Problems relating to Trade and Investment on Indonesia
16. Employment |
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Issue |
Issue details |
Requests |
Reference |
| (1) Labour Act is excessively in favour of Workers | - Under the labour act, an employer is empowered to dismiss workers not desiring to maintain continuation of the industrial relationship with the employer upon occurrence of consolidation, merger, or change of ownership. In such event, it is provided that employees are entitled to receive the prescribed retirement allowances (inclusive of premium). In other words, employees are entitled to leave employment under the terms favourable to employees where the shares of an enterprise are transferred. In a merger and acquisition case with the intent of succeeding the employees across the board, this entitlement afforded to employees gives rise to an element of uncertainty. This provision also applies to the transfer of shares between enterprises in the same group. It could obstruct a smooth corporate reorganisation. - New Amended Labour Law includes provisions on severe criminal and administrative penalties upon employers, while deregulating penal provisions on workers' misconducts and misdemeanours. As to dismissals, numerous provisions heavily burdens employers. - In the event of an employer's dismissal of an employee for poor attitude at work, under the labour act, it is the employer's obligation to pay higher retirement allowance than the case, where the employee leaves employment at his/her own initiative. The outcome of this practice is the advent of an environment, which is unjustifiably favourable to labour. |
- The significance of employees' protection is lost, in a case where the employment relations between employers and employees remain unchanged, for example, in a share transfer transaction. It is requested that GOI gets the Labour Act amended. - It is requested that GOI reviews the labour act based on the more equal relationship between employers and employees. |
- Labour Act, etc. of Indonesia - Labour Act, Article 163 |
| (Action) - The New Labor Act, while providing for heavier criminal and administrative penalties against employers, there is no provision whatsoever penalizing illegal conducts of employees. - On 25 February 2003, the new Labor Act was enacted. The new Act emphasizes the protection of employees: 1) Upper limit of the retirement allowance is set at 9 months (Number of years worked plus one month); 2) No retirement allowance is payable for voluntary termination or termination on account of illegal conducts; 3) Payment of wages during walkout is specified; 4) Legal work hours of Region is determined as 40 hours; 5) The Minor's work hours is set at 3 hours a day; and 6) The term for the temporary employment is set at 3 years at maximum. (Act No.13 of 25 March 2003) |
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| (Improvement) - At the 6th General Conference to Exchange Dialogues on Policy Matters held in July 2003 between the Jakarta Japan Club ("JJC") and the Indonesian government, it was confirmed as improvement, that the dismissal procedure was simplified for those employees who committed a grave negligence. - (Law No.13/2003, art. 158 (a.1) stipulates that employees who steal from the company can be discharged. Art 158 (2) stipulates that the illegal conduct is proven through: (a) during the commitment of the conduct, (b) self-confession, and (c) report made by an authority set up within the company with at least two witnesses. - Law No.13/2003, art. 168 stipulate that a labor with 5 or more days absent without notice can be dismissed without outside approval. - Law No.13/2003, art. 158 (1) identifies types of wrongdoing by labors upon which dismissal can be executed without permissions by the competent authority. - Law No. 21/2003 (25 July 2003) ratifies ILO Convention No. 81 Concerning Labor Inspection In Industry And Commerce. - Art. 2 of Law No.2/2004 (14 Jan. 2004) on Settlement of Industrial Relation Disputes, classifies disputes in 4 separate issues: 1. Dispute on rights 2. Dispute on interests 3. Dispute on work severance 4. Dispute between labor unions within a company - Art. 3 stipulates that disputes are to be settled primarily through a bi-parties (labors and employer) talk. If no agreement is reached within 30 days, the talk is defined as failed. - Art. 4: The talk is to be brought to the authority which shall request both parties to choose either conciliation or arbitration approach. If no response is given within 7 days, the authority refers the case to a mediator. - Art. 5: Should no settlement is reached either through conciliation of arbitration , either party can submit the case to the Industrial Relation Court. - Art. 59 provide the establishment of Industrial Relation Court in every local government (Kabupaten/Kota) to be located at the capital of the province. |
