Issue Date: 13 November 2026
LAW NO. 27 OF 2026 ON EMPLOYMENT PROTECTION
On 28 October 2026, the Government of the Republic of Indonesia promulgated Law No. 27 of 2026 on Employment Protection ("Law 27/2026" or the "New Employment Law"), which took effect on the same date. Law 27/2026 repealed and replaced Law No. 13 of 2003 on Employment, together with certain employment provisions in the annex to Law No. 6 of 2023 on Job Creation (collectively, the "Previous Employment Law").
Background
The New Employment Law was enacted as a consequence of harmonising the Previous Employment Law as well as following up on Constitutional Decision No. 168/PUU-XXII 2023, which instructed the Indonesian legislature to restructure the employment law regime into a new law (i.e. the New Employment Law/Law 27/2026).
The New Employment Law substantially revises the previous framework under the Previous Employment Law. It mainly revises the rules governing employment relationships, the engagement of workers, fixed-term employment agreements ("PKWT"), indefinite-term employment agreements ("PKWTT"), wages, worker protection, and termination of employment. It also clarifies employers' obligations and establishes sanctions for violations of employment provisions (that mainly encompass administrative, criminal and by-law conversion from PKWT to PKWTT).
The principal changes and additions under the New Employment Law are set out below.
A. EMPLOYMENT RELATIONSHIPS AND EMPLOYER OBLIGATIONS
1. Fixed-Term Employment Agreements (PKWT) (Articles 82–91 of Law 27/2026)
| Topic | Provisions of the New Employment Law |
| Duration of a PKWT | A PKWT is based on a specified term or the completion of specific work. The initial term may not exceed 2 (two) years and may be extended up to 2 (two) times, for no more than 1 (one) year each time. The employer must give written notice of any proposed extension at least 7 (seven) days before the PKWT expires. The total duration, including extensions, is therefore arguably capped at 4 (four) years.
Potential Sanctions and Legal Consequences: A PKWT for work that does not meet the requirements of Article 87(1) or (2) is converted by operation of law into a PKWTT (Article 87(5)).
Key Change: Under the Previous Employment Law, a PKWT could run for up to 5 (five) years. Multiple extensions were permitted within that overall 5 (five) years limit. The previous rules did not specify how notice of an extension was to be given. |
| Form and Registration | A PKWT must be in writing. Potential Risk: A PKWT that is not in writing may be converted by operation of law into a PKWTT (Article 85).
A PKWT must be drawn up in Indonesian, either on its own or together with a foreign language, using the Latin alphabet. Potential Risk: A violation of this requirement is subject to administrative sanctions (Article 84).
A PKWT must be registered with the competent central or regional government authority within 3 (three) working days of signing. |
| Types of Work | A PKWT may only be used for the specific types of permanent work referred to in Article 87(1), such as work expected to be completed within a relatively short period of no more than 2 (two) years.
Key Point: Permanent work means work that is continuous, uninterrupted, and not limited in time and that forms part of a company's production process, or work that is non-seasonal. Non-seasonal work does not depend on the weather or any particular condition (Elucidation to Article 87(2)). |
2. Use of Outsourced Workers (Articles 95–101 of Law 27/2026) (Alih Daya)
A company may contract out part of its work to another company under an outsourcing agreement only for the activities listed below, which are (Article 95(2)):
- support services; or
- activities not directly related to the production process.
Support services include the following (Article 95(3)): (1) Cleaning services; (2) Catering services for workers; (3) Security personnel or security unit services; (4) Transport services for workers.
The types and fields of work that a company may outsource must involve support services or activities not directly related to the company's core business (Article 97(3)).
If outsourced workers perform activities directly related to the production process, their employment relationship transfers by operation of law from the outsourcing provider to the company that contracted out the work (Article 98(1)). If that company does not voluntarily accept and implement the transfer (i.e. wishes to challenge it), the matter is subject to bipartite negotiations followed by the issuance of an inspection notice by a labour inspector (Article 98(2)).
Outsourcing in Mining and Petroleum: State-owned enterprises (i.e. BUMN) and private companies operating in mining and/or petroleum may outsource support services in those sectors beyond the four categories listed above. They must establish a subsidiary in the form of a limited liability company to carry out the outsourced work.
Key Change: The New Employment Law reaffirms that outsourcing is limited to support services or activities not directly related to the production process. Companies that use outsourcing must comply with the new requirements within 1 (one) year of promulgation of the New Employment Law (since 28 October 2026). Existing outsourcing agreements remain in effect until their agreed expiry dates (Article 306).
