Draft Labour Protection Bill: A New Direction for Fixed-Term Employment, Outsourcing, Wages, and Termination
Introduction
Baleg DPR is deliberating the Bill on Labour Protection (“Bill”), following up on Constitutional Court Decision No. 168/PUU-XXI/2023, which called for labour matters to be reorganised into a standalone law. This newsletter is based on Baleg’s clean draft Revision 2 dated 26 August 2026.
If enacted, the Bill will revoke Law 13/2003 and the manpower cluster of the Job Creation Law, while GR 35/2021 remains in force insofar as it does not conflict (Arts. 261–262). The Bill may still change, but its direction is clear: stronger worker protection and higher compliance costs for companies.
Regulatory Comparison
| Aspect | UU 13/2003 jo. UU Cipta Kerja & PP 35/2021 | RUU Perlindungan Ketenagakerjaan |
| Fixed-Term Contract (PKWT) Duration | Maximum of 5 years, including extensions (Art. 8 GR 35/2021; Constitutional Court Decision 168/PUU-XXI/2023). | Maximum of 2 years, extendable only twice for up to 1 year each. The employer must give written notice of an intended extension no later than 7 days before the PKWT expires (Art. 71). |
| Probation | Permanent employment (PKWTT) may include probation of up to 3 months; wages may not be below the minimum wage (Art. 60 Law 13/2003). |
Still up to 3 months, but wages must be at least 75% of the position’s wage and not below the minimum wage, social security is mandatory, and the employee must be appointed as permanent once probation ends (Art. 69). Violations carry criminal sanctions (Art. 230). |
| Outsourcing | The law does not limit the types of work; the portion of work that may be outsourced is set by the Minister according to the outsourcing agreement (Art. 64 Law 13/2003 in conjunction with Constitutional Court Decision 168/PUU-XXI/2023). | Limited to 5 support services: cleaning, employee catering, security, mining and oil support services, and employee transport (Art. 80). Using outsourced workers for activities directly related to production transfers the employment relationship to the user company by operation of law (Art. 81). |
| Rest and Leave | Weekly rest of 1 day (6-day week) or 2 days (5-day week); long leave mandatory for certain companies (Art. 79 Law 13/2003 in conjunction with the Constitutional Court Decision). | Weekly rest unchanged; long leave of 30 calendar days after 5 consecutive years of service is set out in the law itself; collective leave may not reduce annual leave entitlement (Art. 97). |
| Maternity and Paternity Leave | 1.5 months before and 1.5 months after childbirth (Art. 82 Law 13/2003); 2 days’ paid leave for a husband when his wife gives birth (Art. 93). | 3 months’ maternity leave, extendable by 3 months for special conditions supported by a doctor’s certificate, with full pay up to the sixth month; 2 days’ paternity leave, extendable by up to 3 days (Arts. 100, 102, 103). |
| Minimum Wage | Governors “may” set regency/city minimum wages (UMK); micro and small enterprises are exempt from the minimum wage and set wages by agreement (Arts. 88C, 90B Law 13/2003). |
Governors must set both provincial (UMP) and regency/city (UMK) minimum wages; UMK must exceed UMP; decent living needs are added as a variable; sectoral minimum wages must be at least 5% above UMP/UMK; wages at micro and small enterprises must be at least 50% of the minimum wage (Arts. 113, 117, 119). |
| Termination Procedure | Bipartite negotiation by consensus is mandatory; if it fails, termination may only take place after a final and binding industrial relations court ruling (Art. 151 Law 13/2003 in conjunction with the Constitutional Court Decision). | Adds a mandatory 10-step termination-prevention sequence (from cutting overtime to early retirement programmes), a 30-working-day limit on bipartite negotiation, and termination without agreement or a final ruling is null and void (Art. 195). |