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| (2) Radical Trade Union Movement and Demand for Wage Increase | - The minimum wage in recent years in Indonesia has shown a continued radical upward trend, even ahead of the upward curve of the consumer price indices. It has given a substantial negative impact upon the profitability of each Indonesian enterprise. Furthermore, the labour movement has gotten radical. The rush of mass labour demonstration, parading in the industrial zones has frequently paralysed the factory operation throughout the industrial zones. - Labour union, being in a position to walk out legally at any time regardless of the contents (logicality) of the collective bargaining, tends to push through unjustified demands by resort to force. - In each year, the legal minimum wage goes up, to become a factor for the chronic decline in profit. In each year in Jakarta, a large scale demonstrations led by the plural labour unions take place, so that some enterprises are forced to suspend operations. - There have been frequent outbreaks of demonstrations and strikes in Industrial zones, in the capital vicinity, etc. causing traffic restrictions and industrial park closures, etc. and interrupting smooth business operation. |
- In stead of focusing attention only upon the labour side contention, it is requested that Indonesian governmental authority will cultivate the atmosphere that allows realistic employers/employees exchange of dialogues on even, equal footing between employers and employees. - It is requested that GOI takes step to amend the lopsided law in favour of the labour. - It is requested that GOI take steps to suppress the legal minimum wage within the level that enables enterprises to maintain competitive edge by business endeavours. - It is requested that GOI takes step to clamp down upon illegal demonstrations and strikes. |
- Labour Law (Undang Undang Ketenaga- kerjaan) No. 13/2003 - No. 13/2003, etc. |
| (Action) - Art. 2 of Law No.2/2004 (14 Jan. 2004) on Settlement of Industrial Relation Disputes, classifies disputes in 4 separate issues: 1. Dispute on rights 2. Dispute on interests 3. Dispute on work severance 4. Dispute between labor unions within a company -- Art. 3 stipulates that disputes are to be settled primarily through a bi-parties (labors and employer) talk. If no agreement is reached within 30 days, the talk is defined as failed. -- Art. 4: The talk is to be brought to the authority which shall request both parties to choose either conciliation or arbitration approach. If no response is given within 7 days, the authority refers the case to a mediator. -- Art. 5: Should no settlement is reached either through conciliation of arbitration, either party can submit the case to the Industrial Relation Court. -- Art. 59 provide the establishment of Industrial Relation Court in every local government (Kabupaten/Kota) to be located at the capital of the province. - Decree of MOMP&T No. 232/Men/2003 (31 Oct.2003) defines consequences of illegal strikes. - Since enforcement in January 2006 of No.3/2004 Industrial Relationship Dispute Settlement Law, GOI has made a fair progress for smooth implementation of the law, such as provision of training to dispute settlement organizational staff, mediators and intercessors. Moreover, GOI has been compiling judicial precedents on the past labor disputes in Indonesia. (Japan-Indonesia Strategic Investment Action Plan ("SIAP") Report of November 2006). - On 17 January 2012, prompted by the Constitutional Court's unconstitutional judgement over the outsourcing issue under Law No.13/2003, about 6,000 workers, all members of Federation of Indonesian Metal Workers' Union (FSPMI) in 3-industrial zones, Kota Bekasi, West Java Province, on 19 June 2012 marched, seeking improvement in the employment terms for non-regular employees working under the term-contract, or as contract workers, so that they are turned into regular employees. |
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| (3) Raise in Minimum Wage by a Large Margin | - Since 1 January 2013, the minimum wage rate has gone up by 30%. - In Bekasi Regency where our member firm's subsidiary (MFS) is located, the 2014 Official Minimum Wage has gone up by about 22% which is less radical than 40% up in 2013. Nevertheless, the up rate remains at high level. In addition, Trade Union has become more and more active, while administration's role as intermediator cannot be relied upon. For the sake of avoiding strikes and hiatus of production, employers have no alternative but swallow irrational demands of the Trade Union. - Recently, a radical minimum wage increase of dozens of percent is a common occurrence in many areas and regencies. - Minimum wage increase rate (e.g. up by 15-20% against 2014 in West Java, 2015) has come to apply to all wage rate levels, while the level of labour productivity does not match that of wage rate. It has weakened, as a result, the international competitive power of this country as manufacture/production depot. - The operational cost increases aggravates business environment in Indonesia in each year, by the wage hike, etc. General strikes demanding wage hike take place several times in a year, forcing the factory closure each time, negatively impacting upon the productivity. Furthermore, Japanese employees, by company order, had to stay at home for the clearance of the general strike scheduled during 10-11 December last years. If such situations continue, additional investment in Indonesia would be cautious. In the worst case, it may be inevitable to close from the factory with poor profitability in order. |
