Cabinet orders are being promulgated one after another as detailed provisions of the omnibus law. Several government ordinances regarding labor relations have been issued, and webinars have been a huge success. There are many points to note, but there seem to be many questions regarding contract employees (Perjanjian Kerja Waktu Tertentu). Currently, there is confusion over how to deal with contract employees who already have an employment relationship and how to pay severance pay when a contract is terminated. This time, we will focus on the points related to the termination of a contract employee's contract.

[Unlimited number of extensions]

Previously, the contract period could only be extended once for up to one year within three years, but the new regulations now allow for an unlimited number of extensions as long as the total contract period does not exceed five years. It has become possible for companies to have flexible contracts. As an extreme example, it has been explained that each contract period is one month, and that it is possible to extend the contract 59 times, but this is not realistic considering the time it would take and the impression it would give to employees. There is a sense of tension in having to conduct evaluations each time a contract lasts for 6 months or 1 year, and I think it can also lead to improved results. It would also be beneficial to encourage employees who receive particularly high evaluations, such as by promoting them to full-time positions within five years, while also expecting the efforts of other employees.

[Payment at the end of the contract]

Until now, there was no obligation to pay severance pay when the employment relationship ended due to the expiration of the contract. However, this time you are required to pay a compensation fee. It is stipulated that when a contract of one month or more ends, 1/12 of the monthly fixed wage will be paid for each month. On the other hand, compensation for contracts that already existed before the enactment of the Omnibus Act will be paid for the period of service after November 2, 2020, the effective date of the Omnibus Act. For example, let's say that a contract employee with a fixed monthly wage of Rp 6,000,000 terminates his contract on March 31, 2021 and terminates his employment relationship. The period of service for which compensation will be paid is 4 months and 29 calendar days from November 2, 2020 to March 31, 2021. Each company can decide how to handle fractions, but if you round down the fractions, you will be obligated to pay compensation of (4 x 1/12) of 6 million rupiah for one month's wages, or 2 million rupiah.

In addition, if a contract is terminated before the end of the contract period as stipulated in the previous regulations, the party who terminated the contract is obligated to pay a fixed monthly wage for the remaining period as compensation, but this regulation has not changed. Please note that in addition to paying compensation, compensation will also be paid.

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