General Provisions
A Fixed-Term Employment Agreement (PKWT) is an employment agreement between a worker/laborer and an employer for a certain period of time or for the completion of a specific job.
Based on Article 4 paragraph (1) of Government Regulation No. 35 of 2021, a PKWT may be made based on:
- A specified time period; or
- The completion of a particular job.
PKWT may also be applied to non-permanent work, i.e., work that varies in time and volume, using a daily wage payment system (Daily Employment Agreement).
PKWT cannot be applied to permanent jobs. Furthermore, PKWT must not include a probationary period. If such a period is stipulated, it will be null and void, and the employment period will still be counted.
PKWT Based on Time Period
A PKWT based on a specified period may only be made for certain types of work, namely:
- Work expected to be completed within a relatively short period, with a maximum of 5 (five) years;
- Seasonal work, i.e., work that depends on:
- Specific seasons/weather; or
- Certain conditions, such as additional work to meet specific orders or targets;
- Work related to new products, new activities, or additional products that are still in the experimental or exploration stage.
In addition, PKWT may also be applied to non-permanent work through a Daily Employment Agreement.
PKWT Based on Completion of a Job
A PKWT may also be made for the completion of certain work, namely:
- Work that is completed once; or
- Temporary work.
The employment agreement must at least stipulate:
- The scope and limitations of the work to be completed; and
- The estimated completion time.
If the work is completed earlier, the PKWT terminates by operation of law. If the work is not completed on time, the PKWT may be extended until completion, with the employment period counted from the beginning of the relationship.
PKWT as a Daily Employment Agreement
A PKWT may also be established through a Daily Employment Agreement for irregular jobs, i.e., work that varies in time and volume, with wages paid based on attendance with conditions as follows:
- The worker/labour works less than 21 (twenty-one) days in 1 (one) month.
- If the worker/labour works 21 (twenty-one) days or more for 3 (three) consecutive months, the daily agreement becomes invalid and the relationship is deemed a permanent employment relationship (PKWTT) by operation of law.
The agreement must be in writing and may be made collectively, containing at least:
- The name and address of the company/employer;
- The name and address of the worker/labour;
- The type of work performed; and
- The number of wages.
Employers must also fulfil the rights of daily workers, including registration with social security programs (BPJS Employment and Health).
Preparation and Registration of PKWT
A PKWT must contain at least:
- Name, address of the company, and type of business;
- Name, gender, age, and address of the worker/labour;
- Job title or type of work;
- Place of work;
- Wages and payment method;
- Rights and obligations of employer and worker/labour;
- Start date and validity period;
- Place and date of execution; and
- Signatures of both parties.
The PKWT must be registered online with the Ministry of Manpower within 3 (three) working days from signing.
If online registration is unavailable, the employer must register the PKWT in writing at the local manpower office within 7 (seven) working days from signing.
Compensation
Employers must provide compensation to worker/labour employed under a PKWT at the end of the agreement, provided the worker has at least 1 (one) month of continuous service, with the conditions as follows:
- If the PKWT is extended, compensation must be paid at the end of each PKWT period.
- Compensation does not apply to foreign workers under a PKWT.
The amount is calculated as follows:
- PKWT of 12 months continuously → 1 month of wages.
- PKWT of more than 1 month but less than 12 months → (working period/12) × 1 month of wages.
- PKWT longer than 12 months → (working period/12) × 1 month of wages.
Notes:
- “Wages” include basic salary and fixed allowances.
- If wages consist of basic salary and non-fixed allowances, only the basic salary is used as the calculation basis.
- If the job is completed earlier, compensation is calculated until the actual completion date.
- For micro and small businesses, compensation is based on mutual agreement.
- If the relationship is terminated before the PKWT expires, the employer must pay compensation proportionally based on the actual period worked.
Summary of Provisions on PKWT (Fixed-Term Employment Agreement) in Indonesia
| Category | Provisions |
| Legal Basis | Government Regulation No. 35 of 2021 |
| Definition | An agreement between a worker and an employer for a fixed period of time or for a specific job. |
| Not Allowed | Permanent WorkProbation Period (if included, null & void) |
| Basis of PKWT | Time Period: max. 5 years (certain work, seasonal work, experimental/exploration jobs) Completion of Job: until specific work is finished Daily Employment Agreement: for irregular work, <21 days/month |
| Daily Employment Agreement | Valid only if <21 days/month If ≥21 days/month for 3 consecutive months → automatically becomes PKWTT (permanent employment) Must be in writing (can be collective) Must register workers to BPJS (social security) |
| Required Contents of PKWT | Company & worker identity Job title/type of work Workplace Wages & Payment Method Rights & obligations of both parties Start date & duration Place/date of signing Signatures of both parties |
| Registration | Online to Ministry of Manpower: max. 3 working days after signing If online is not available: manual registration at the local manpower office within 7 working days |
| Compensation | Mandatory at the end of PKWT Applies if ≥1 month of service Not applicable for foreign workers |
| Compensation Formula | 12 months: 1 month’s wage >1 month but <12 months: (working period/12) × 1 month’s wage >12 months: (working period/12) × 1 month’s wage If work is completed earlier → calculated until actual completion Micro/small business → based on agreement |
| Wage Basis for Calculation | Basic salary + fixed allowances If only basic salary + non-fixed allowances → only basic salary is used |
Disclaimer
The information contained in this document is not intended as legal advice, legal opinion, or legal suggestion suitable for your business. The authors have prepared the information in this document in good faith and with reasonable due diligence. However, no representation or warranty, express or implied, is made as to the accuracy, completeness, or timeliness of the information provided. Readers acknowledge that each company operates differently, and the information provided may not be applicable to all business activities.
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