Indonesia’s Employment Law Reform: Understanding Law No. 27 of 2026

Introduction

On 28 October 2026, Law Number 27 of 2026 on Employment Protection (“Law 27/2026”) was promulgated and entered into force. Law 27/2026 consists of 23 chapters and 313 articles and aims to consolidate the regulation of employment matters into one comprehensive law, covering workforce planning, training, apprenticeships, placement, employment relationships, remuneration, social security, industrial relations, termination of employment (“PHK”), as well as supervision and criminal sanctions. Upon the entry into force of Law 27/2026, Law Number 13 of 2003 on Manpower and the employment provisions of Law Number 6 of 2023 on Job Creation were revoked.

The enactment of Law 27/2026 aims to provide legal certainty and harmonise employment regulations, while strengthening the protection of workers’ fundamental rights without discrimination and continuing to take account of developments in the business sector. The enactment of this law also follows up on Constitutional Court Decision Number 168/PUU-XXI/2023, which called for employment provisions to be reorganised in a separate law. In addition to integrating the substance of Law 13/2003, the Job Creation Law, and relevant Constitutional Court decisions, Law 27/2026 introduces several new provisions, including quotas for workers with disabilities, protection for workers in digital-platform-based partnership arrangements, severance pay reserve funds, and the centralisation of labour inspection at the central-government level.

Comparison

Law 27/2026 revokes Law Number 13 of 2003 on Manpower (“Law 13/2003”), as amended by Law Number 6 of 2023 on Job Creation (“Job Creation Law”). A comparison of the provisions of Law 13/2003, as amended by the Job Creation Law, with the new provisions under Law 27/2026 is set out in the following table.

Key Provisions

Workplace Training and Competency Certification

Previously, the Job Creation Law only regulated the types of and licensing requirements for training institutions. Article 22 now adds requirements for workplace training conducted by private institutions or companies, to prevent “training” from being used as a disguise for cheap labour:

• a maximum of 6 hours per day over a 5-day workweek, and only during daytime hours;

• participants may not be assigned production targets for goods or services;

•  at least 60% practical training and 40% theoretical instruction; and

• training must be delivered by a vocational training instructor.

Violations are subject to sanctions up to revocation of the licence or registration certificate (Article 23). Competency certification is now carried out by a non-structural institution directly accountable to the President. Its members are appointed with the approval of the DPR and supervised by the DPR commission responsible for employment affairs (Article 30).

Apprenticeships

Article 36 confirms that apprenticeships are exclusively for job seekers and do not constitute an employment relationship. Apprenticeships are conducted through training institutions cooperating with companies, or through government programmes. New provisions now regulated at statutory level include:

• a maximum period of 6 months, with a maximum duration of 8 hours per day and 40 hours per week (Article 38);

• participants’ rights to a mentor, OHS, a stipend (covering transportation, meals, and incentives according to the Elucidation), Employment Injury Security (JKK) and Death Security (JKM), and a certificate (Article 37 paragraph (6)); and

• a permit from the minister responsible for the protection of migrant workers for apprenticeships abroad (Article 40).

Protection Obligations of Employers and Placement Operators

Article 46 paragraph (8) introduces an entirely new obligation. Every employer must provide protection in the form of:

• personal data protection;

• occupational safety and health;

• prevention of extortion and/or fraud;

• prevention of violence and/or discrimination;

• prevention of bullying;

•  workload management;

•  counselling services; and

• an easily accessible internal complaints mechanism.

Violations of the last three items are subject to administrative sanctions as provided in Article 46 paragraph (9). Violations concerning personal data through bullying are punishable by imprisonment for a maximum of 4 years, and a corporation may be fined up to Category VI (Article 269). Employers are also required to report both available and filled vacancies to the Ministry (Article 46 paragraph (2)). Placement operators are prohibited from charging job seekers and from retaining diplomas or personal documents (Article 50). Special job exchanges are now recognised as placement operators and must hold a registration certificate (Article 48).

