Overview of Employment Arrangements in Indonesia
Under Indonesian labor law, the employment status of an employee—whether hired by a Foreign Investment Company (PMA Company) or a domestic company—depends on the type of employment agreement signed by both parties.
The Manpower Law (Law No. 13/2003), as amended by the Job Creation Law (Law No. 6/2023), recognizes two main employment categories:
- Temporary Employment Agreement (PKWT)
- Permanent Employment Agreement (PKWTT)
Each category carries different rules on duration, entitlements, and termination procedures.
Temporary Employment Agreement (PKWT)
A PKWT applies to temporary or non-continuous work. Companies often use this agreement for roles tied to a specific project timeline or seasonal needs.
Key Characteristics of PKWT
- Designed for tasks that can be completed within a predictable time frame
- May last up to five years, including extensions
- Must be in writing and registered with the local Manpower Office
- Ends automatically when the contract period expires, without severance pay
Examples of PKWT Roles
- Construction or engineering project workers
- Seasonal workers in agriculture or holiday operations
- Employees hired for trial production or pilot projects
To remain valid, the PKWT must clearly specify job scope, timeline, and completion criteria.
Permanent Employment Agreement (PKWTT)
A PKWTT applies to ongoing, continuous, or long-term work. Most core operational positions fall under this category.
Key Characteristics of PKWTT
- Establishes an employment relationship with no fixed end date
- May include a probation period of up to three months
- Termination must follow due process and include severance rights
- Employees receive full benefits, including:
- Annual leave
- BPJS Health and BPJS Employment
- Retirement benefits
Examples of PKWTT Roles
- Managers and supervisors
- Operations and production staff
- Long-term administrative or sales employees
Using PKWTT for continuous roles helps companies avoid labor disputes and ensures compliance with manpower regulations.
Legal and Compliance Considerations
To ensure compliance, employers must prepare employment contracts that:
- Are in written form and in the Indonesian language (bilingual contracts are acceptable)
- Include job duties, wages, work hours, benefits, and termination clauses
- Are registered with the local Manpower Office for monitoring
⚠ Risk of Misclassification
If an employer incorrectly uses a PKWT for permanent work, the law may automatically treat the employee as PKWTT, granting them full permanent rights, including severance.
Application in PMA Companies
Both PKWT and PKWTT contracts are allowed for PMA Companies.
Foreign investors often use:
- PKWT → during the early operational phase or for project-based assignments
- PKWTT → for core functions such as management, production, and long-term operations
Regardless of contract type, every PMA Company must comply with:
- BPJS Kesehatan and BPJS Ketenagakerjaan registration
- Minimum wage regulations
- Working hour limitations
- Occupational health and safety standards
Proper classification ensures fairness and reduces the risk of disputes during audits or manpower inspections.
Conclusion
The employment status of Indonesian employees in a PMA company depends on the nature of their work:
- PKWT → for temporary, seasonal, or project-based roles
- PKWTT → for continuous and long-term positions
By applying these categories correctly, PMA Companies ensure compliance, reduce legal risks, and support fair labor practices under Indonesian law.