- It is requested that Kota Bekasi to hold down the minimum wage raise rate, (which debilitates the international competitive edge.) - It is requested that Administration will shoulder its responsibility as intermediator in a fairer and more equitable position. - It is requested that that GOI takes step to: -- construct the process for structuring the wage level that intermingles the managerial view point of business operators, -- make translucent the minimum wage decision process, etc. - It is requested that GOI provides guidance to the labour union. |
- Labour Act, etc. - No. 13/2003, etc. - Inadequate implementation of Law No.13, 2003 on Workforce, Article No.89, and Labour Minister Regulation 2013, Article 7 |
| (Action) - On 15 October 2015, GOI released the economic stimulus package that included a new fixed calculation formula for minimum wage raise applied uniformly across the state. On 23 October 2015, GOI promulgated Decree No.78, 2015 concerning the minimum wage, which is determined by addition of the inflation rate and the substantive GDP growth rate. - Legal Minimum Wage (LMW) In Million Rupiah (MIR) in 3-major provinces were as follows: The special capital region of Jakarta determined LMW at 2.7 MIR for 2015 up by 10.06% over 2014, and 3.1 MIR for 2016 up by 14.8% over 2015, Bekasi province determined LMW at 2.925 MIR for 2015 up by 19.5% over 2014, and 3.261 MIR for 2016 up by 11.50 % over 2015, and Surabaya progice determined LMW at 2.71 MIR for 2015 up by 23.2% over 2014, and 3.045 MIR for 2016 up by 12.4% over 2015. |
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| (4) Tightened Terms for Foreigner's Work Visa Acquisition | - The previous terms for foreigner's work visa requirement (minister regulation of 28 March 2008) was took over from Article No.26.1 of labour minister regulation 2013, law No.12. That was the change from "university degree inclusive of technical college (under immigration authority's internal rules), and/or work experience (of more than 5-years) "to"academic background and work experience". It has narrowed down the requirements, thwarting the desptach of junior employees, moreover, disrupting the staff despatch scheduling in the personnel management. - Work visa acquisition must clear restrictions of the age limit and the academic background of the applicant. - According to certain reports(), amendment of labour minister's decree is under progress that includes compulsion of the Indonesian language proficiency test as one of the conditions for the visa issuance. (Reference) (http://news.nna.jp/free/news/20150105idr006A.html) - Draft amendment bill is now under deliberation for acquisition of a long-term work visa in Indonesia (KITAS). Academic background of 2-year technical college or more, plus clearance of the Indonesian language test seem to be the requirements (although the Indonesian language requirement remains unconfirmed, while its confirmation is being requested). - It appears that GOI has tightened the visa acquisition thresholds upon Japanese expatriates. To wit, (1) acquisition of proficiency in Indonesia language, (2) academic background requirement, and (3) halving the visa validity period (first time of filling ; 1 year, from the next time; half year). (It is said Indonesian language proficiency is actually on schedule, and is under confirmation.) - Finance minister regulation, enforced at the 2013 year-end, compels fit & proper test to all foreigners working in non-bank businesses other than the native Indonesians. No work-visa will be issued to the applicants who fail this test. Should the new expatriate (sent to Indonesia by the regular staff transfer schedule) fail this test, such expatriate has nowhere to go. - Technical supporters are required to open new business in Indonesia however the severe restriction on VISA (KITAS, Kartu Izin Tinggal Terbatas/Tetap) might be an obstacle. |
- In promulgating the new scheme, it is requested that GOI takes care and pays attention to avoid expulsion of foreign workers in effect. - In construction Industries, well- experienced staff with rich working experience is indispensable for the projects. Therefore, deregulation is requested lest it results in expulsion of foreigners. - It is requested that GOI considers exempting the language proficiency Test upon the Japanese visa applicants, by submission of the public test results such as TOEIC, TOEFL, Indonesian proficiency test, etc. - It is requested that GOI deregulates the terms for the visa acquisition requirements. - It is requested that GOI deregulates the terms and conditions for the visa acquisition. - As written in the Regulation, it is requested that GOI: -- issues the judgement basis of the test results of yes or no, and -- expedites the procedures from filing test application to yes or no decision. - It is requested that GOI reviews the terms for issuing visa commensurate with the applicant's requirements. |