Workers in the Informal Sector

For the first time, Articles 58–61 protect workers in the informal sector. Employers must pay fair and decent remuneration, taking into account working time, risks, and operating costs borne by the worker. Disputes are settled by deliberation or through the district court. Informal workers are entitled to social security, and vulnerable workers receive government contribution assistance, at a minimum for JKK and JKM.

Foreign Workers

Compared with Articles 42 and 45 of the Job Creation Law, several changes have been introduced:

• employers must now hold an RPTKA and approval from the Minister for the employment of foreign workers (Article 62 paragraph (1));

• exemptions for shareholder directors/commissioners, vocational training, and technology start-ups have been removed, while foreign workers legally married to Indonesian citizens for at least 5 years are now exempt (Article 62 paragraph (4));

• foreign workers may only hold positions that cannot yet be filled by Indonesian citizens, and employers must prioritise Indonesian citizens (Article 62 paragraphs (6)–(7));

• employers must employ foreign workers who are willing to learn Indonesian, facilitate their training, and pay wages fairly and without discrimination (Articles 65 and 67); and

• placement of foreign workers in HR/personnel positions or without an RPTKA is now subject to sanctions up to revocation of the licence (Article 64). Failure to pay wages or repatriate foreign workers is punishable by a Category IV–VI fine (Article 273).

Prohibition on Retaining Diplomas and Personal Documents

Article 78 paragraph (1) prohibits employers from requiring or retaining workers’ diplomas and personal documents as security. According to the Elucidation, personal documents include, among others, competency certificates, passports, birth certificates, marriage books, and motor vehicle ownership books (BPKB). The sole exception is a certificate issued for training funded by the employer pursuant to a written agreement. Violations are subject to administrative sanctions, and the documents must nevertheless be returned (Article 79).

Fixed-Term Employment Agreements (PKWT)

The Job Creation Law delegated the term of a PKWT to the employment agreement and Government Regulation. Article 82 paragraph (2) now establishes a clear limit: a maximum of 2 years, extendable twice, for a maximum of 1 year each. Work that is “expected to be completed within a relatively short period” is also limited to a maximum of 2 years (Article 87 paragraph (1) letter b). Other new obligations include:

• written notification of a planned extension no later than 7 days before the PKWT expires (Article 82 paragraph (3));

• registration of the PKWT no later than 3 working days after it is signed. A registered PKWT may be accessed by the worker and labour inspector (Article 87 paragraphs (3)–(4)); and

• if a PKWT becomes an indefinite-term employment agreement (PKWTT) by operation of law, the worker may request the district court to validate the inspector’s examination memorandum after bipartite negotiations have failed (Article 87 paragraph (6)).

Probationary Period under an Indefinite-Term Employment Agreement (PKWTT)

Article 92 strengthens the previous provisions. During the probationary period, employers must pay at least 75% of the wage for the position (and in no event less than the minimum wage) and provide social security coverage. Employers must also appoint workers who pass the probationary period. The probationary-period requirement must be in writing; if it is not in writing, it is deemed not to exist. The probationary period is counted as length of service. Violations concerning wages and social security are punishable by imprisonment for a maximum of 2 years (Article 274).

Outsourcing

The Job Creation Law delegated the types of work that may be outsourced to a Government Regulation. Article 95 now expressly limits outsourcing to 4 supporting services, namely cleaning, worker catering, security, and worker transportation. Other new provisions include:

• the mining/oil and gas sectors may outsource supporting services in their respective fields only through a subsidiary established as a PT (Article 96);

• BUMN may outsource only to their subsidiaries established as PTs (Article 97);

• outsourced workers used for direct production activities become, by operation of law, workers of the company commissioning the work (Article 98);

• vendors must be established as PTs, prepare a wage structure and scale, and are prohibited from deducting workers’ normative rights (Article 99 paragraphs (5)–(7)); and

• if the vendor changes, the worker’s length of service is calculated cumulatively for the PKWT time limit (Article 99 paragraph (4)).

