How to Hire (and Fire) Expatriate Workers in Indonesia

(November 7, 2022) Despite the abundance of young, intelligent, and dynamic manpower in Indonesia, companies will sometimes need to hire foreign employees, such as when they need to fill a specific skills gap. However, hiring (and firing) foreign employees can be a complicated process. This article highlights key issues to consider.

1. Restricted Positions for Expatriates

In principle, the Indonesian Manpower Law and its implementing regulations prohibit expatriates from being employed in functions related to the management of personnel (i.e., human resources related). Before the enactment of the Omnibus Law (Law No. 11 of 2020 regarding Job Creation), this prohibition was governed under Article 46 of the Indonesian Manpower Law, which reads as follows:

(1) Expatriates are prohibited from occupying positions managing personnel and/or certain positions.

(2) The certain positions as referred to in paragraph (1) above shall be regulated in a Decree of the Minister of Manpower.

Accordingly, the Minister of Manpower (“MOM”) issued Decree No. 349 of 2019, dated December 31, 2019, regarding Certain Prohibited Positions for Expatriates (“MOM Decree 349/2019”). This decree provides a list of positions that are restricted for expatriates.

These restricted positions are (English terms are as provided in the decree): personnel director; industrial relations manager; human resource manager; personnel development supervisor; personnel recruitment supervisor; personnel placement supervisor; employee career development supervisor; personnel declare administrator; personnel and career specialist; personnel specialist; career advisor; job advisor; job advisor and counselling; employee mediator; job training administrator; job interviewer; job analyst; and occupational safety specialist.

Following the enactment of the Omnibus Law in November 2020, Article 46 of the Manpower Law was abolished and the restriction on expatriates occupying positions which manage personnel was incorporated into Article 42(5) of the Manpower Law. Article 42(5) of the Manpower Law drops the reference to “certain positions” that was found in Article 46.

As of this writing, MOM Decree 349/2019 is still listed as a valid decree on the website of the Ministry of Manpower. There is some question as to whether the list of restricted positions under MOM Decree 349/2019 remains applicable after the annulment of Article 46, which served as the basis for the list’s issuance.

Pending clarification from the ministry or the issuance of a new decree/regulation, if there is any question about whether a particular position is open to expatriates, employers are recommended to consult with the relevant manpower officials.

2. Work and Immigration Permits

Employers in Indonesia are required to obtain work and immigration permits for expatriate workers to be lawfully employed in Indonesia. Following the enactment of the Omnibus Law, the Foreign Workforce Utilization Plan (Rencana Penggunaan Tenaga Kerja Asing or “RPTKA”) Validation, being the work permit for expatriates, also serves as the basis to grant both a visa and stay permit for said expatriates.

Generally, any employer that wishes to employ expatriates must obtain an RPTKA Validation. An exception applies if the foreigner is (i) a member of the board of directors or board of commissioners and has a certain share ownership in the company (i.e., amounting to a minimum of IDR1 billion or its equivalent in USD); (ii) a diplomatic or consular staff member at a foreign state representative office; or (iii) required by the employer in connection with a production activity that has ceased due to any emergency, vocational activities, a tech-based startup, business visit, or research for a set period of time.

Specifically for tech-based startups and vocational training, the Indonesian Government has eased the licensing process for employing expatriates by waiving the RPTKA Validation requirement. However, the exemption lasts for no more than three months, after which these exempted employers must apply for RPTKA Validation for their expatriates. The application must be submitted at least two weeks before the expiration of the employment period of the foreigner in question (as stated in the expatriate employment statement letter issued in place of the RPTKA Validation).

You can visit our earlier article for a further comparison between the old regime and the current regime in respect of the employment of expatriates in Indonesia.

3. Employment in Compliance with RPTKA Validation 

Employers must employ expatriates in accordance with the RPTKA Validation and the expatriates’ positions stated therein. Doing otherwise may result in the imposition of administrative sanctions in the form of revocation of the RPTKA Validation, which in turn would expose the expatriate in question to the risk of deportation.

4. Fixed-Term Basis Employment

In addition to restricted positions, expatriates may only be employed for a certain period of time on a fixed-term basis. Under the current legal regime, fixed-term employees may only be employed for up to five years, including any extensions of the employment relationship.

While, in principle, expatriates may only be employed on a fixed-term basis, the relevant regulatory provisions appear to allow expatriates to be employed for more than five years. Pursuant to the prevailing laws and regulations, a RPTKA Validation, being the work permit for expatriates, may be granted for more than five years in certain circumstances, as follows:

a. RPTKA Validation for temporary work shall be granted for a maximum of six months and is not extendable;

b. RPTKA Validation for work requiring more than six months and/or non-DKPTKA shall be granted for a maximum of two years and is extendable. DKPTKA refers to the non-tax state revenue or regional income required to be paid by employers for the employment of expatriates. DKPTKA is waived for expatriates employed by government institutions, foreign state representatives, international agencies, social institutions, religious institutions and for certain positions in educational institutions;

c. RPTKA Validation in a special economic zone shall be granted for a maximum of five years and is extendable; and

d. RPTKA Validation in a special economic zone for members of a company’s board of directors or board of commissioners shall be granted once and is valid for as long as the expatriate occupies the position.

Separately, following the enactment of the Omnibus Law, the Indonesian Manpower Law introduced a new type of entitlement for qualified fixed-term employees, i.e., compensation pay (uang kompensasi), which is to be provided to fixed-term employees upon the expiration or any early termination of the fixed-term employment agreement. However, despite being fixed-term employees, expatriates are excluded by law from the compensation pay entitlement.

On a separate note, it is common for employment agreements for expatriates to be drawn up in English or the native language of the expatriate in question. However, it is important to note that the Indonesian Language Law and its implementing regulation require any agreements involving an Indonesian party (i.e., the employer) to be drawn up in the Indonesian language. Several courts have annulled agreements involving an Indonesian party on the grounds that an Indonesian-language version of the agreement had not been executed.

The Indonesian Manpower Law also strictly requires a fixed-term employment agreement to be drawn up in the Indonesian language, which shall be the governing language if the agreement is also drawn up in another language and there is any conflict between the two versions.

In short, if the employment agreement for an expatriate is drawn up in a foreign language, such as English, it should be accompanied by an Indonesian-language version, which shall serve as the governing language.

5. Mutual Termination Agreement 

In the event of employment termination, it is advisable for the employer to enter into a Mutual Termination Agreement (“MTA”) with the terminated employee. This also applies for the termination of expatriates. An MTA is required to prevent any future employment claims by the terminated employees. As provided under the Indonesian Industrial Relations Law, an MTA is legally binding and must be carried out by the parties to the agreement in accordance with the provisions therein. The executed MTA is also required by law to be registered with the relevant industrial court.

By SSEK, Indonesia, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact indonesia@transatlanticlaw.com

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