3. Employment Agreements, Company Regulations, and Bipartite Cooperation Bodies (Articles 77–79, 92–94, and 171–203 of Law 27/2026)
| Topic | Provisions of the New Employment Law |
| Employment Agreements and Probation | An employer may require a probationary period of up to 3 (three) months under a PKWTT. During probation, the employer must pay at least 75% (seventy-five per cent) of the applicable wage, subject to the minimum wage, and provide social security and other statutory entitlements. The probation requirement must be stated in the PKWTT or a written appointment letter. If it is omitted, there is deemed to be no probationary period (Article 92(4) and (5)).
Key Change: Principally, the New Employment Law allows an employer to pay at least 75% of the wage applicable to the position during a probationary period (Article 92(2)). Such a requirement did not exist in the Previous Employment Law. |
| Retention of Diplomas | Employers are prohibited from requiring workers to surrender diplomas or personal documents as security in connection with employment, or retaining such documents as security. An exception applies where a legally justified interest exists in respect of diplomas or personal documents obtained through education and training funded by the employer under a written employment agreement (Article 78).
Key Change: The prohibition on retaining diplomas is now expressly set out in the New Employment Law. Article 79 provides for administrative sanctions. |
| Bipartite Cooperation Bodies | The New Employment Law requires companies with 10 (ten) or more workers to establish a bipartite cooperation body. The threshold under the Previous Employment Law was 50 (fifty) workers. |
Key Changes: The law establishes a 75% (seventy five percent) wage floor during probation under a PKWTT, expressly prohibits the retention of diplomas, and lowers the threshold for establishing a bipartite cooperation body from 50 (fifty) to 10 (ten) workers.
4. Strikes (Articles 211–216 of Law 27/2026)
Law 27/2026 affirms that a lawful, orderly, and peaceful strike is a fundamental right of workers and labour unions when negotiations break down for either or both of the following reasons: (1) The employer is unwilling to enter into bipartite negotiations; (2) The parties fail to reach an agreement after 3 (three) rounds of bipartite negotiations within the agreed period or within 30 (thirty) working days (Article 211).
A strike that fails to meet the formal requirements is unlawful and carries the legal consequences set out in Articles 214, 215, and 216.
Potential Risk: Anyone who obstructs workers or labour unions from holding a lawful, orderly, and peaceful strike (Article 217(1)) may face imprisonment for up to 4 (four) years and/or a fine of up to Category IV (IDR 200,000,000) (Article 292).
Key Change: The Previous Employment Law required a deadlock/breakdown in negotiations before a lawful strike could be carried out. The New Employment Law specifies 3 (three) rounds of negotiations or 30 (thirty) working days as the criteria for determining when negotiations have reached a deadlock (broken down) (Article 211). That period does not limit the duration of a strike.
B. TERMINATION OF EMPLOYMENT AND PAYMENT OF WORKER ENTITLEMENTS
1. Changes to the Grounds for Termination (Article 231 of Law 27/2026)
Article 231 of Law 27/2026 revises the grounds for termination of employment ("PHK"). Several grounds listed under the previous rules are no longer expressly listed, including the following.
| Grounds for Termination | Previous Employment Law | New Employment Law |
| Company Efficiency Measures | Employment may be terminated for efficiency reasons, whether or not the company closes (Articles 36(b) and 43 of Government Regulation No. 35 of 2021). | No longer expressly lists this as a ground for termination. |
| Urgent Misconduct | Employment may be terminated without notice for urgent misconduct specified in an employment agreement, company regulations, or a collective labour agreement (PKB), as provided in Article 52(2) and (3) of Government Regulation No. 35 of 2021. | No longer specifically provides for this ground for termination. |
| Worker Convicted Before the End of 6 (Six) Months in Detention | Employment may be terminated if the worker is convicted of a criminal offence before the end of 6 (six) months in detention (Article 54(4) and (5) of Government Regulation No. 35 of 2021). This ground is independent of the worker's ability to fulfil their duties. | No longer specifically provides for this ground. The new law continues to permit termination where a worker is unable to work for 6 (six) months due to detention. |
Key Point: Under Article 310, existing implementing regulations (i.e. Government Regulation No. 35 of 2021) remain in force to the extent that they are consistent with the New Employment Law. The omission of these grounds from the New Employment Law (Article 231) therefore does not automatically invalidate all previous provisions.
