Authors
On 28 October 2026, the Government enacted the long awaited Law No. 27 of 2026 on Manpower Protection ("Law 27/2026"), which entered into force on the same date.[1] Law 27/2026 revokes the previous Law No. 13 of 2003 on Manpower and the employment provisions of Law No. 6 of 2023 on the Stipulation of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation into Law (together, the "Manpower Law"),[2] and consolidates Indonesia's employment framework into a single law, as mandated by Constitutional Court Decision No. 168/PUU-XXI/2023 ("MK Decision 168/2023").
Law 27/2026 also changes several rules previously set out in the implementing regulations of the Manpower Law, including Government Regulation No. 34 of 2021 on the Use of Foreign Workers ("GR 34/2021"), Government Regulation No. 35 of 2021 on Fixed-Term Employment Agreements, Outsourcing, Working Hours and Rest Periods, and Termination of Employment ("GR 35/2021") and Government Regulation No. 36 of 2021 on Wages, as amended ("GR 36/2021"). In this edition of our ARMA Update, we summarise the key changes under Law 27/2026 that are most relevant for employers.
A. Fixed-Term Employment and Probation
Law 27/2026 tightens the rules on fixed-term employment agreements (perjanjian kerja waktu tertentu or "PKWT") and probation as follows:
1. Maximum term of 4 (four) years
A PKWT may be agreed for up to 2 (two) years and extended no more than 2 (two) times, each for up to 1 (one) year, so that its overall term may not exceed 4 (four) years, compared to 5 (five) years under GR 35/2021. For example, if an employer enters into a PKWT for 1 (one) year and extends it twice for 6 (six) months each, the PKWT may not be extended any further, so that its overall term would only be 2 (two) years rather than 4 (four) years. The employer must also notify the employee in writing of any planned extension at least 7 (seven) days before the PKWT ends.[3]
2. Probation
During probation, the employer must pay at least 75% (seventy-five percent) of the wage applicable to the position, which may not be lower than the minimum wage, and register the employee in the social security programmes. Further, the employer must appoint an employee who meets the requirements and completes the probation as a PKWTT employee.[4] Underpayment during probation or failure to provide social security is punishable by imprisonment of up to 2 (two) years and/or a fine.[5]
3. Retention of diplomas and personal documents
Employers are prohibited from requiring or holding original diplomas and/or personal documents of employees as a guarantee, except for certificates obtained through employer-funded education or training under a written agreement. Violations are subject to administrative sanctions, and the employer remains obliged to return the documents.[6]
B. Outsourcing
Law 27/2026 restricts outsourcing to supporting services that are not directly related to the production process, namely only:[7]
- cleaning services;
- catering for workers;
- security services; and
- transportation for workers.
In addition, companies in the mining and/or oil sector may outsource supporting services in those sectors, while state-owned enterprises may outsource supporting services, but in both cases only through their own subsidiary in the form of a limited liability company.[8]
Where outsourced workers are used for activities directly related to the production process or main business line, their employment relationship transfers to the user company by operation of law.[9] Outsourcing companies must also be limited liability companies with the relevant business licence, prepare a wage structure and scale, and may not reduce the agreed normative rights of their workers, while a worker's service with a previous outsourcing company counts towards the maximum PKWT term if the work remains the same.[10]
Notably, this list is narrower than the 6 (six) categories under Minister of Manpower Regulation No. 7 of 2026 ("MoM Reg 7/2026"), as discussed in our previous ARMA Update, which also covered operational support services and supporting work in the electricity sector. Although MoM Reg 7/2026 remains in force to the extent that it does not contradict Law 27/2026,[11] Law 27/2026 sets out a specific list of permitted supporting services that does not include these 2 (two) categories. The forthcoming implementing regulation may provide further clarity on this point, and arrangements falling under these categories should be reassessed in the meantime.