Specifically for BUMN, Article 309 provides a transition period for BUMN that, when Law 27/2026 enters into force, do not yet have subsidiaries to conduct outsourcing as required by Article 97. BUMN may continue to use existing outsourcing companies for a maximum of 1 year from the promulgation of Law 27/2026, namely until 28 October 2027. Before that deadline, BUMN must establish or own a subsidiary to conduct the outsourcing of supporting services. Such subsidiary must be a limited liability company as provided in Article 97 paragraph (2), hold business licences from the Central Government, prepare a wage structure and scale, and not deduct workers’ normative rights. The phrase “own” creates the possibility for BUMN to acquire an existing company as a subsidiary, rather than having to establish a new one.

Article 309 may be viewed as overriding Article 306 paragraph (2), which provides that existing outsourcing agreements remain valid until their expiry. Accordingly, vendor contracts with terms extending beyond 28 October 2027 should have their termination or transfer clauses reviewed now. After the transition period ends, outsourcing of supporting services unrelated to BUMN’s main activities may only be carried out through a subsidiary. In accordance with the Elucidation of Article 97 paragraph (1), cleaning services, food provision, security services, and worker transportation may still be entrusted to other outsourcing companies that satisfy Article 99.

When transferring from an existing vendor to a subsidiary, BUMN must ensure that the protection of workers’ rights is maintained and that their length of service is calculated cumulatively (Article 99 paragraphs (3)–(4)). Article 309 itself does not provide for sanctions. However, if outsourced workers are used for activities directly related to the production process, the employment relationship is transferred by operation of law to BUMN, as contemplated in Article 98. Two matters remain to be noted. The procedures for outsourcing by BUMN are still awaiting a Government Regulation under Article 97 paragraph (4), which must also be issued no later than 28 October 2027. BUMN in the mining and petroleum sectors are also subject to similar provisions under Articles 96 and 308.

Certain Work Relationships (Partnerships and Digital Platforms)

Article 102 introduces “certain work relationships” based on partnership agreements or other agreements, including digital-platform-based work. Persons working under these arrangements are entitled to decent income, OHS, and social security. When the relationship ends, the employer must pay severance pay, UPMK, compensation of rights (UPH), and/or separation pay in accordance with the agreement (Article 251). Detailed regulation of partnerships will be set out in a separate law (Article 103).

Quotas for Persons with Disabilities

The obligation to protect workers with disabilities was already provided for in Article 67 of the Job Creation Law. The new element is the mandatory quota under Article 105: the Central Government, Regional Governments, BUMN, and Regional-Owned Enterprises (BUMD) must employ at least 2%, while private companies must employ at least 1% of their total workforce. Employers who fail to provide protection to workers with disabilities are now also liable to imprisonment for a maximum of 2 years (Article 275).

Child Workers

The prohibition on employing children remains in force, but there are two changes:

Under Article 107 of Law 27/2026, the exception for light work now applies to children aged 15 to under 18, compared with the previous age range of 13–15. Such work must satisfy the following requirements: written permission from a parent; a maximum of 3 working hours per day; performance during daytime hours; and no interference with schooling.

Medium- and large-scale companies must ensure and audit their entire production and distribution supply chains to ensure that no worst forms of child labour are present, as provided in Article 112 paragraph (3) of Law 27/2026. Law 27/2026 also increases the criminal penalties for related violations. Under Article 279, a party that involves a child in the worst forms of child labour may be sentenced to imprisonment for a maximum of 15 years, while a corporation may be fined up to Category VIII.

Women Workers, Maternity Leave, and Spousal Support Leave

Article 114 paragraph (1) adds new obligations for employers employing women:

• equal career development opportunities;

• lactation rooms and facilities;

• a zero-tolerance policy towards harassment and sexual violence in the workplace; and

• periodic reproductive health examinations in high-risk sectors.

Employers are also prohibited from reducing women workers’ rights because of marital status, pregnancy, childbirth, miscarriage, or breastfeeding. Employers are also prohibited from assigning pregnant workers to high-risk work or work between 11:00 p.m. and 7:00 a.m. Violations are punishable by imprisonment for a maximum of 1 year (Article 114 paragraph (2) in conjunction with Article 280).