2. Termination Requirements and Procedures (Articles 227–231 and 235 of Law 27/2026)
Article 228 requires measures to avoid termination, including reducing overtime or shifts, adjusting wages and/or benefits for managerial staff, and offering voluntary early retirement. Where termination is unavoidable, the following requirements apply.
| Topic | Provisions of the New Employment Law |
| Bipartite Negotiations | The parties must enter into bipartite negotiations with a view to reaching a consensus. Key Change: Article 151(2) of the Previous Employment Law allowed a company to notify a worker unilaterally of termination. The New Employment Law removes that provision of unilateral termination, and requires bipartite negotiations where termination is unavoidable. |
| Obligations of the Company and the Worker | Both parties must continue to fulfil their obligations while the dispute is being resolved. The employer may suspend a worker who is subject to termination proceedings and must continue to pay wages and provide other entitlements during the suspension. |
| Time Limit | The parties must conclude bipartite negotiations within 30 (thirty) working days of their commencement. |
| Failure to Reach an Agreement | If the parties fail to reach an agreement, the termination dispute must be resolved through the industrial relations dispute resolution procedure. |
| Implementation of Termination | If the parties do not agree on termination, it may be implemented only after the competent industrial relations dispute resolution body issues a ruling that is final and binding. |
| Exceptions | The bipartite negotiations referred to in Article 228(3) are not required if the worker resigns voluntarily, employment under a PKWT ends, the worker reaches retirement age under the applicable rules, or the worker dies (Article 229). |
| Potential Sanctions and Legal Consequences | A termination that fails to comply with Article 228 or is based on grounds prohibited under Article 230 is void by operation of law and the employer must reinstate the worker. Failure to reinstate the worker may result in criminal sanctions (i.e. may face imprisonment for up to 2 (two) years) under Article 294. |
3. Severance Pay, Long-Service Pay, Compensation for Entitlements, and Separation Pay (Articles 231–251 of Law 27/2026)
The 0.5 multiplier formula for termination components as regulated under the Previous Employment Law is no longer regulated under the New Employment Law. The New Employment Law regulates higher termination component formulas than 0.5, that cover: severance pay (uang pesangon), long-service pay (uang penghargaan masa kerja or "UPMK"), compensation for entitlements (uang penggantian hak or "UPH") and/or separation pay (uang pisah).
Separation pay is payable for certain grounds for termination specified in an employment agreement, company regulations, or a PKB (Article 233(1)). If the company has not set an amount, Article 233(2) provides that separation pay may be set at a minimum of 1 (one) month's wages. A more favourable amount already set by the company continues to apply.
The following table sets out termination entitlements under the New Employment Law.
| Grounds for Termination | Severance Pay | UPMK | UPH | Separation Pay |
| Corporate Restructuring |
| Merger, consolidation, acquisition, or demerger where the worker is unwilling to continue the employment relationship (Article 236(1)) | 1× | 1× | Payable | None |
| Merger, consolidation, acquisition, or demerger where the employer is unwilling to retain the worker (Article 236(2)) | 2× | 1× | Payable | None |
| Closure and Financial Circumstances |
| Company closure due to continuous losses for two years (Article 237) | 1× | 1× | Payable | None |
| Permanent closure of the company by decision of its owner (Article 238) | 1× | 1.5× | Payable | None |
| Termination by the company due to force majeure (Article 239) | 1× | 1× | Payable | None |
| The company is subject to suspension of debt payment obligations ("PKPU") or bankruptcy (Article 240) | 1× | 1× | Payable | None |
| Termination Applications and Resignation |
| Termination sought by the worker on account of conduct by the employer specified in the New Employment Law (Article 241(1)) | 2× | 1× | Payable | None |
| Termination sought by the employer following a final and binding Industrial Relations Court judgment finding that the employer did not engage in conduct specified in the New Employment Law (Article 241(2)) | None | None | Payable | Payable |
| Voluntary resignation (Article 242(1)) | None | None | Payable | Payable |
| Deemed resignation where the worker is absent for five or more consecutive working days without a written explanation supported by valid evidence and the employer has duly summoned the worker twice in writing (Article 243(1) and (3)) | None | None | Payable | Payable |
| Misconduct and Criminal Proceedings |
| Termination by the company due to a breach of the employment agreement, company regulations, or a PKB (Article 244) | 1× | 1× | Payable | None |
| Worker unable to work for six months due to detention on suspicion of a criminal offence and the company suffers a loss (Article 245(3)) | None | None | Payable | Payable |
| Worker unable to work for six months due to detention on suspicion of a criminal offence and the company suffers no loss (Article 245(4)) | None | 1× | Payable | None |
| Worker convicted in criminal proceedings before the six-month period expires (Article 245(6)) | None | None | Payable | Payable |
| Worker detained by the authorities for six months on suspicion of a criminal offence (Article 245(7)) | None | 1× | Payable | None |
| Worker Circumstances |
| Worker suffers from a prolonged illness or a disability resulting from a workplace accident and is unable to work for more than 12 months (Article 246) | 2× | 2× | 1× | None |
| Termination upon the worker reaching retirement age (Article 247) | 2× | 1× | Payable | None |
| Termination upon the worker's death (Article 249) | 2× | 1× | Payable | None |
Note: The multipliers in the table apply to the calculation bases in Article 232. Eligibility for compensation for entitlements depends on the applicable ground for termination.