- Labour Minister Decree on Employment of Foreign Workers (No.12, 2013) - OJK Regulation No.4/POJK.05/2013 - KEP.16383/PPTK/PTA/ 2014 |
| (5) Procedure to obtain Work Visa is complex and delayed | - Expatriates visa acquisition procedures just take too long, or unpredictable. - It takes too long for issuance of visa and various permits/licences, delaying the timely entry of the requisite workforce into the project site, disrupting the project progress. - Regulations of visa issuance are subjected to frequent changes without advance notice. It interferes with the smooth filing of applications. - Due to the time consuming examination at SKK Migas and MIGAS (supervisory ministries and agencies), frequently, staff rotation programme would not advance in line with the schedule. Especially, the visa renewal from 2014 to 2015 met with difficulty so that the expatriate was unable to assume his job responsibility for several weeks to a month. - Upon starting up business in Indonesia, it takes a month or more for the KITAS acquisition for the supporting engineer so that it is difficult to give the emergency support. |
- It is requested that GOI expedites the visa issuance procedures and its examination. - It is requested that GOI expedites the visa issuance procedures and make them transparent. - It is requested that GOI expedites the visa issuance procedures and make them transparent. - It is requested that GOI expedites the procedures on visa issuance and examination. |
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| (Action) - On 29 March 2006, The Ministry of Manpower and Transmigration (DOMT) issued Notice to shorten the process time for issuing the alien work visa (IMATA) from 7 days to 4 days. - Immigration Bureau has issued GR.18/2005 that extends the period of stay from one year to two years in succession and makes transient entry permit (KITAS) renewable twice. - By enforcement in April 2006 of "Ministerial Decree No.7/III/2006", it has become possible for aliens planning to work in Indonesia to obtain work permit before entering Indonesia. - On 28 March 2008, "Minister's Workers Immigration Regulations No. 2 on The procedure concerning the use of foreign workers" expressly stipulates, among others: (1) Shortening time consuming procedure of work permit for foreigners, (2) Regulating the steps for enterprise workers' emergency entry, and (3) Transfer of powers to the local governments. - For each foreign employee working in Indonesia, the Manpower Ministry (Departemen Tenaga Kerja) collects USD100/month of the Skill & Development Fund Fee (DPKK, Dana Pengembangan Keahlian dan Keterampilan) and additional USD1,200 per annum must be paid to the bank account designated by the Manpower Ministry upon preparation of employment visa or its renewal. - On 20 December 2013 Ministry of Manpower and Transmigration promulgated Regulation No.12/2013, incorporating an additional prerequisite condition (sine qua non) in regard to foreign worker's acquisition of Work Visa, namely, "an applicant with the academic degree equal to the managerial position he/she is to assume." - On 29 June 2015, GOI promulgated Minister of Manpower Regulation No. 16 of 2015, regarding "the procedure for the utilization of expatriate worker" with new provision, "acquisition requirement of work permit (IMTA) for part-time foreign directors", which was deleted 4-months later, as of 23 October 2015. - On 28 December 2015, the New Government Regulation No. 96/2015 "incentive measures on facilities and accommodations at special economic zones (KEK)" came into force. Regulation No. 96 includes incentive measures that facilitate issuance of temporary stay visa, in addition to tax holidays and tax allowances for foreigners' temporary stay (in KEK for investment purposes or assumption of work as specialist). |
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| (6) Prohibited Entry into Construction Site by Employees on Business Trip without Work Visa | - Unless with work visa in hand, a short-term entry into construction site, etc. is prohibited, so that visa application is necessary upon each entry. - In regard to entry into construction site, work visa acquisition is necessary for persons on business trip. Within a few days of entry, the applicant must visit immigration office for an interview on acquisition of work permit, which is issued after 4-business days. Even when the construction is completed with a few days, the applicant must extend the stay for no purpose other than to get the visa. |
