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There are no updates in relation to contingent workers from an employment law perspective.
Under current labor laws and regulations, companies can outsource "part of the implementation of work" to another company by entering into a written outsourcing agreement ("perjanjian alih daya"). However, activities that encompass "part of the implementation of work" in a company (or those that are not part of it) are still not clear as the government has yet to issue further guidance on this matter.
With the rise in digital platform services, we are seeing an increasing global trend in case law and legislation aimed at protecting platform workers' labor rights. For more insight inon these developments, along with other employment law updates, click here.
The main employment law risk is misclassification, i.e., there is still a risk that the contingent workers (i.e., outsourced workers or independent contractors) may be considered as employees of the user company.
If a contingent worker is considered an employee of the user company, the company will need to provide the worker with employee statutory benefits under the Labor Law (Law No. 13 of 2003 on Labor as amended several times and last by Law No. 6 of 2023 on the Ratification of Government Regulation in Lieu of Law No. 2 of 2022 on Job Creation) and its implementing regulations (including social security and termination payment if the worker is terminated). This will carry higher costs for the company as the employer.
Income received by individuals from an Indonesian company (including daily wages, weekly wages, wages by unit, contract wages) is taxable income in Indonesia. The calculation of the income tax payable is subject to a specific calculation depending on the status of the individual. If the classification of the contingent worker and the calculation of the income tax payable is not correct, the Indonesian company as the payor may be subject to penalties.
Consequences of violation include the following:
- Penalties for the late submission of a tax return or the failure to submit a tax return are IDR 100,000 for monthly income tax return.
- Late tax payments will trigger administrative penalties; the tariff will be based on the current interest rate, as determined by the minister of finance, for a maximum of 24 months.
- For tax crime penalties, the maximum penalty is 400% of the unpaid amount plus imprisonment for a maximum of six years.
The main risk is misclassification leading to liability for failure to pay the relevant employer social security contributions and failure to withhold the relevant employee social security contributions and pay the contributions to the relevant authorities (i.e., BPJS Manpower and BPJS Health).
Law No. 24 of 2011 on Social Security Organizing Agencies (as last amended) provides that everybody (including foreigners working in Indonesia for at least six months) must be enrolled in the social security programs administered by the relevant Social Security Organizing Agency (Badan Penyelenggara Jaminan Sosial (BPJS)).
Every employer and employee must be enrolled in the social security programs administered by BPJS Health and BPJS Manpower. Further, the employer and employee are required to pay the respective contributions for the mandatory social security programs.
If an employer does not enroll itself and its employees in the social security programs administered by BPJS Health and BPJS Manpower, the employer can be subject to the following administrative sanctions:
- Written warning
- Monetary penalty
- Denial from receiving public service
In addition, if an employer fails to do either of the following, it may be subject to imprisonment for up to eight years or a fine of up to IDR 1 billion:
- Collect the employees' contribution and pay it to BPJS Manpower and BPJS Health
- Pay the company contribution to BPJS Manpower and BPJS Health
The main risk is misclassification. If the contingent worker is considered as an employee of the user company, the worker will be entitled to the statutory retirement benefit if their employment is terminated due to reaching the applicable retirement age in the company.
Under Government Regulation No. 35 of 2021 on Definite Period Employment Agreement, Outsourcing, Working and Resting Hours and Termination of Employment, the applicable termination payment for retirement is the "1.75 x Formula" (i.e., 1.75 x severance pay, plus 1 x long service pay, plus 1 x compensation of rights). Please see below the details of the components of the termination payment.
Severance pay
Severance pay is calculated as follows:
- One month's salary for a service period of less than one year
- Two months' salary for a service period of one year but less than two years
- Three months' salary for a service period of two years but less than three years
- Four months' salary for a service period of three years but less than four years
- Five months' salary for a service period of four years but less than five years
- Six months' salary for a service period of five years but less than six years
- Seven months' salary for a service period of six years but less than seven years
- Eight months' salary for a service period of seven years but less than eight years
- Nine months' salary for a service period of eight years or more
Long service pay
Long service pay is calculated as follows:
- Two months' salary for a service period of three years or more but less than six years
- Three months' salary for a service period of six years but less than nine years
- Four months' salary for a service period of nine years but less than 12 years
- Five months' salary for a service period of 12 years but less than 15 years
- Six months' salary for a service period of 15 years but less than 18 years
- Seven months' salary for a service period of 18 years but less than 21 years
- Eight months' salary for a service period of 21 years but less than 24 years
- 10 months' salary for a service period of 24 years or more
Compensation of rights
The following compensation applies:
- Compensation for annual leave not taken by the employee who is already entitled to take the annual leave
- Compensation for travel expenses or costs for the employee and their family to return to the original location of hiring
- Other compensation as stipulated under the employment agreement, company regulation or collective labor agreement
Salary components
The salary components that are used to calculate the termination package under the Labor Law consist of the following:
- Latest base salary
- Fixed allowances (i.e., payments to the employee made regularly and not related to the employee's attendance or achievement of a certain job
If the employee is proven to have committed a tax crime, tax penalties may be imposed on the employee.