Employers should be aware that outsourcing agreements signed before 28 October 2026 remain valid until they expire, but companies engaging outsourced workers must otherwise comply with Law 27/2026 by 28 October 2027, which is also the deadline for mining, oil and state-owned companies to establish the required subsidiary.[12]
C. Working Hours, Rest Periods and Leave
The working hours and overtime limits remain unchanged, namely 7 (seven) hours a day for a 6 (six) day work week or 8 (eight) hours a day for a 5 (five) day work week, with overtime of up to 4 (four) hours a day and 18 (eighteen) hours a week, and are now set out in Law 27/2026 together with the overtime rates for weekly rest days and public holidays.[13] The key changes to rest periods and leave are as follows:
1. Long leave becomes mandatory
Employees are entitled to long leave of 30 (thirty) calendar days after every 5 (five) consecutive years of service, in which year they are not entitled to their 12 (twelve) days of annual leave. Previously, the terms of long leave were left to the employment agreement, company regulation ("PP") or collective labour agreement ("PKB"), whereas Law 27/2026 now makes it a mandatory entitlement.[14]
2. Collective leave
Where a company implements collective leave days (cuti bersama) set by the Government, those days may no longer be deducted from employees' annual leave entitlement.[15]
3. Maternity leave
Female employees are entitled to maternity leave of at least 3 (three) months, extendable by up to 3 (three) months for special health conditions certified by a doctor, with full wages for the first 4 (four) months and 75% (seventy-five percent) of wages for the fifth and sixth months, in line with Law No. 4 of 2024 on Maternal and Child Welfare.[16]
4. Paternity leave
Male employees are entitled to 2 (two) days of leave to accompany their wife during childbirth, which may be extended by up to 3 (three) days or as agreed.[17]
5. Female employees
Employers must provide equal career opportunities, lactation rooms and facilities, a zero-tolerance policy against sexual harassment and sexual violence, and periodic reproductive health checks for high-risk sectors, and may not employ pregnant employees between 23.00 and 07.00.[18]
Failure to grant rest periods and leave is now punishable by imprisonment of up to 1 (one) year and/or a fine, and failure to grant maternity leave by imprisonment of up to 4 (four) years and/or a fine.[19]
D. Wages
Law 27/2026 largely maintains the current minimum wage framework under GR 36/2021, with the following key changes:
1. Exemption from the minimum wage
A company that is unable to pay the minimum wage may apply to the governor for an exemption (perkecualian), based on a bipartite agreement and an external audit.[20]
2. Micro and small enterprises
Wages agreed in micro and small enterprises may not be lower than 50% (fifty percent) of the applicable minimum wage.[21] Previously, under GR 36/2021, such wages had to be at least 50% (fifty percent) of the average household consumption and at least 25% (twenty-five percent) above the poverty line at the provincial level.[22]
3. Wage structure and scale
Employers must prepare a wage structure and scale taking into account the suggestions of employee representatives or the labour union, and attach it to the PP or PKB. Failure to do so is subject to administrative sanctions.[23]
4. Security for unpaid entitlements
Unpaid employee entitlements agreed in a bipartite agreement (perjanjian bersama) or awarded by a final and binding court decision become debts secured by all of the employer's assets.[24] Previously, employees' wages and other entitlements only took priority in the event of the employer's bankruptcy or liquidation.[25] Under Law 27/2026, such entitlements become secured debts by operation of law once agreed or awarded, and any person or government agency lawfully in control of the employer's assets must prioritise their payment from those assets.[26] Accordingly, creditors and purchasers dealing with the assets of an employer with outstanding employee claims may need to take these claims into account.
E. Termination of Employment and Severance
The most significant changes under Law 27/2026 concern termination of employment, as follows:
1. No termination by notice
The termination notice mechanism under GR 35/2021, under which an employer could terminate an employee who did not object within 7 (seven) working days of receiving the notice, is no longer available. Before any termination, the employer must take 10 (ten) prevention steps in sequence, including reducing overtime and shifts, not renewing expired PKWTs, adjusting managerial wages and facilities, temporary or rotating lay-offs, and offering voluntary early retirement.[27] Only if termination remains unavoidable may the employer propose it through bipartite negotiations, which must be completed within 30 (thirty) working days. If no agreement is made, termination may only be effected after a final and binding decision of the industrial relations court, failing which it is null and void and the employer must reinstate the employee.[28]
2. Termination grounds
Efficiency (efisiensi) and urgent violations are not listed as termination grounds, while a new ground is introduced for permanent closure of the company by the owner's decision.[29] Further, the implementing regulation replacing GR 35/2021 may clarify whether efficiency remains available as a termination ground.