- It is requested that GOI permits a short-term entry into construction site with short-term visa (VOA) - It is requested that GOI expedites issuance of work permit in short term. |
- Minister of Manpower Regulation No. 2/2008 |
| (7) Compulsory Conversion of Despatched Workers to Regular Workers | - Regardless of the employment period, renewal of a contract worker is possible for twice only. The third renewal automatically converts the contract worker into a Regular Employee. - MFS normally changes contract workers at 3-year's interval of contract workers. It is because, unless turning them into regular employees, the legal employment period of contract workers is 3-years maximum in aggregate. However, this requirement means great loss to MFS, because sufficient period of the contract worker training is necessary to ensure stable quality of goods and to enhance productivity. |
- It is requested that GOI increases the number of renewals for a contract worker without conversion into a regular worker. | |
| (8) Restricted Use of Despatched in the Core Work | - In the manufacturing enterprise, the law prohibits deployment of temporary dispatched employees (from manpower supply) in the core work. In the MFS case, the entire process represents the core business, from receipt of materials and parts to shipment of finished products. Therefore, all factory employees are regular workers. It increases the labour cost. - Minister of manpower & transmigration regulation 2012/No. 19 requires organising sectoral business associations that prepare a flowchart for each business sector (flowchart), while in the case of an outsourcing agreement (between the user company and the service provider), based on the distinction of core-non-core, the consigned party (the service provider) shall secure employment of competent workers in the relevant field. The regulation came into force on 19 November 2013. For example, outsourcing, admitted previously, has been denied, necessitating employment of lorry/truck drivers (LTDs) as regular workers, because LTDs check the contents of the goods and hand them over to the recipient, besides driving the vehicle. Nevertheless, the LTDs work is a simple work, even if it includes checking the contents of the goods and carrying the goods to the doorstep of the addressee, besides driving the truck. Into this kind of job, employers must put up with: (1) yearly inflating substantial minimum wages, (2) severance indemnity that substantially rises each year, (3) assurance of the same employment terms (medical assurance, fringe benefits, etc.) as employees with high academic ground, (4) inability to adjust the number of employees commensurate with the volume of order received, and (5) high amount of overtime payment from the business characteristics. As a result, it weakens the FFEs' willingness to invest into Indonesia. Moreover, it is unfair for GOI to continue to allow outsourcing drivers only to PMDN (Penanaman Modal Dalam Negri, Domestic Capital Investment Company), letting them garnering profits. Extremely reckless traffic operation continues in Indonesia devoid of improvements in software and hardware, which are the pre-requisites for the safety in traffic. |
- The Trade Union, having gone through the squeeze of the Suharto's power administration, swung back like a pendulum by its regained power, has inflated the demands, and caused this kind of phenomenon. It is requested that Ministry of Manpower and Transmigration (MOIT) takes an unbiased reasonable response with the mind of the participant, not leaning toward the Trade Union. Narrowing to the 5-business sectors of outsourcing business interferes with the rationalised business operation and extremely debilitates foreign investors' willingness to invest into Indonesia. Furthermore, along with the continued intensified wage increase, prospectively, candidate workers on the way to the regular worker status would face the screening by a finest toothcomb so that conversely, job opportunities would be lost for the majority of the candidates. Consequently, it is requested that GOI either repeals the restrictions by business sectors, or else, deregulates the requisite terms for outsourcing contracts. |
- Minister of Manpower & Transmigration Regulation 2012/No. 19 - Minister of Manpower & Transmigration Circular 2013/No.4 |
| (9) Compulsory Employment of Indigenous Indonesians | - Foreign funded enterprises (FFEs) entering Indonesia are under obligation to employ indigenous Indonesian at the rate of 3-Indonesian to 1-foreign workers. -Pasuruan in East Java operates its own regulation for employment of pribumi workers, duplicating the state regulation. There is no implementing regulation for the own pasuruan regulation. |
- It is requested that GOB takes steps to eliminate the provisions in the legislation relative to the compulsory employment of indigenous Indonesians. - Japan being an important investor in Eastern Java (Pasuruan), and Japan consulate in Eastern Java prompts review of the regulation PERDA 22/2012. |