Maternity leave is extended from 1.5 + 1.5 months to a minimum of 3 months, and may be extended for a further 3 months in the event of special circumstances supported by a doctor’s letter. Wages are paid in full through the 4th month, and at 75% in the 5th and 6th months (Articles 121 and 123). Male workers are now entitled to 2 days of leave to accompany their wives, which may be extended by a maximum of 3 days, or 2 days if the wife suffers a miscarriage (Article 124).

Working Time, Rest Periods, Leave, and Overtime

Article 118 restores and strengthens rest entitlements that had previously been reduced by the Job Creation Law:

• 2 weekly rest days for a 5-day work pattern are once again regulated. Previously, the Job Creation Law only provided for 1 day for a 6-day workweek;

• an extended rest period is now mandatory, namely 30 calendar days each time a worker completes 5 consecutive years of service. Previously, “certain companies could” provide it. In the year in which the extended rest period is taken, the worker is not entitled to annual leave; and

• collective leave designated by the Government may not reduce annual leave entitlements.

The overtime limit remains 4 hours per day and 18 hours per week. Overtime now also requires a written instruction and/or an instruction through digital media (Article 116 paragraph (1)). Overtime rates, previously regulated in implementing regulations, are now stipulated directly in the law. Overtime on working days is paid at 1.5 times the hourly wage for the first hour and 2 times for each subsequent hour. Overtime on public holidays is paid at 2, 3, and 4 times the hourly wage according to the sequence of hours worked (Articles 116 and 125).

OHS and OHSMS

OHS provisions, which were previously general in nature, are now detailed at statutory level. An OHSMS must be implemented by companies with at least 100 workers or a high-risk profile (Article 130 paragraph (3)). At a minimum, companies must:

• identify hazards and assess risks periodically;

• provide personal protective equipment at the company’s expense;

• provide first-aid facilities, a health room, and emergency transportation;

• provide regular OHS training;

• conduct workers’ health examinations at least once a year; and

• report occupational accidents, occupational diseases, and hazardous situations.

Every company must also establish an OHS committee comprising employer and worker representatives, replacing the Occupational Safety and Health Advisory Committee (P2K3) (Articles 131 and 307). Workers’ OHS rights now include mental health aspects (Article 129). Failure to implement an OHSMS is subject to sanctions up to revocation of the licence (Article 132). OHS violations resulting in permanent total disability or death are punishable by imprisonment for a maximum of 6 years (Article 286).

Remuneration

The remuneration framework under the Job Creation Law (Articles 88–98) is largely retained. The key changes are as follows:

Industrial Relations: Bipartite Cooperation Institutions, Company Regulations, Collective Labour Agreements, and Strikes

Article 171 lowers the threshold for mandatory establishment of an LKS Bipartit from 50 to 10 workers. Companies that fail to establish one are subject to administrative sanctions. Article 169 also specifies prohibited forms of anti-union conduct, including anti-union campaigns, punishable by imprisonment for a maximum of 5 years. Other changes include:

• Company Regulations. The obligations to prepare, renew every 2 years, and distribute company regulations to workers in printed or electronic form are now accompanied by administrative sanctions (Articles 176, 180, 183–184).

• Collective labour agreement negotiators. A single trade union need only have membership exceeding 30%, previously more than 50%. If this threshold is not met, the union must obtain support from more than 50% through a vote, and may repeat the vote after 6 months. If there are several unions, a maximum of 3 unions, each with at least 10% membership, are entitled to negotiate (Articles 190–191).

• Collective labour agreement obligations. A collective labour agreement must be made in Indonesian. Employers must respond to invitations to negotiate, distribute copies of the agreement, and bear its costs. Employers are prohibited from replacing a collective labour agreement with company regulations while a trade union remains in existence. All these obligations are now accompanied by administrative sanctions (Articles 187, 198–199, 202–203).

• Strikes and lock-outs. Replacing workers who are on a lawful strike or taking retaliatory action is now subject to administrative sanctions up to revocation of the licence (Article 219). The prohibition on lock-outs has been extended to strategic companies and national vital objects (Article 222 paragraph (2)).

