Although the employment contracts of Indonesian employees are left to human resources, it seems that the employment contracts of locally hired Japanese employees cannot be exactly the same as those of Indonesian employees, nor can they be the same as those of expatriates, which is sometimes confusing. When considering reducing the number of expatriates, the first step is often to ``replace them with locally hired Japanese employees'' due to the provision of income tax on payments in kind. Now, let's list the things you need to be careful about regarding employment contracts for local hires. This time we will talk about contract types and payments at the end of the contract.

[Limited-term employment contract Perjanjian Kerja Waktu Tertentu/PKWT in principle]

Unlike expatriates, there are no orders from the head office to return to work, so you may want to hire them as full-time employees, but locally hired Japanese employees are foreign workers even if they are not expatriates. You can only be employed after obtaining a work permit from the Ministry of Labor. And that work permit is usually valid for only one year. Therefore, limited-term employment contracts are the norm. The employment contract becomes valid once a work permit is obtained, and if the work permit becomes invalid, the employment relationship ends, so it must be clearly stated to that effect.
On the other hand, there may also be requests from locally hired Japanese employees to be hired as full-time employees rather than contract employees. If you want to clearly state in your employment contract that the company intends to employ you as equivalent to a full-time employee, why not add a line such as ``In principle, the company will continue to extend your work permit, and your employment will continue as long as your work permit is issued.''

[Honorarium and retirement allowance]

A well-known provision is that when a limited-term employment contract is concluded, the employer is obligated to pay one month's worth of compensation for the one-year contract. However, Article 15, Paragraph 5 of Cabinet Order No. 35 of 2021 clearly states that foreign workers are an exception to the obligation to pay honorarium, so there is no need to pay honorarium. Furthermore, if the employment relationship ends due to the termination of a limited-term employment contract, there is no obligation to provide severance pay. In this case, the locally hired Japanese employee will not receive any honorarium or retirement allowance when the employment relationship ends. If you wish to work for a long period of time, I think it would be an advantage for you to consider some kind of retirement allowance on your own.

On the other hand, since it is a limited-term employment contract, if the employment relationship is terminated before the end of the contract period, the party who terminated the employment relationship is obligated to pay compensation. The amount of compensation will be the wages for the remaining period of the contract, so it can be very large depending on the situation. Many companies clearly stipulate this compensation provision in their contracts to prevent them from changing jobs easily during the contract period. Naturally, the company must be careful not to terminate the employment relationship during the contract period. Please note that this provision cannot be invalidated by a labor-management agreement that enshrines the rights and regulations, and it becomes the obligation of the person who has terminated the employment relationship.

Related regulations: Law No. 13 of 2003 UU-13/2003, Government Decree No. 35 of 2021 PP-35/2021