- PERDA 22/2012, UU No 13 Tahun 2003 |
| (Action) - "Minister of Manpower & Transmigration Regulation (MMTR) 2015/No. 16 of 29 June 2015" reviews MMTR 2013, providing the steps for enterprises to employ foreign nationals: "employers must employ at least 10-Indonesian workers per a foreign worker". However, GOI, on 23 October 2015, removed this provision. |
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| (10) Enhanced Control of Foreign Workers' Employment | - Minister of Energy and Mineral Resources Decree (dated 24 October 2013) was promulgated and enforced. It has tightened the control on employment of foreign workers in the upstream / downstream oil and gas business activities, and their supporting businesses. Among other things, the Decree includes: (1) Reduced maximum successive employment (from 6 to 4-years), (2) Reduced allowable workers' ages (from 30-60-years to 30-55-years), and (3) Prohibited positions: (a. All personnel in personnel, legal, QHSE, procurement fields, b. superintendent or a level lower than its equivalent.). The tightened control under the new Decree is a matter of serious concern, lest it may interfere with the timely deployment of the sufficient number of the most suitable human resources, and may delay the project completion. |
- It is requested that GOI applies exclusionary measures on its control for deployment of foreign workers, in so far as it concerns project operator companies. | - Decree of Minister of Energy and Mineral Resources No.31/2013 |
| (11) Difficulty in Alien's Participation In Personnel Matters | - Aliens are only entitled to name a person in charge of personnel matters. Aliens are precluded from concerning themselves with actual personnel matters. Work permit for violating aliens will be revoked under the Regulation. | - It is requested that GOI repeals the provisions. | - New Labour Act, Article 46 - Act No.75/1995 Articles 5 and 12. |
| (Action) - Minister of Manpower and Transmigration Decision No.40/2012 prohibits foreigners from assuming managerial position in charge of personnel and employment issues in Indonesia. |
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| (12) Doubled Burden of Health Insurance upon Foreigner Workers and FFEs | - Since 1 January 2015, (universal coverage) Health Insurance System (HIS) by BPJS (Badan Penyelenggara Jaminan Sosial=Social Security Organising Body) has been enforced, including Japanese affiliated enterprises in Indonesia. Participation in HIS is compulsory upon aliens staying in Indonesia for more than 6-months. It means double coverage of employees' health insurance, i.e., with national health insurance covered in Japan and personal medical insurance covered in Indonesia for the expatriate(s) (expatriates insurance). For universal coverage, BPJS has a long way to go to complete the requisite preparation, including how to complement the shortage of medical hospitals, clinics and institutions, capable of shouldering the enormous responsibility. Regretfully, GOI's delayed response is noticeable. - While BPJS insurance (universal coverage) is due for enforcement from January 2014, no adjustment has taken place between BPJS insurance and already subscribed private insurances, such as expatriates insurance, etc. Therefor MFSs have not been able to join the new insurance even if they desired. - BPJS System (Health Insurance) enforced from 1 January 2015 is so restrictive, as it is usable only a few medical institutions that the parallel use is inevitable of the existing private medical insurance. |
- It is requested that GOI takes step to: -- reinforce the capacity of corresponding medical institutions, and -- avoid multiple-burdens of medical insurance coverage upon aliens residing in Indonesia. - It is requested that GOI takes step as soon as possible to: -- implement adjustments between BPJS and private health insurance carriers, and -- establishes a fair application standard. - It is requested that BPJS expedites preparation of BPJS System universally all across the medical institutions in Indonesia. |
- Presidential Regulation on Health Insurance, No.111, Year 2013, Amending Presidential Regulation on Health Insurance, No.12, Year 2013 |
| (Action) - In June 2015, New Regulation was promulgated on Social Security for Workplace Injury Benefits (Jaminan Kecelakaan Kerja/JKK), Death Benefits (Jaminan Kematian/JKM). Old-Age Benefits (Jaminan Hari Tua/JHT), and Pension Scheme (Jaminan Pensiun/JKM), |
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| (13) Constraint of MFS Employees during Renewal of Passports, Licences, and Approvals | - An MFS's expatriate got constrained for the only reason of inability to show the original passport, etc., apparently in the renewal process. | - It is requested that immigration issues certificate, showing the original passport, etc. are under the renewal process, and avoids personal constraints. | |
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