3. Higher severance
The multipliers of severance pay (uang pesangon or "UP") and long-service pay (uang penghargaan masa kerja or "UPMK") are increased for most termination grounds, as summarised below:[30]
| Termination Ground | GR 35/2021 | Law 27/2026 |
|---|---|---|
| Merger, consolidation, acquisition or separation, where the employer is unwilling to accept the employee | 1x UP, 1x UPMK | 2x UP, 1x UPMK |
| Closure due to continuous losses for 2 (two) years | 0.5x UP, 1x UPMK | 1x UP, 1x UPMK |
| Permanent closure by the owner's decision | 1x UP, 1x UPMK | 1x UP, 1.5x UPMK |
| Force majeure | 0.5x UP, 1x UPMK | 1x UP, 1x UPMK |
| Suspension of debt payment obligations (PKPU) or bankruptcy | 0.5x UP, 1x UPMK | 1x UP, 1x UPMK |
| Employee's application due to the employer's misconduct | 1x UP, 1x UPMK | 2x UP, 1x UPMK |
| Violation after the first, second and third warning letters | 0.5x UP, 1x UPMK | 1x UP, 1x UPMK |
| Prolonged illness or disability due to a work accident exceeding 12 (twelve) months | 2x UP, 1x UPMK | 2x UP, 2x UPMK |
| Retirement | 1.75x UP, 1x UPMK | 2x UP, 1x UPMK |
| Efficiency | 0.5x or 1x UP, 1x UPMK | Not listed as a termination ground |
4. Separation pay and compensation for entitlements
Under the previous Manpower Law, the amount of separation pay (uang pisah) was left entirely to the employment agreement, PP or PKB. Where the company does not regulate the amount of separation pay, Law 27/2026 provides for a minimum of 1 (one) month's wage. Further, where the employment agreement, PP or PKB already provides for a higher amount, that amount continues to apply. Meanwhile, compensation for entitlements (uang penggantian hak) still does not include the 15% (fifteen percent) housing and medical allowance that applied before the Job Creation Law. Although the 15% (fifteen percent) allowance was reinstated in earlier drafts of Law 27/2026, it was not included in the enacted version.[31]
5. Severance reserve fund
Employers, other than micro and small enterprises, must provide a severance reserve fund (dana cadangan pesangon) managed by a government institution to guarantee the fulfilment of employees' entitlements upon termination of employment for reasons other than retirement where the employee has not been enrolled in a pension programme. Employers failing to do so are subject to administrative sanctions up to revocation of their business licence. Its mechanism will be regulated in a government regulation.[32]
F. Company Regulations, Bipartite Cooperation Institutions and Collective Labour Agreements
1. PP
Employers with at least 10 (ten) employees must still have a PP, which must be prepared with input from employee representatives and distributed to employees in printed and/or electronic form. Failure to have, renew or distribute a PP is now subject to administrative sanctions instead of criminal fines.[33]
2. Bipartite cooperation institution
Companies with at least 10 (ten) employees must establish a bipartite cooperation institution (Lembaga Kerja Sama Bipartit), compared to at least 50 (fifty) employees under the previous Manpower Law.[34]
3. PKB
Employers must respond to requests to negotiate, renew or extend a PKB, distribute copies of the PKB to all employees, and bear all costs of preparing the PKB, failing which they are subject to administrative sanctions.[35]
G. Employer Protection and Occupational Health and Safety Obligations
Law 27/2026 introduces a broad set of protection obligations, under which employers must protect employees' personal data, occupational health and safety ("OHS"), and prevent extortion, fraud, violence, discrimination and bullying, as well as provide workload management, counselling services and an accessible internal complaint mechanism.[36] Failure to fulfil the obligations on personal data, OHS and the prevention of extortion, fraud, violence, discrimination and bullying is punishable by imprisonment of up to 4 (four) years and/or a fine, while the remaining obligations are subject to administrative sanctions.[37]
