Reviewed by Florent Delente, Founder, ILA Global Consulting. Last updated: October 2026.
Indonesia has two kinds of employment contract: a fixed-term contract (PKWT), which must be written in Bahasa Indonesia and can last at most five years in total under the rules in force today, and a permanent contract (PKWTT), the only one that may include a probation period of up to three months. Severance, overtime, the religious holiday bonus (THR) and BPJS social security are set by law and cannot be contracted out. On 6 October 2026 Parliament passed a new Manpower Protection Law that cuts the PKWT ceiling to four years, so any contract you sign now should be built for that.
This guide is written for foreign founders running a PT PMA who hire Indonesian staff, and for foreigners employed in Indonesia who want to understand what they are signing. Amounts are in rupiah with a rough USD equivalent at IDR 17,900 per USD (Katadata, 5 October 2026).
Which law governs employment contracts in Indonesia in October 2026?
Four layers apply at the same time, and a fifth is on its way.
- Law 13/2003 on Manpower, the base statute, as amended by the Job Creation Law. The Job Creation rules now sit in Law 6/2023, which turned Perppu 2/2022 (an emergency regulation in lieu of law) into a statute after the first Job Creation Law of 2020 was found conditionally unconstitutional. The original text is on the BPK legal database.
- PP 35/2021, the government regulation that sets the details for fixed-term contracts, outsourcing, working hours, overtime and termination, including the severance tables.
- Constitutional Court Decision 168/PUU-XXI/2023, issued on 31 October 2024. It rewrote parts of the Job Creation Law: a five-year cap on fixed-term contracts, mandatory Bahasa Indonesia for PKWTs, a two-day weekend for five-day weeks, severance as a floor rather than a fixed amount, and no termination before a final ruling if the employee contests it (One Asia Lawyers summary; Nusantara Legal Partnership on Mondaq). The Court also gave lawmakers two years to pass a standalone labour law.
- Ministerial rules issued since then, mainly Permenaker 7/2026 on outsourcing (in force since 30 April 2026) and PP 49/2025 on the minimum wage formula (Bisnis, 18 December 2025).
- The new Manpower Protection Law (UU Pelindungan Ketenagakerjaan), 23 chapters and 313 articles, approved unanimously by the House on 6 October 2026 (CNN Indonesia; Antara). It still needs a presidential signature, a law number and publication before it binds anyone. Until then, PP 35/2021 and the Court’s decision remain the rules you are judged by.
If you want your template contracts reviewed against both the current rules and the new law, ILA’s contract drafting and review service prepares bilingual employment agreements and company regulations for PT PMAs in Bali and Jakarta.
What is the difference between a PKWT and a PKWTT?
A PKWT (Perjanjian Kerja Waktu Tertentu) is a fixed-term employment agreement. It is only allowed for work that is temporary by nature: a defined project, seasonal work, a new product on trial, or work expected to finish within a set time. A PKWTT (Perjanjian Kerja Waktu Tidak Tertentu) is a permanent, open-ended contract and can be used for any role.
| PKWT (fixed term) | PKWTT (permanent) | |
|---|---|---|
| Allowed for | Temporary, seasonal, project or trial work only | Any job |
| Form | Must be written, in Bahasa Indonesia and Latin script | Written or oral; if oral, you must issue a letter of appointment |
| Maximum length today | 5 years in total, extensions included (PP 35/2021 Art. 8, confirmed by the Constitutional Court) | No limit |
| Maximum length under the new law | 4 years: 2 years plus up to two 1-year extensions | No limit |
| Probation | Not allowed; a probation clause is void | Up to 3 months |
| Registration | Online with the Ministry of Manpower within 3 working days of signing | No registration |
| End of contract payment | Compensation money: 1 month’s wage per 12 months worked, pro rata | Severance only on termination |
| Foreign employees | The only contract type allowed for foreign workers | Not available for foreigners |
Sources: PP 35/2021, Law 13/2003, CNA, 6 October 2026.
The risk to watch: if you use a PKWT for a permanent role, exceed the maximum length, or skip the written Indonesian version, the contract can be treated as a PKWTT by law. That turns a contract you expected to end quietly into a permanent job that can only end with severance.