Potential Sanctions: Under Article 295, an employer who intentionally fails to pay severance pay and/or long-service pay, as well as compensation for entitlements due to the worker, may face imprisonment for up to four years or a fine of up to Category IV (IDR 200,000,000). If a corporation commits the offence, the fine ranges from Category IV (IDR 200,000,000) to Category VI (IDR 2,000,000,000).
Key Change: The previous rules left the amount of separation pay to the employment agreement, company regulations, or PKB. Law 27/2026 now provides a benchmark where the company has yet to set an amount.
4. Obligation to Establish a Severance Reserve Fund (Article 253 of Law 27/2026)
Article 253 requires employers to provide a severance reserve fund to cover worker entitlements arising from termination. A government agency manages the fund, with further details to be prescribed by government regulation. Exception: The obligation to provide a severance reserve fund does not apply to employers in micro and small enterprises.
C. WAGES, WORKING HOURS, AND WORKER WELFARE
1. Wages (Articles 134–152 of Law 27/2026)
Law 27/2026 revises wage policy, including the setting of minimum wages and the obligation to establish a wage structure and scale.
| Topic | Key Provisions |
| Wage Structure and Scale | Employers must establish and apply a wage structure and scale, taking into account the factors prescribed by applicable laws and regulations. Employers must include the wage structure and scale in their company regulations or PKB as a guide to setting wages for workers with at least 1 (one) year of service (Article 146). Failure to establish and apply a wage structure and scale may result in administrative sanctions in the form of a written warning, an administrative fine, and/or restrictions on business activities (Article 147). |
| Right to Claim Wages | The right to claim wages and other payments arising from the employment relationship is subject to no limitation period (Article 152). Key Point: Claims for outstanding payments owed by a company to its workers, such as severance pay or wage shortfalls, may be subject to no limitation period. |
| Potential Sanctions | An employer who fails to pay the agreed wages may face imprisonment for up to four years and/or a fine of up to Category IV (IDR 200,000,000) (Article 287). |
2. Working Hours, Overtime, Rest, and Leave (Articles 115–125 of Law 27/2026)
Working Hours: Law 27/2026 caps normal working time at 40 (forty) hours per week, based on 7 (seven) hours per day for a 6 (six)-day working week or 8 (eight) hours per day for a 5 (five)-day working week. Exceptions apply to certain business sectors or types of work.
Overtime: Overtime is capped at 4 (four) hours per day and 18 (eighteen) hours per week. It requires the worker's consent and an instruction issued in writing and/or by digital means.
Rest and leave entitlements include the following.
| Entitlement | Provisions of the New Employment Law |
| Weekly Rest | 1 (one) day for a 6 (six)-day working week or 2 (two) days for a 5 (five)-day working week. |
| Extended Leave (istirahat panjang) | 30 (thirty) calendar days after 5 (five) consecutive years of service and at each subsequent 5 (five)-year interval. |
| Annual Leave | At least 12 (twelve) working days after 12 (twelve) months of continuous service. |
| Collective Leave | Annual leave entitlements are unaffected if the company observes collective leave designated by the central government. |
| Maternity Leave | At least 3 (three) months, with an extension of up to a further 3 (three) months in special circumstances supported by a doctor's certificate. During an extension for special circumstances, the worker is entitled to full wages in the fourth month and 75% (seventy five percent) of wages in the fifth and sixth months. |
| Leave Following a Miscarriage | 1.5 (One) and a half months or a period specified by a medical professional under Article 121. |
| Leave to Accompany a Spouse | 2 (two) days when the worker's wife gives birth, with up to 3 (three) additional days or such other period as agreed. 2 (two) days if the worker's wife has a miscarriage. |
Note: Workers who take extended leave are ineligible for annual leave in the same year.
Key Change: The Previous Employment Law allowed certain companies to provide extended leave. The New Employment Law requires extended leave after 5 (five) years of service and at each subsequent 5 (five)-year interval. It also confirms that collective leave designated by the central government does not reduce workers' annual leave entitlements (Article 118).
3. Establishment of Workers' Cooperatives (Article 164 of Law 27/2026)
To improve worker welfare, Article 164 provides for the establishment of workers' cooperatives and the development of productive business activities within companies in accordance with applicable laws and regulations. The government, employers, and workers or labour unions are to promote and develop these cooperatives and business activities. Further provisions on these efforts will be set out in a ministerial regulation.