PHK Procedure

Article 228 fundamentally changes the PHK procedure under Article 151 of the Job Creation Law:

• All parties must prevent PHK through 10 sequential stages: reducing overtime on holidays, reducing daily overtime, reducing shifts, reducing working hours or days, not extending PKWTs, not replacing retiring workers, adjusting managerial wages, placing workers on temporary lay-off on a rotating basis, offering voluntary early retirement, and offering a pension programme.

• If PHK cannot be avoided, the intention to carry out PHK must be negotiated bipartitely for a maximum of 30 working days.

• If bipartite negotiations fail, PHK must proceed through the industrial relations dispute settlement process (PPHI) and may only be carried out after a decision has become final and binding.

• PHK without agreement or a court decision is null and void by law, and the worker must be reinstated. Failure to reinstate is punishable by imprisonment for a maximum of 2 years (Article 294).

The list of grounds for PHK is also amended by Article 231. Efficiency is no longer a ground for PHK. Instead, the ground of permanent company closure by decision of the owner has been added. The Job Creation Law provision permitting additional grounds for PHK to be included in an employment agreement/company regulations/collective labour agreement (Article 154A paragraph (2)) is also no longer included.

Amounts of Entitlements Arising from PHK

The severance pay and UPMK table in Article 232 is the same as under the Job Creation Law. The change is that the multipliers for each ground for PHK are now stipulated directly in the law (Articles 236–249). Previously, the Job Creation Law deleted Articles 161–172 of Law 13/2003 and delegated the regulation to a Government Regulation. The details are as follows:

 All of the grounds above also give rise to an entitlement to UPH. The group in the last row is only entitled to UPH and separation pay. If the company does not stipulate the amount of separation pay, the amount is now at least 1 month’s wages (Article 233). Other new provisions include: workers detained for 6 months by the police or law enforcement authorities on suspicion of committing a criminal act are treated differently depending on whether or not the company suffers a loss (Article 245). In addition, micro and small enterprises and employers in partnership relationships must pay PHK entitlements in amounts agreed by the parties (Articles 250–251).

Severance Pay Reserve Fund

Article 253 requires every employer, except micro and small enterprises, to provide a severance pay reserve fund managed by a government institution. This fund guarantees the entitlements of workers whose employment is terminated, particularly in cases of PHK before retirement age and for workers who have not been enrolled in a pension programme. Violations are subject to administrative sanctions, ranging from a written warning to revocation of the business licence. The detailed mechanism will be regulated by Government Regulation.

Supervision and Investigation

Labour inspection is transferred from provincial governments to a separate work unit within the Ministry, funded by the State Budget (APBN) (Article 258). The number of inspectors is determined according to the ratio of workers and companies in each regency/city (Article 257). Inspectors are authorised to enter workplaces with or without an accompanying person, summon the parties, and order corrective action. Inspectors are also required to inform complainants of case developments (Articles 260 and 262). Conversely, employers must provide access and data, report employment conditions, and follow up on inspectors’ recommendations. Breaches of these obligations are punishable by imprisonment for a maximum of 2 years (Articles 259, 264, and 296). Supervision is now also supported by a tripartite Labour Inspection Committee (Article 265) and external oversight by the DPR (Article 266). Inspectors have the status of PPNS and broad powers, including coercive measures, restorative justice, and guilty pleas, under the coordination of the National Police’s employment desk (Article 267).

Transitional Provisions

Law 27/2026 provides transitional provisions to ensure that the entry into force of this law does not disrupt the ongoing settlement of cases, licensing, and performance of labour inspection functions. The transitional provisions are summarised in the following table.

Closing

With the entry into force of Law 27/2026, employment regulation has undergone significant changes, both through the strengthening of workers’ rights and protection and the addition of obligations for employers. A number of provisions that were previously regulated further in implementing regulations are now regulated directly at statutory level, including those concerning employment relationships, remuneration, outsourcing, PHK, and labour inspection.

In this regard, companies should review and adjust their internal policies, employment agreements, company regulations, collective labour agreements, and existing employment practices to ensure compliance with Law 27/2026. Companies should also take note of the adjustment periods stipulated in the transitional provisions and developments in implementing regulations to be issued, in order to ensure compliance with these new provisions.