Since the Omnibus Law and its detailed regulations were promulgated, it has attracted a lot of attention as some employees have already entered into limited-term employment contracts. Last time, we covered Kompensasi, which is a payment similar to retirement allowance, but this time we would like to take a look at another major change, contract extension.

[Number of extensions and limited term employment contract conditions]

As explained last time, it is a limited-term employment contract that can be extended any number of times as long as the total contract period does not exceed five years, but it is important to be aware that this extension may prove a violation of other provisions. Businesses that can use limited-term employment contracts must meet one of the following three conditions: There are three conditions: (1) work that is expected to be completed within a reasonable period of time, (2) seasonal work, and (3) work related to new products, new activities, or additional products that are still in the testing or development stage. When asked how long "not too long" is, it seems logical to think that it is within the five years already permitted. If the entire five years are to be used, it is not included in (2), so it is either (1) or (3).In that case, the question arises as to why a contract for work that is expected to end in a maximum of five years is kept short and repeatedly extended. For example, if you entered into a two-year contract with the assumption that it would end in two years, but it actually did not end and you were forced to extend it, it would be acceptable as long as the total period does not exceed five years. However, if it is extended nine times every six months, there are concerns that it is being used for something other than "ending within a reasonable period" or "new business." Even if an unlimited number of extensions are allowed, extending the extension may be seen as causing something different from what was originally expected, which may raise doubts as to whether the business being used is legal in the first place.

[Calculation of service period]

Furthermore, an extension of a limited-term employment contract means that employment will continue, and even if compensation is provided, it will not become a new contract. In other words, the length of service for an employee under a limited-term employment contract that has been extended several times over the five-year period will be five years.For example, if the employee is subsequently promoted to a full-time employee, the years of service for the mandatory retirement allowance paid at the time of retirement will include the five years of the limited-term employment contract, and the employee will be eligible for retirement allowance again. Although it can be said that it is easy to use because it allows the employment relationship to be terminated due to the termination of the contract, we recommend that you consider its use while looking at the relationship between various aspects.

Related legislation: Decree No. 35 of 2021 PP-35/2021