How long can a fixed-term contract (PKWT) last?
Under PP 35/2021 there are two main forms of PKWT. A time-based PKWT can run for up to five years in total, including every extension. A completion-based PKWT lasts until a defined piece of work is done, and the contract must say what “done” means. Daily casual work (harian lepas) is a third form: if a casual worker works 21 days or more a month for three consecutive months, they become permanent (PP 35/2021).
The new Manpower Protection Law lowers the ceiling to four years: an initial term of up to two years, then up to two extensions of one year each. When a PKWT ends, the employer must decide whether the worker becomes permanent or leaves (Suara, 8 October 2026; CNA). Our practical advice: any PKWT you sign or extend from now on should fit within four years in total, so you are not caught by the transition rules.
Compensation money (uang kompensasi). At the end of every PKWT, and at the end of the first term before an extension, you owe the employee 1 month’s wage for 12 months of service, pro rata for shorter terms. A 12-month PKWT at IDR 5,000,000 a month costs IDR 5,000,000 (about USD 279) at the end. This does not apply to foreign workers (PP 35/2021).
Can you put a fixed-term employee on probation?
No. Probation (masa percobaan) is only allowed in a permanent contract, for a maximum of three months, and you must pay at least the minimum wage during it (Law 13/2003, Art. 60). If a PKWT includes a probation clause, the clause is void and the time counts as normal service (PP 35/2021).
This is one of the most common mistakes in contracts written from foreign templates. A “6 month probation” in a one-year contract does not let you end the contract freely in month five. If you end it early, you owe the wages for the rest of the term unless the contract ended for a reason the law accepts.
Does an employment contract in Indonesia have to be in Bahasa Indonesia?
Yes. Law 24/2009 requires Bahasa Indonesia in agreements involving Indonesian citizens or Indonesian companies, and a PT PMA is an Indonesian company. For PKWTs, the Constitutional Court made the rule explicit: the contract must be written in Indonesian and Latin script, and where a bilingual version differs, the Indonesian text prevails (One Asia Lawyers).
The standard practice is a two-column bilingual contract, Indonesian on one side and English (or French) on the other, with a clause stating which version governs. Have the Indonesian side checked by someone who reads legal Indonesian. In a dispute, the judge reads the Indonesian side, not your English draft.
What must an Indonesian employment contract contain?
Law 13/2003 Art. 54 lists the minimum content. Leave one out and the employee can argue the gap in their favour.
- Company name, address and type of business
- Employee’s name, gender, age and address
- Job title or type of work, and place of work
- Wage and how it is paid (separate basic salary and fixed allowances, because severance is calculated on both)
- Rights and obligations of both parties
- Start date and, for a PKWT, the end date or the work to be completed
- Place and date of signing, and both signatures
Two more documents matter once you grow. With 10 or more employees you need a company regulation (Peraturan Perusahaan) approved by the manpower office; it covers discipline, leave and the warning letter system that later supports a termination. And the contract cannot set terms below the law or below your company regulation (Law 13/2003).
What are the rules on working hours, overtime and leave?
Normal working time is 40 hours a week: either 7 hours a day over 6 days, or 8 hours a day over 5 days (PP 35/2021). Since the Court’s decision, a five-day week comes with two rest days (Mondaq).
Overtime needs the employee’s written consent and is capped at 4 hours a day and 18 hours a week. The hourly wage is 1/173 of the monthly wage. On a working day, the first overtime hour is paid at 1.5 times the hourly wage and each further hour at 2 times. On a rest day or public holiday the rates start at 2 times and rise to 3 and 4 times for the later hours (PP 35/2021).
Example: monthly wage IDR 5,000,000, so an hourly wage of about IDR 28,902. Two hours of overtime on a Tuesday costs IDR 43,353 + IDR 57,803 = IDR 101,156 (about USD 5.65). Managers in strategic roles with a higher salary can be excluded from overtime pay, but the contract must say so.
Leave. At least 12 working days of annual leave after 12 months of continuous service, and 3 months of maternity leave (1.5 months before and 1.5 months after the birth) on full pay (Law 13/2003).
What is the minimum wage in Bali and Jakarta in 2026?
