This publication is authored by Rödl and reflects its views and opinions. More information about Rödl is available at www.roedl.com.
On 6 October 2026, the Indonesian House of Representatives passed a new Manpower Law, marking a significant reform of Indonesia’s employment framework. The new law is intended to replace Law No. 13 of 2003 on Manpower, which has been amended multiple times over the years.
The enactment of the new law follows Constitutional Court Decision No. 168/PUU-XXI/2023, which required the parliament to formulate a new manpower law within two years of the decision. The new legislation is also expected to consolidate a number of employment-related provisions that have, over time, been introduced through various laws and implementing regulations,
Although the final enacted version has not yet been made publicly available at the time of writing, the draft circulated prior to its enactment suggests a number of notable developments that may be relevant to employers operating in Indonesia.
- Regulation of Work Arrangements Through Digital Platforms
The new law introduces provisions addressing individuals who perform work through technology-based platforms and other non-conventional working arrangements. These provisions address their entitlement to social security registration, the right to reasonable income, and protection against unfair termination, among others. The government is also required to issue further regulations on this subject within two years.
- Changes to Fixed-Term Employment Arrangements
The law retains the restriction that fixed-term employment agreements (Perjanjian Kerja Waktu Tertentu or “PKWT”) may only be based on a specified period or the completion of a particular type of work. However, it revises the maximum permissible duration of a PKWT. Under the draft, a PKWT may be entered into for an initial period of up to two years and extended up to twice, with each extension limited to a maximum of one year. This differs from the current provision, which caps the total duration of a PKWT, including any extensions, at five years. Further details are expected to be regulated through a government regulation.
- Indonesian Language Competency Requirement for Foreign Workers
Foreign workers assigned to facilitate the transfer of technology or expertise must possess Indonesian language proficiency. Such proficiency must be supported by a valid competency certification.
- Stricter Rules on Outsourcing
The new law reinforces the principle that only certain supporting business activities may be outsourced which includes (i) cleaning service, (ii) catering service, (iii) security service, (iv) mining, oil and gas supporting services, and (v) employee transportation service. Non-compliance with the statutory restrictions may result in the outsourced workers being deemed employees of the user company by operation of law, exposing the user company to the full range of employment obligations and liabilities associated with a direct employment relationship.
- Mandatory Employment of Persons with Disabilities
Employers will be required to ensure that at least 1% of their workforce consists of persons with disabilities. While this reflects the Government’s continued commitment to promoting greater employment opportunities for persons with disabilities, the law does not currently provide any exceptions, exemptions, or specific implementation parameters. We expect further guidance on the implementation of this requirement to be issued through a government regulation.
- Introduction of a Severance Security Program
The new law introduces a new social security scheme designed to provide protection for employees upon termination of employment. Contributions to this program will be borne by employers. The scheme is intended to fund employees’ termination benefits, with any shortfall between the benefit paid under the scheme and the employee’s statutory entitlement remaining the responsibility of the employer. Conversely, where the benefit paid exceeds the applicable entitlement, the excess amount will be reimbursed to the employer. Further details on the implementation, funding mechanism, and administration of the scheme are expected to be issued through implementing regulations.
- Company Regulations Required Regardless of Workforce Size
Under the current framework, an employer’s obligation to prepare company regulations depends on the number of employees it employs (minimum ten employees). The new law removes this threshold. As a result, any employer with at least one employee will be required to have company regulations in place.
- Changes to Employment Termination Rules
The law revises both the grounds for termination and the applicable severance entitlements. It also places greater emphasis on efforts to avoid termination before employment can be ended. Employers and employees (or the relevant labour union) must first attempt to resolve the matter through bipartite discussions. Where no agreement is reached, the dispute must proceed through the industrial relations dispute resolution process.
Employers should therefore anticipate a more structured process before a termination can be completed.
The law also enhances employee severance benefits. Overall, the revised formula provides higher termination entitlements across a range of termination grounds. In addition, the law reinstates the compensation in lieu of housing and medical care and treatment, equal to fifteen percent (15%) of the severance pay and/or long service award. This benefit had previously been removed under the current regulatory framework.
- Criminal Exposure for Non-Compliance
The new law significantly increases employer exposure for non-compliance with employment obligations by introducing criminal penalties, including imprisonment and substantial monetary fines. The fines are linked to the criminal fine categories under the Indonesian Criminal Code, ranging from Category III fines of up to IDR 50 million to Category VIII fines of up to IDR 50 billion, depending on the nature and severity of the violation.
As of the preparation of this article, the official text of the newly enacted Manpower Law has not yet been published. Therefore, the provisions discussed above may be subject to change once the final law and implementing regulations become available.
Nevertheless, the new legislation signals a clear policy shift toward enhanced employee protections, stricter termination procedures, increased severance obligations, tighter outsourcing restrictions, and more robust enforcement measures, including the potential for criminal sanctions in cases of non-compliance.
The law is expected to become effective one year after its enactment, which would place its anticipated effective date around October 2027. This transition period provides employers with an opportunity to assess the potential impact of the new framework on their operations and to review their employment arrangements, outsourcing structures, termination practices, compliance systems, and workforce planning strategies in preparation for the forthcoming changes.
We will continue to monitor developments and provide further updates as additional details are released.
For inquiries, please contact:
- Reinaldo Samuel AP Sitorus
Senior Manager
Transfer Pricing & International Tax
T +62 21 5056 0405 or reinaldo.samuel@roedl-indonesia.com Vita Surya Nirmala
Senior Associate
Legal Practice
Andi Gunawan & Associates
in association with RÖDL
T +62 21 5056 0405 or vita.surya@roedl-indonesia.com
Roedl Tax Consulting
20/F World Trade Center 2
Jl. Jend Sudirman Kav 29-31 Kel. Karet Kec. Setiabudi
Jakarta 12920, Indonesia