On OHS, every company must form an OHS committee and have a work accident and occupational disease prevention programme, while companies with at least 100 (one hundred) employees or a high level of risk must implement an OHS management system (SMK3), which includes an annual medical check-up for employees.[38] Failure to implement OHS that results in permanent total disability or death is punishable by imprisonment of up to 6 (six) years and/or a fine.[39]
H. Foreign Workers
Employers of foreign workers must hold both a foreign worker utilisation plan (RPTKA) approved by the Minister of Manpower and an approval for the use of foreign workers.[40] The exemptions from the RPTKA requirement are now limited to diplomatic and consular staff, foreign workers needed for emergencies, business visits and research for a certain period, and foreign workers married to an Indonesian citizen for at least 5 (five) years.[41] Notably, the exemption for directors and commissioners holding a certain amount of shares under the Manpower Law and GR 34/2021 is no longer listed, which may require such foreign directors and commissioners to obtain an RPTKA, pending the implementing regulations.
Further, employers must engage foreign workers who are willing to learn Bahasa Indonesia for technology and expertise transfer positions, pay wages based on fairness and non-discrimination, and repatriate foreign workers after their employment ends. Failure to comply with the wage and repatriation obligations is punishable by a fine.[42]
I. Sanctions and Transitional Provisions
Law 27/2026 expands criminal liability for employers and introduces separate fines for corporations. Among others, failure to register employees in the social security programmes is now punishable by imprisonment of up to 4 (four) years and/or a fine, but only after administrative sanctions have not been complied with, while intentional non-payment of severance remains punishable by imprisonment of up to 4 (four) years or a fine.[43]
Industrial relations disputes registered with the industrial relations court before 28 October 2026 will be settled based on the previous Manpower Law, while labour inspection will be transferred from the provincial governments to the Ministry of Manpower within 2 (two) years.[44]
J. What's Next for Employers
GR 34/2021, GR 35/2021 and GR 36/2021 remain in force only to the extent that they do not contradict Law 27/2026, so provisions that conflict with Law 27/2026, such as the 5 (five) year PKWT limit, no longer apply. The implementing regulations of Law 27/2026 must be issued by 28 October 2027 and may further clarify several of the points discussed above.[45]
As for outsourcing, Law 27/2026 does not provide a general transition period, meaning that most of its obligations already apply. For instance, Law 27/2026 does not grandfather existing PKWTs, so PKWTs whose overall term, including extensions, would exceed 4 (four) years may need to be reviewed.
In light of the above, employers may consider:
- reviewing existing PKWTs and templates against the 4 (four) year limit and the 7 (seven) day extension notice;
- auditing outsourcing arrangements against the 4 (four) permitted categories ahead of 28 October 2027;
- updating PPs, PKBs and leave policies, particularly on long leave, collective leave and maternity leave;
- reviewing wages in employment agreements and appointment letters;
- revisiting restructuring and termination procedures, including the 10 (ten) prevention steps, and budgeting for the higher severance and the severance reserve fund;
- establishing a bipartite cooperation institution and OHS committee, and adopting anti-harassment, complaint and counselling policies; and
- assessing whether foreign directors and commissioners require an RPTKA.
In conclusion, Law 27/2026 marks a significant shift in Indonesia's employment framework by limiting flexible employment practices, increasing termination costs and expanding employer obligations, many of which are now backed by criminal sanctions. Since most of its provisions already apply while several implementing regulations are still pending, employers that review their employment documents and practices at an early stage will be better positioned to ensure compliance and mitigate the risk of disputes.
Footnotes
Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.
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