Minimum wages are set every year by each governor using the PP 49/2025 formula. Where a regency has its own minimum (UMK), it applies instead of the provincial minimum (UMP). The minimum is for employees with less than one year of service; after that, pay must follow your wage structure and scale.
| Area (2026) | Monthly minimum wage | About USD |
|---|---|---|
| DKI Jakarta (UMP, no separate UMK) | IDR 5,729,876 | 320 |
| Bali province (UMP) | IDR 3,207,459 | 179 |
| Badung regency (UMK: Kuta, Seminyak, Canggu, Uluwatu, Nusa Dua) | IDR 3,791,002.57 | 212 |
| Denpasar city (UMK, includes Sanur) | IDR 3,499,878.78 | 196 |
| Gianyar regency (UMK, includes Ubud) | IDR 3,316,798.48 | 185 |
| Tabanan regency (UMK) | IDR 3,287,678.87 | 184 |
| Klungkung, Karangasem, Bangli, Buleleng, Jembrana | Bali UMP applies | 179 |
Sources: Bisnis, 1 January 2026 for the UMPs; Merdeka, 27 December 2025 for the Bali UMKs, set by Bali Governor Decree 1021/03-M/HK/2025. All took effect on 1 January 2026. The 2027 figures are normally announced in late December.
How much THR do you have to pay, and when?
THR (Tunjangan Hari Raya) is a mandatory religious holiday allowance, paid once a year to every employee, PKWT and PKWTT alike, who has worked for you for at least one month. After 12 months of continuous service it equals one month’s wage; below that it is pro rata (months worked ÷ 12 × one month’s wage). It must be paid no later than 7 days before the employee’s religious holiday: Eid al-Fitr for Muslim staff, Christmas for Christian staff, Nyepi for Hindu staff, Vesak for Buddhists and Chinese New Year for Confucians (Permenaker 6/2016). Many Bali employers pay all staff on one date, which works as long as nobody is paid later than their own deadline.
Late payment triggers a fine of 5% of the THR due, on top of the THR itself (PP 36/2021 on Wages).
Which BPJS programmes must the employer register?
Every employee must be enrolled in BPJS Kesehatan (health) and BPJS Ketenagakerjaan (work accident, death, old age savings, pension and job loss cover). That includes foreigners who work in Indonesia for six months or more. Health contributions are 5% of the monthly wage, 4% paid by the employer and 1% by the employee, on wages up to IDR 12,000,000 (Perpres 82/2018). The employment programmes add roughly 6% to 8% of payroll for the employer depending on the work risk class. Rates, wage caps and what to do if a foreign employee is already insured abroad are covered in our BPJS guide for employers and expats.
How do you terminate an employee in Indonesia, and what severance is due?
Termination (PHK) is the part of Indonesian employment law that costs foreign employers the most money, because the process matters as much as the reason.
The process.
- Give the employee a written termination notice stating the reason, at least 14 working days in advance (7 working days during probation) (PP 35/2021).
- If the employee accepts, sign a mutual termination agreement and register it with the Industrial Relations Court.
- If the employee refuses, you must hold bipartite negotiations aimed at agreement, then go to mediation at the manpower office, and finally to the Industrial Relations Court.
- Since the Constitutional Court decision, a contested termination only takes effect once that process ends in a final decision, and you keep paying wages until then (One Asia Lawyers). The new law keeps this rule, up to the Supreme Court level (Suara).
The formula. Severance is built from three parts: severance pay (UP, uang pesangon), long service pay (UPMK, uang penghargaan masa kerja) and compensation of rights (UPH, uang penggantian hak: unused annual leave, travel home for staff hired from elsewhere, and anything else promised in the contract). The base amounts come from PP 35/2021 Art. 40, then a multiplier set by the reason for termination is applied to the UP. The wage used is basic salary plus fixed allowances.
