreement as long as their work permit is valid, foreigners can thus enjoy the termination benefits stated solely in their fixed-term contracts in Indonesia.

How Cekindo can Assist Foreigners to Work in Indonesia

Cekindo houses a dedicated team of legal experts specialising in employment law in Indonesia. We have assisted numerous private and governmental entities and sectors on diverse employment subjects and matters.

Many foreign and local leading companies have also turned to us to ensure that they are in full compliance with the local employment policy and legislation.

In addition to providing assistance in general employment practice, we also help in drafting employment contracts, non-disclosure agreements, internal policies, as well as crisis management to avoid any unforeseen legal consequences and reputational damage.

Cekindo is your long-term partner with practical approaches in order to add significant value to your business. Let us know about your employment concerns now.

Fill in the form below.