Key Point: Article 101 of the Previous Employment Law already provided for workers' cooperatives. Article 164 of the New Employment Law contains no express requirement for each company to establish its own cooperative.
D. WORKER PROTECTION AND OCCUPATIONAL SAFETY
| Topic | Key Obligations and Provisions |
| Non-Discrimination | Every worker is entitled to equal treatment by the employer, free from discrimination (Article 7). |
| Employment of Persons with Disabilities | Companies must ensure that persons with disabilities make up at least 1% (one percent) of their workforce (Article 105(2)). |
| Gender Equality | Employers must provide equal career development opportunities and lactation facilities and adopt a zero-tolerance policy on sexual harassment and sexual violence in the workplace. Law 27/2026 also prohibits discrimination on the grounds of marriage or pregnancy and provides special protections for women working at night (Article 114). |
| Prohibition on Employing Children | Employers are prohibited from employing children except in the circumstances and subject to the conditions specifically prescribed by Law 27/2026. Violations may result in criminal sanctions under Articles 276–279. |
| Occupational Safety and Health ("OSH") | Employers must implement OSH measures to prevent workplace accidents and occupational diseases (Articles 126–133). |
| OSH Management System ("SMK3") | A company with at least 100 (one hundred) workers or a high level of risk must implement an SMK3 integrated into its management system. Implementation includes establishing an OSH policy, identifying hazards and assessing risks, providing personal protective equipment and OSH training, conducting periodic health examinations for workers, and reporting workplace accidents and occupational diseases (Article 130). |
E. SPECIAL PROVISIONS FOR CERTAIN BUSINESSES
Law 27/2026 sets out the following provisions relevant to certain businesses.
| Area | Key Provisions | Legal Basis |
| Employment of Foreign Workers | Employers of foreign workers must obtain both of the following: (1) Approval of a Foreign Worker Utilisation Plan (Rencana Penggunaan Tenaga Kerja Asing – "RPTKA"); (2) Approval from the Minister to employ foreign workers. The exceptions in Article 62(4) apply.
Key Change: The previous rules required approval of an RPTKA. The New Employment Law establishes two separate approval requirements (Article 62(1)). | Articles 62–72 |
| Apprenticeships | Apprentices have no worker status with the host company, and the apprenticeship does not constitute an employment relationship (Article 36). An apprenticeship must be based on a written agreement and may last up to six months, with limits of eight hours per day and 40 hours per week. Without a written agreement, the apprenticeship is invalid and the apprentice acquires worker status (Articles 37–38). | Articles 35–41 |
| Informal-Sector Workers | Provisions on the right to fair and decent wages and/or remuneration, dispute resolution, and social security. | Articles 58–61 |
| Certain Work Relationships | Certain work relationships may be based on partnership agreements, including work through digital platforms, such as online motorcycle taxi services. The person performing the work is entitled to decent income, OSH protections, social security, and other agreed entitlements (Article 102).
Key Change: The New Employment Law expressly covers digital-platform partnerships and provides certain rights for the people performing the work (Article 103(1)). The Previous Employment Law did not specifically address such arrangements. | Articles 102–103 |
| Labour Inspection | Businesses must give labour inspectors access and data, report employment conditions, and follow up on inspection recommendations. | Articles 259–264 |
Key Changes: The New Employment Law requires separate approval of the RPTKA and approval to employ foreign workers. It also expressly covers digital-platform partnerships, which will be further regulated by a separate law.
Failure to comply with obligations concerning foreign workers and labour inspections may result in administrative and/or criminal sanctions under the applicable provisions (Articles 64, 66, 273, and 296).
CONCLUSION
Law 27/2026 changes the rules on fixed-term employment, outsourcing, wages, rest and leave entitlements, termination, and severance reserve funds. Companies should consider the implications for their employment practices, taking into account the transitional provisions and implementing regulations that remain in force.
If you have any questions about this alert, please contact us by email.
Ilya Sumono
Senior Partner
ilya.sumono@nurjadinet.com
Ruben Soeratman
Partner
ruben.soeratman@nurjadinet.com
Hafizhah Kurnia Putri
Senior Associate
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Mutiara Andika
Senior Associate
mutiara.andika@nurjadinet.com
Andi Alfian Nurman
Senior Associate
andi.nurman@nurjadinet.com
Anton Adriaan Laisina
Associate
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Naura Maharani Adawiya Syafril
Associate
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This document is for informational purposes only and does not constitute legal advice. We accept no liability for any consequences arising from reliance on its contents.