| Years of service | Severance pay (UP) | Long service pay (UPMK) |
|---|---|---|
| Less than 1 | 1 month | none |
| 1 to less than 2 | 2 months | none |
| 2 to less than 3 | 3 months | none |
| 3 to less than 4 | 4 months | 2 months |
| 4 to less than 5 | 5 months | 2 months |
| 5 to less than 6 | 6 months | 2 months |
| 6 to less than 7 | 7 months | 3 months |
| 7 to less than 8 | 8 months | 3 months |
| 8 to less than 9 | 9 months | 3 months |
| 9 to less than 12 | 9 months | 4 months |
| 12 to less than 15 | 9 months | 5 months |
| 15 to less than 18 | 9 months | 6 months |
| 18 to less than 21 | 9 months | 7 months |
| 21 to less than 24 | 9 months | 8 months |
| 24 or more | 9 months | 10 months |
| Reason for termination (PP 35/2021) | Multiplier on UP | UPMK | UPH |
|---|---|---|---|
| Efficiency to prevent losses, merger where either side will not continue | 1x | 1x | Yes |
| Efficiency or closure because of losses, bankruptcy, force majeure closure | 0.5x | 1x | Yes |
| Breach of contract or company regulation after warning letters | 0.5x | 1x | Yes |
| Retirement | 1.75x | 1x | Yes |
| Death of the employee | 2x | 1x | Yes |
| Long illness or work injury beyond 12 months | 2x | 1x | Yes |
| Resignation, or absence for 5 working days after two written calls | none | none | Yes, plus separation pay set in your contract or company regulation |
Source: PP 35/2021. Since the Court’s decision these are minimums: you can agree to pay more, never less.
Worked example. An employee with 4 years and 2 months of service, earning IDR 6,000,000 a month (basic plus fixed allowances), is let go for efficiency to prevent losses. UP is 5 months × 1 = IDR 30,000,000. UPMK is 2 months = IDR 12,000,000. Total IDR 42,000,000 (about USD 2,346) plus unused leave and any other UPH.
What changes under the new law. The Minister of Manpower said the 0.5 multiplier disappears, so the lowest multiplier becomes 1x, and a severance reserve fund will be set up by a later government regulation (AFU, citing Minister Yassierli). If you are planning a restructuring, budget for 1x across the board.
Can you outsource roles instead of hiring directly?
Only for a short list of support work. Permenaker 7/2026, in force since 30 April 2026, limits outsourcing to cleaning, food and drink provision, security, drivers and worker transport, operational support services, and support work in mining, oil, gas and electricity. The outsourcing agreement must be in writing and the provider must give outsourced staff the full statutory package: minimum wage, overtime, leave, BPJS, THR and termination rights (Setneg, 30 April 2026).
A revision narrowing the list further, with a six month adjustment period, was announced in mid 2026 (detikFinance, 28 June 2026), and the new Manpower Protection Law also limits outsourcing to five support services (CNA). In practice, outsourcing your villa reception, sales or kitchen staff through an agency is no longer a safe way around employment obligations.
How do you employ a foreigner in Indonesia?
Foreign workers (TKA, tenaga kerja asing) can only be hired for specific positions and for a fixed term, which means a PKWT, and the Constitutional Court added that Indonesian workers must be given priority (One Asia Lawyers). The process runs under PP 34/2021 on the Use of Foreign Workers:
- RPTKA: the foreign worker utilisation plan, approved by the Ministry of Manpower. It names the position, the length of employment and the Indonesian counterpart. Directors and commissioners who hold shares are exempt from some requirements, but they still need a work-based stay permit.
- DKPTKA: the compensation fund for each foreign worker, USD 100 per position per month, paid in advance for the permit period.
- Indonesian counterpart (tenaga kerja pendamping): you must appoint an Indonesian employee to work alongside the foreigner for knowledge transfer, and run training for them.
- Working KITAS: the limited stay permit issued by Immigration once the RPTKA is approved. See our guide to working legally in Bali for the visa side and the penalties for working on the wrong permit.
Some positions are closed to foreigners, including human resources roles, and the job title on the RPTKA must match what the person actually does. Your company also needs to be set up to sponsor foreign staff; our PT PMA setup guide covers capital and licensing.
If you are the foreigner being hired, check three things before you sign: that the contract is a PKWT whose dates match your RPTKA and KITAS, that salary and benefits appear in both languages, and that the contract says who pays for permit renewals and your flight home at the end.
Five contract mistakes that cost employers money
- Using a PKWT for a permanent role. A receptionist or chef in an operating villa is permanent work. The contract can be converted into a PKWTT and severance applies.
