FAQs on compensating contract workers in Indonesia

The following FAQs are based on Article 15 of Indonesia's Government Regulation No.35 of 2021, which addresses term employment agreements, transfer of power, working hours and rest periods, and termination of employment.

Employers in Indonesia who employ contract workers can refer to the Ministry of Manpower's latest series of frequently asked questions (FAQs) to settle potential issues pertaining to compensation.

These are as follows:

Q1 Are contract employees who resign entitled to compensation? What if one of the parties terminates the employment contract before the period specified in the employment agreement (perjanjian kerja waktu tertentu, or PKWT)? What is the payment of compensation like?

In the event that one of the parties terminates the employment contract before the end of the period specified in the PKWT, the employer must provide compensation according to the amount which is calculated based on the employment agreement period that has been implemented by the worker. (Find the Bahasa Indonesia explanation here.)

Q2 How to calculate the payment of compensation?

The amount of compensation is given in accordance with the following scenarios:

  1. PKWT for 12 (twelve) months continuously, employers are to provide one month worth of wages.
  2. PKWT for one month or more, but less than 12 months, employers are to calculate proportionally with the formula: working period / 12 x 1 (one) month wage.
  3. PWKT for more than 12 months, employers are to calculate proportionally with the formula: working period / 12 x 1 (one) month wages

In the case of PKWT based on the completion of work faster than the length of time agreed in the agreement, then the compensation money is calculated until the completion of the work. It should be noted that the wages used as the basis for calculating the compensation mainly consist of basic wages and fixed benefits. (Find the Bahasa Indonesia explanation here.)

Q3 What if PKWT is extended? When are we supposed to pay the compensation?

If the PKWT is extended, the payment of compensation will be done at the end of the PKWT period before the renewal for the extension period. And the next payment of compensation will be done after the PKWT extension period ends, or has been completed. (Find the Bahasa Indonesia explanation here.)

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Image / Indonesia's Ministry of Manpower (MOM)

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