New Labour Law Brings Major Changes for Employers and Workers

Indonesia has introduced a new employment protection framework through Law No. 27 of 2026 on Employment Protection (UU Pelindungan Ketenagakerjaan). Enacted on 28 October 2026, the legislation introduces significant changes to employment relationships, covering contract arrangements, employee rights, wages, termination of employment, and severance pay.

The new law aims to strengthen legal certainty and provide more comprehensive protection for workers while establishing clearer responsibilities for employers. It also addresses developments in Indonesia’s labour market and the need to create a more balanced relationship between businesses and their workforce.

Consisting of 313 articles across 23 chapters, the regulation covers various aspects of employment, from workforce preparation and training to employment relationships and termination. Here are some of the key changes employers and employees need to understand.

1. New Rules on Fixed-Term Employment Contracts (PKWT)

One of the notable changes concerns the duration of fixed-term employment agreements, commonly known as Perjanjian Kerja Waktu Tertentu (PKWT).

Under the new regulation, PKWT agreements are limited to a maximum initial period of two years. Employers may extend the agreement up to two times, with each extension lasting no longer than one year.

This provision provides a clearer framework for companies when planning contract-based recruitment and managing workforce requirements.

For employers, the revised rules mean that contract arrangements need to be reviewed to ensure compliance with the permitted duration and extension limits. HR teams should also pay closer attention to contract documentation, renewal schedules, and employee entitlements when employment agreements end.

2. Stronger Protection Against Unfair Termination

The new law also addresses the protection of workers in cases of termination of employment (Pemutusan Hubungan Kerja or PHK).

Termination decisions involve important legal and financial responsibilities for employers. Companies must consider the applicable legal grounds and procedures before ending an employment relationship.

This reinforces the importance of having transparent termination policies and proper documentation. Employers should ensure that termination decisions are handled in accordance with applicable regulations and that employees receive the rights they are entitled to.

For employees, clearer termination provisions provide a stronger basis for understanding their rights and seeking appropriate remedies if disputes arise.

3. Clearer Provisions on Severance Pay

Severance pay remains an important part of employee protection under the new legislation.

In the event of termination, employers are required to provide severance pay, long-service pay, and compensation for entitlements, as applicable under the relevant termination provisions.

The calculation of these payments takes into account factors such as:

• Employee length of service.
• Monthly wages used as the calculation basis.
• The reason for termination.
• Applicable termination provisions.

Employees may also be entitled to compensation for:

• Outstanding annual leave that has not expired.
• Eligible return travel expenses.
• Other entitlements stipulated in employment agreements or company regulations.

For businesses, these provisions highlight the importance of understanding potential termination costs and ensuring that employment policies are aligned with current legal requirements.

4. Employee Rights and Annual Leave Entitlements

Annual leave is another important aspect of employment relationships addressed by the new framework.

Employees who have worked continuously for 12 months are entitled to a minimum of 12 working days of annual leave. Unused annual leave that has not expired may also be included in the compensation of entitlements when an employment relationship ends, subject to applicable provisions.

Companies should review their leave policies and ensure that:

• Annual leave entitlements comply with applicable regulations.
• Employee leave balances are properly recorded.
• Leave requests and approvals are administered transparently.
• Outstanding leave entitlements are considered when calculating termination compensation.

Beyond regulatory compliance, transparent leave policies can contribute to employee well-being, workplace satisfaction, and workforce productivity.

5. Broader Responsibilities for Employers

The new employment protection framework goes beyond contract duration and termination benefits. It also introduces provisions covering workforce development, training, employment opportunities, and protections for workers in different employment arrangements.

Some important areas include:

• Employee personal documents: Employers are prohibited from requiring or withholding employees’ educational certificates and personal documents as security in an employment relationship.
• Workforce development: The framework addresses employment training and workforce development.
• Social security protection: It introduces provisions concerning informal-sector workers and certain employment relationships, including access to social security protection.

These changes encourage employers to review not only their recruitment processes but also their broader workforce management practices.

What Does the New Law Mean for HR Teams and Businesses?

The implementation of Law No. 27 of 2026 requires businesses to pay closer attention to their employment policies and workforce management strategies.

HR teams should consider reviewing several areas:

• Employment contracts: Ensure PKWT agreements comply with the revised duration and extension limits.
• Termination procedures: Review internal policies and documentation to ensure compliance with applicable PHK provisions.
• Employee benefits: Check whether leave entitlements, severance calculations, and other employment benefits are administered correctly.
• Recruitment practices: Ensure hiring procedures comply with employee protection requirements, including rules concerning personal documents.
• Workforce planning: Assess employment arrangements and workforce requirements to maintain operational flexibility while meeting legal obligations.

For companies managing large or diverse workforces, these adjustments may require closer coordination between HR, legal, and business management teams.

How Recruitment Partners Can Support Businesses

As employment regulations evolve, companies need to ensure that their recruitment and workforce management practices remain aligned with applicable legal requirements.

Working with a reliable recruitment partner can help businesses navigate changing workforce needs, identify suitable talent, and develop recruitment strategies that support their operational objectives.

As a recruitment agency in Jakarta, RecruitFirst Indonesia supports organisations in finding qualified professionals and managing their recruitment needs across different industries.

By combining recruitment expertise with an understanding of the local employment landscape, RecruitFirst Indonesia helps businesses approach talent acquisition more strategically while adapting to changes in the labour market.

Preparing for Indonesia’s New Employment Protection Framework

Law No. 27 of 2026 represents an important development in Indonesia’s employment regulatory framework. By addressing employment contracts, worker protection, termination procedures, and employee entitlements, the legislation establishes clearer expectations for both employers and employees.

Businesses should take this opportunity to:

• Review existing employment policies and contracts.
• Identify potential compliance gaps.
• Update HR procedures in line with applicable regulations.
• Ensure employees understand their rights and entitlements.

Understanding these changes is essential not only for meeting legal obligations but also for building fair, transparent, and sustainable employment relationships.

Need Support with Your Recruitment Strategy?

Navigating changes in employment regulations requires businesses to stay informed and ensure their workforce strategies remain compliant and effective.

Whether you are looking to strengthen your recruitment process, find qualified talent, or address evolving workforce needs, RecruitFirst Indonesia is ready to support your business.

Contact RecruitFirst Indonesia today to discuss your recruitment needs and discover how we can help your organisation build a stronger workforce.