- Rolling PKWTs past the limit. Five years in total today, four under the new law. Counting starts with the first contract, not the latest one.
- English-only contracts. These are open to challenge under Law 24/2009 and invite the court to apply the employee’s reading.
- Lumping pay into one figure. If you do not separate basic salary from fixed and variable allowances, everything may count toward severance and overtime.
- Terminating by WhatsApp. No written notice, no warning letters, no bipartite record. You will pay wages through the whole dispute and then the severance.
Get your contracts checked before the new law takes effect
The new Manpower Protection Law will need implementing regulations, and some rules (PKWT length, severance multipliers, outsourcing) change immediately for new hires. Now is the time to update your templates, company regulation and outsourcing arrangements. ILA’s legal team in Bali and Jakarta can review your current contracts, prepare compliant bilingual versions and handle termination negotiations if they arise.
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Frequently asked questions
What is the maximum length of a fixed-term contract (PKWT) in Indonesia?
Under PP 35/2021 and the 2024 Constitutional Court decision, five years in total including extensions. The new Manpower Protection Law passed on 6 October 2026 reduces this to four years (two years plus two one-year extensions) once it takes effect.
Is probation allowed in a PKWT?
No. Probation is only allowed in a permanent contract (PKWTT), for up to three months. A probation clause in a PKWT is void.
Can an employment contract in Indonesia be written only in English?
No. It must be in Bahasa Indonesia. A bilingual contract is fine, but the Indonesian text prevails if the two versions differ.
How is severance calculated in Indonesia?
Severance pay based on years of service (1 to 9 months’ wages), plus long service pay (2 to 10 months after 3 years), plus compensation of rights such as unused leave. A multiplier set by the reason for termination is applied, from 0.5x to 2x under current rules.
What is the 2026 minimum wage in Bali?
The Bali provincial minimum is IDR 3,207,459 a month. Badung (Canggu, Seminyak, Uluwatu) is IDR 3,791,002.57 and Denpasar IDR 3,499,878.78.
Do foreign employees get THR and BPJS?
Yes to both, if they are employees of an Indonesian company. THR applies after one month of service, and BPJS enrolment is mandatory for foreigners working six months or more.
Can a foreigner have a permanent employment contract in Indonesia?
No. Foreign workers can only be hired on a fixed-term contract tied to an approved RPTKA and a working KITAS. The PKWT end-of-contract compensation does not apply to them.
Sources
- Law 13/2003 on Manpower, JDIH BPK
- Law 6/2023 on the Stipulation of Perppu 2/2022 on Job Creation, JDIH BPK
- PP 35/2021 on PKWT, Outsourcing, Working Time and Termination, JDIH BPK
- PP 36/2021 on Wages, JDIH BPK
- PP 49/2025, second amendment to PP 36/2021 on Wages, JDIH BPK
- PP 34/2021 on the Use of Foreign Workers, JDIH BPK
- Permenaker 7/2026 on Outsourced Work, JDIH BPK
- Permenaker 6/2016 on Religious Holiday Allowance, JDIH BPK
- Law 24/2009 on the National Flag, Language, Emblem and Anthem, JDIH BPK
- Perpres 82/2018 on Health Insurance, JDIH BPK
- One Asia Lawyers: Constitutional Court Decision 168/PUU-XXI/2023
- Nusantara Legal Partnership on Mondaq: Constitutional Court Decision 168/PUU-XXI/2023
- Setneg: Government limits outsourcing through Permenaker 7/2026 (30 April 2026)
- detikFinance: Outsourcing rule revision (28 June 2026)
- CNN Indonesia: House passes Manpower Protection Law (6 October 2026)
- Antara: House approves Manpower bill (6 October 2026)
- CNA Indonesia: Key points of the new Manpower Protection Law (6 October 2026)
- Suara: Who benefits from the Manpower Protection Law (8 October 2026)
- AFU: Seven key points of the Manpower Protection Law
- Bisnis: Full list of 2026 provincial minimum wages (1 January 2026)
- Bisnis: New wage formula regulation signed (18 December 2025)
- Merdeka: Bali 2026 regency minimum wages set (27 December 2025)
- Katadata: Rupiah at IDR 17,916 per USD (5 October 2026)