| Efficiency as a Ground | Efficiency due to, or to prevent, losses is a valid termination ground (Art. 154A Law 13/2003; Art. 43 GR 35/2021). | Efficiency is no longer listed as a termination ground (Art. 198). |
| Compensation of Entitlements | Does not include housing, medical and care compensation (Art. 156(4) Law 13/2003). | Housing, medical and care compensation of 15% of severance and/or long-service pay is reinstated (Art. 199(4)). |
| Severance Funding | Severance is paid directly by the employer upon termination (Art. 156 Law 13/2003). There is no mandatory contribution scheme to fund severance; employer-paid pension contributions may be offset against severance (Art. 58 GR 35/2021). | Introduces a severance guarantee programme: employers must pay contributions managed by the employment social security agency, and employees receive the benefit upon termination. Any shortfall remains the employer’s responsibility, while any surplus is refunded (Arts. 135–138). |
| Company Regulations | Mandatory for employers with at least 10 employees (Art. 108 Law 13/2003). | Mandatory for every employer with employees, regardless of headcount; valid for up to 2 years; deemed approved if not approved within 30 working days; non-compliance carries a criminal fine (Arts. 150, 153, 154, 248). |
| Digital Platform Workers |
Not regulated. |
Recognised as entitled to social security, fair income, OHS, algorithmic transparency, and protection against unilateral termination of partnership or account deactivation; to be further regulated by a separate law within 2 years (Arts. 49–51). |
Termination Benefits Comparison
| Ground | PP 35/2021 | RUU Perlindungan Ketenagakerjaan |
| Merger/consolidation, employee unwilling to continue | 1x UP, 1x UPMK (Pasal 41) | 1x UP, 1x UPMK (Pasal 202 ayat (1)) |
| Merger/consolidation, employer unwilling to accept employee | 1x UP, 1x UPMK (Pasal 41) | 2x UP, 1x UPMK (Pasal 202 ayat (2)) |
| Acquisition with changed terms of employment | 0,5x UP, 1x UPMK (Pasal 42 ayat (2)) | 1x UP, 1x UPMK (Pasal 202 ayat (1)) |
| Closure due to 2 years of losses / force majeure | 0,5x UP, 1x UPMK (Pasal 44, 45) | 1x UP, 1x UPMK (Pasal 203) |
| Suspension of debt payment due to losses / bankruptcy | 0,5x UP, 1x UPMK (Pasal 46, 47) | 1x UP, 1x UPMK (Pasal 204) |
| Misconduct after 1st–3rd warning letters | 0,5x UP, 1x UPMK (Pasal 52 ayat (1)) | 1x UP, 1x UPMK (Pasal 208) |
| Prolonged illness/disability from work accident > 12 months | 2x UP, 1x UPMK (Pasal 55) | 2x UP, 2x UPMK (Pasal 210) |
| Retirement age (no pension programme) | 1,75x UP, 1x UPMK (Pasal 56) | 2x UP, 1x UPMK (Pasal 211 ayat (5)) |
| Death | 2x UP, 1x UPMK (Pasal 57) | 2x UP, 1x UPMK (Pasal 212) |
| Efficiency | 0,5x atau 1x UP, 1x UPMK (Pasal 43) | Tidak diatur / Not regulated |
| Serious (urgent) misconduct | UPH dan uang pisah (Pasal 52 ayat (2)) | Tidak diatur / Not regulated |
Key Changes in Detail
1. Restrictions on PKWT and Their Legal Consequences (Arts. 71–79)
Total PKWT duration is capped at 2 years plus up to 2 extensions of 1 year each, far stricter than the 5-year limit under GR 35/2021. A PKWT must be in writing in Indonesian and Latin script, registered online within 3 working days of signing, and accessible to the employee and labour inspectors.
A PKWT that is not in writing, or that covers permanent work, becomes a PKWTT by operation of law. Employees may ask the District Court to ratify the labour inspector’s examination note. The obligation to pay compensation when a PKWT ends is retained.
Note: the Bill contains no transitional provision for ongoing PKWTs that already exceed, or will exceed, the new limits, which may create legal uncertainty.
