In Indonesia, an employment agreement is more than a formality — it is a legally binding document that determines an employer’s compliance and an employee’s protection. For foreign employers, drafting the correct type of contract is essential to avoid disputes and unexpected liabilities.

Types of Employment Agreements in Indonesia

1. PKWT (Fixed-Term Employment Agreement)

PKWT applies to temporary, seasonal, or project-based roles. By law:

• It must be in writing and in Indonesian language.
• The maximum duration is five years, including extensions.
• Probation periods are not permitted.
• If misapplied, a PKWT automatically converts into a PKWTT (permanent contract).

2. PKWTT (Permanent Employment Agreement)

PKWTT is the standard for indefinite employment relationships. Key points include:

• May include a probationary period of up to three months.
• Does not require renewal.
• Termination is only allowed through regulated procedures, with severance obligations in place.

3. PKHL (Daily Worker Arrangement)

Indonesia also recognizes daily worker contracts (PKHL), classified under PKWT but with different rules:

• Suitable for work that is incidental, seasonal, or irregular.
• Employment must be documented in writing, clearly stating days worked and wages.
• Workers cannot exceed 21 working days per month. Beyond this, the contract risks reclassification into PKWT or even PKWTT.

Case Example

In 2022, a hospitality company in Bali engaged daily workers (PKHL) for event-based services. However, many of these workers were scheduled daily for several consecutive months. When a dispute arose, the Industrial Relations Court ruled that the arrangement was invalid. The workers were recognized as permanent employees (PKWTT), and the company was ordered to pay full severance and benefits.

This real case demonstrates that misclassification is not a technical mistake — it can lead to substantial financial and reputational risks.

Conclusion

A well-drafted employment agreement is the foundation of lawful and sustainable employment in Indonesia. Whether PKWT, PKWTT, or PKHL, contracts must:

• Be written in Indonesian language.
• Accurately reflect the nature of the work.
• Be registered with the Ministry of Manpower’s system where applicable.

For expatriate employers, the safest approach is to seek expert legal or HR consultation before finalizing contracts. Proper compliance not only prevents disputes but also fosters trust and stability in the workplace.

References

1. Law No. 13/2003 on Manpower, Articles 56–61.
2. Law No. 11/2020 on Job Creation (Omnibus Law) – revisions on PKWT and PKWTT.
3. Government Regulation No. 35/2021, Articles 8–16 (PKWT duration, extensions, PKHL conditions).
4. Minister of Manpower Regulation No. 100/2004, on the implementation of PKWT and daily workers (PKHL).