How Long Is The Employment Contract According To The Omnibus Law? Discover Here!

Fixed Term Employment Agreement (Perjanjian Kerja Waktu Tertentu/PKWT) is a type of contract that governs the relationship between an employee and a company for a specified period. This contract outlines the duration of employment contract and conditions for extensions. With the introduction of the Omnibus Law, which has been in effect since 2020, significant changes have been made to labor regulations in Indonesia, including those concerning contract durations.

To grasp the implications of these changes, it’s essential to review how the latest regulations address contract duration. Here’s an in-depth look at the new provisions and their implications.

Employment Contract Duration Under the Omnibus Law

Fixed-Term Employment Agreements (PKWT) are contracts between employees and employers for specific jobs or durations. Generally, PKWT falls into two categories:

1. Based on Duration: For tasks expected to be completed within a relatively short period. This often includes seasonal work or projects involving new products, activities, or trial periods.

2. Based on Completion of Specific Tasks: For temporary or one-time jobs. This can also apply to jobs where the nature, type, and activities are not constant.

PKWT is not suitable for permanent jobs. If a PKWT fails to meet the stipulated criteria, it will be considered a Permanent Employment Contract (PKWTT).

So, what is the minimum duration of a PKWT under the new law? According to the Omnibus Law, the maximum duration for a PKWT is 5 years for tasks requiring longer periods. This is a notable shift from previous regulations, which did not explicitly set a maximum contract duration.

However, if a PKWT is nearing its end and the work is not yet complete, an extension can be made under the Omnibus Law. The extension must be agreed upon by both the company and the employee. It’s important to note that the total period of employment, whether based on duration or task completion, is counted from the commencement of the PKWT.

Implications and Effects of the Omnibus Law on Employment Contract

The Omnibus Law has significant implications for companies in managing their workforce. Companies need to track contract end dates carefully and ensure they fulfill employees’ rights according to the new regulations.

For employees, this law impacts job stability and benefits. When a PKWT ends, the company must provide severance pay if the employee has worked continuously for at least one month. If the PKWT is extended, severance pay is given when the initial term ends, and then again after the extension period.

Severance pay does not apply to foreign employees. For employees who have worked continuously for 5 years, severance pay is calculated as follows: (Years of Service / 12) x 1 month’s salary.

Comparison with Regulations in Other Countries

Compared to other countries, Indonesia’s contract duration limits under the Omnibus Law are relatively competitive. Different countries have varying regulations based on their socio-economic needs.

Understanding the limits and extensions of PKWT under the Omnibus Law is crucial for both employers and employees. It’s essential for all parties involved in Indonesia’s labor market to comply with the current regulations.

Ensure that employment contracts are crafted in accordance with these regulations and are clear and understandable. For a smooth recruitment process from start to finish, consider partnering with an outsourcing company like RecruitFirst Indonesia. RecruitFirst is ready to assist in finding the right talent for your company’s needs.

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