2. Limited Outsourcing and the Risk of Transferred Employment (Arts. 80–83)
Outsourcing is permitted only for support services not directly related to production, namely the 5 exhaustively listed fields. If outsourced workers are used for production activities, their employment transfers to the user company by operation of law.
When the vendor changes, the employee’s service with the previous vendor counts cumulatively towards the PKWT limit, provided the scope of work is the same. Outsourcing companies must be legal entities, hold business licences, maintain a wage system, and are prohibited from deducting employees’ statutory entitlements.
3. Higher Termination Costs and Stricter Procedure (Arts. 195–212)
Before any termination, the parties must go through prevention steps in sequence: reducing holiday and daily overtime, reducing shifts and working hours or days, not renewing expiring PKWTs, not replacing retiring employees, adjusting managerial pay or benefits, furloughing permanent employees on a temporary or rotating basis, and offering voluntary early retirement and retirement programmes.
Severance multipliers rise for most termination grounds (see the table above), the 15% UPH is reinstated, and employers must contribute to the severance guarantee programme. The list of prohibited termination grounds is retained; termination on such grounds is null and void and the employee must be reinstated (Art. 197).
4. New Workplace Protection Obligations
Employers must provide protection covering welfare, safety, physical and mental occupational health, prevention of violence and bullying, workload management, counselling services, and an easily accessible internal complaint mechanism (Art. 36(3)). Violations carry up to 4 years’ imprisonment and/or a category V fine (Art. 225).
Employers are also prohibited from requiring or withholding employees’ diplomas and personal documents, except for employer-funded education (Art. 66). In addition, employers must adopt a zero-tolerance policy on sexual harassment and violence and provide lactation rooms (Art. 94). Medium and large companies must audit their supply chains to ensure they are free of the worst forms of child labour (Art. 92(3)).
Every company must implement an integrated OHS management system, establish an OHS committee replacing the existing OHS advisory committee (P2K3), and conduct health checks at least once a year (Arts. 107, 108, 260).
5. Stronger Criminal Sanctions (Chapter XVIII)
Fines follow the Criminal Code categories: category III (IDR 50 million), IV (IDR 200 million), V (IDR 500 million), VI (IDR 2 billion), and VIII (IDR 50 billion). For example, paying below the minimum wage or not paying wages as agreed carries up to 4 years’ imprisonment and/or a category V fine; overtime that does not meet the requirements carries 1 year and/or category IV; obstructing union activity carries 5 years and/or category V; failing to issue Company Regulations carries a category III fine.
Criminal sanctions do not release employers from their obligation to pay employees’ entitlements or compensation (Art. 257).
6. Observations on the Draft
Several provisions still need refinement. Long leave is listed as rest that “must be given” yet is worded as “may be given” (Art. 97(2)(c)). There are also incorrect cross-references, including the OHS management system sanction referring to Art. 108(1) (Art. 109) and termination ground (g) referring to itself (Art. 198). The transitional provisions cover only disputes and digital platform workers, leaving ongoing PKWTs, outsourcing arrangements, and Company Regulations unaddressed (Arts. 258–259).
Recommended Actions
| Priority | Actions |
| High | Inventory all ongoing PKWTs, map contracts that will exceed 2 years (or 4 years including extensions), and prepare scenarios for conversion to PKWTT. |
| High | Audit outsourcing agreements and identify work outside the 5 support services to assess the risk of employment transferring by operation of law. |
| High | Recalculate projected post-employment benefit liabilities (actuarial) using the new severance multipliers, the 15% UPH, and severance guarantee contributions. |
| Medium | Update Company Regulations/CLA and SOPs: internal complaint mechanism, anti-bullying and anti-sexual harassment policies, lactation rooms, maternity leave, collective leave, long leave, and ending any diploma-withholding practices. |
| Medium | Strengthen the OHS management system, prepare to set up an OHS committee and annual health checks, and (for medium and large companies) develop supply-chain audit procedures on child labour. |
| Routine | Monitor the progress of the regulations and its implementing regulations, and submit input through employer associations during deliberation. |