Regulation Watch · Business Licensing · Indonesia. The law applies nationally to every person working for wages or other remuneration and to the employer responsible for that work. It replaces the main statutory employment framework for Indonesian and foreign-owned businesses while preserving existing implementing regulations only to the extent that they do not conflict with Law 27/2026.
Indonesia Replaces Its Core Employment Law
Law 27/2026 replaces the 2003 Employment Law and the employment cluster of the Job Creation Law, with immediate changes to fixed-term contracts, outsourcing, leave, wages, foreign workers, termination and severance funding.
- Published
- Law 27/2026 was enacted and promulgated in Jakarta on 28 October 2026 in State Gazette 2026 No. 179, Supplement No. 7222. The official State Secretariat record and signed text list the law as in force.
- Effective
- 28 October 2026, the date of promulgation stated in Article 313. The law contains specific transition periods for outsourcing, inspection administration and implementing regulations, but no general delay to its employer duties.
- Added to Watch
- 6 November 2026
Who is affected
All Indonesian employers and workers, including PT PMA and PT PMDN companies, foreign investors, directors, commissioners and shareholders, foreign-worker sponsors, expatriate employees, outsourcing clients and providers, digital-platform and partnership businesses, hotels, villas, restaurants, developers, contractors, manufacturers, retailers, clinics, professional firms, HR and payroll teams, labour unions and advisers responsible for employment compliance.
Practical impact
Law 27/2026 repeals Law 13/2003 and the employment provisions in the Job Creation Law and creates a new operational baseline. A fixed-term contract is limited to two years, with no more than two extensions of up to one year each, must be in written Indonesian, must be recorded within three working days and cannot contain probation. Outsourcing returns to defined supporting services that are not directly connected to production, with direct employment transferring to the client by law if outsourced staff perform core production work. Employers must not use or retain diplomas or personal documents as employment security, must give shared public holidays without deducting annual leave, must provide 30 calendar days of long leave after each five consecutive years, and must apply expanded maternity, paternity, women-worker and supply-chain child-labour protections. The law also changes minimum-wage governance, requires wage structures to be attached to company regulations or collective agreements, introduces a government-managed severance reserve obligation for non-micro and non-small businesses, and requires agreement or a final industrial-relations decision before a disputed termination becomes effective.
Indonesia enacted and promulgated Law 27/2026 on Employment Protection on 28 October 2026. It took effect that day, revoked Law 13/2003 and repealed the employment cluster in the Job Creation Law. Existing implementing regulations remain valid only where they do not conflict with the new law, and replacement implementing rules must be issued by 28 October 2027.
Fixed-term employment now has a clear statutory ceiling. An initial fixed-term contract may run for no more than two years and may be extended no more than twice, with each extension limited to one year. The contract must be written in Indonesian and Latin script, cannot contain probation and must cover qualifying temporary work. It must be recorded with the competent central or regional authority within three working days, while a planned extension requires written notice at least seven days before expiry. A non-written or substantively ineligible fixed-term arrangement becomes indefinite employment by law.
Outsourcing is narrowed to supporting services or work not directly connected to production. The law identifies cleaning, worker catering, security and worker transport as supporting services and creates special structures for mining, oil and gas and state-owned companies. Where an outsourced worker performs work directly connected to the client's production process, the employment relationship transfers to the client by law. Existing users of outsourced labour have until 28 October 2027 to align, while an outsourcing agreement signed before commencement may continue until its stated expiry.
Every employer should update its contract and document controls. A written employment agreement must be issued in two equally valid copies, including one for the worker. Diplomas and personal documents may not be required or retained as security, except for a lawful interest involving an employer-funded education or training document under a written agreement. A breach can lead to warnings, fines and business restrictions, without removing the duty to return the document.
Working-time and leave rules are more prescriptive. Overtime needs worker consent and a written or digital employer order, is generally limited to four hours per day and 18 hours per week, and uses the statutory 1.5 and 2 times multipliers based on basic salary plus fixed allowances divided by 173. Public holidays designated as collective leave do not reduce annual leave. The law also adds 30 calendar days of long leave after every five consecutive years, at least three months of maternity leave with a medically supported extension of up to three more months, and paternity leave of two days with up to three additional days or another agreed period.
The law strengthens protections for women, children and workplace safety. Employers must provide lactation facilities, adopt zero-tolerance policies for sexual harassment and violence, protect pregnant workers and provide transport, food and safety for specified night work. Medium and large businesses must ensure and audit that their production and distribution supply chains are free from the worst forms of child labour. Companies must implement occupational safety and health controls, integrate SMK3 where required and maintain a joint employer-worker safety committee.
Wage governance now combines minimum-wage rules with internal wage architecture. The regional minimum wage is calculated using the higher of the statutory formula or the agreed living-needs basis, while sectoral minimum wages are restored for qualifying sectors. Employers must prepare and apply a wage structure and scale, consult worker representatives and attach it to the company regulation or collective agreement. Minimum wages generally apply to workers with less than one year of service. The law also permits a micro or small business wage agreement at no less than 50 percent of the applicable minimum wage, subject to the business qualifying under the statutory micro or small classification.
Foreign-worker sponsors must hold both an approved utilisation plan and the required individual approval, unless a stated exemption applies. Foreign workers remain limited to specified roles and terms that cannot yet be filled by Indonesian workers, and HR or personnel roles are prohibited. Employers must appoint Indonesian counterparts, provide training and competency development, facilitate Indonesian-language education, pay the compensation fund where applicable and repatriate the foreign worker after employment ends. The law creates limited exemptions for specified temporary activities and for a foreign national in a valid marriage of at least five years with an Indonesian citizen.
Termination procedure and funding require immediate board attention. Employers must first pursue the statutory prevention measures and bipartite negotiation. If no agreement is reached, termination normally requires a final decision from the industrial-relations dispute system; a unilateral disputed termination is void and can require reinstatement. The law preserves severance, service-award and rights-compensation schedules, adds a minimum one-month separation payment where the company's documents set no amount for an eligible case, and requires non-micro and non-small businesses to provide a government-managed severance reserve for covered terminations. The contribution mechanism still awaits a Government Regulation.
Enforcement is material. The law permits administrative fines, business restrictions, partial or full suspension and business-licence revocation across specified breaches. Criminal provisions cover unpaid wages and overtime, minimum-wage underpayment, denial of protected leave, unlawful use of foreign workers, serious child-labour breaches and other conduct. Employers should therefore treat the review as a combined legal, payroll, licensing, immigration, outsourcing, safety and cash-funding project rather than waiting for the implementing regulations.
Required action
- Reissue the employment compliance matrix using Law 27/2026 as the primary statute and identify every company regulation, collective agreement, employment contract, payroll policy and HR procedure that still relies on Law 13/2003 or the repealed Job Creation Law employment provisions.
- Audit every fixed-term contract for eligible work, written Indonesian text, the two-year initial limit, no more than two one-year extensions, written extension notice at least seven days before expiry, filing within three working days and payment of end-of-contract compensation.
- Map every outsourced role to cleaning, worker catering, security, worker transport or another legally permitted supporting category, confirm the provider's licence and written worker protections, and remove outsourced staff from work directly connected to the client's production process.
- Return any diploma or personal document held as security, remove document-retention clauses and limit any exception to a lawful interest involving education or training funded by the employer under a written employment agreement.
- Update attendance, overtime and leave controls for written or digital overtime orders, the 4-hour daily and 18-hour weekly limits, the statutory overtime multipliers, public holidays that do not reduce annual leave, 30 days of long leave after each five consecutive years, maternity and miscarriage leave, and paternity leave.
- Review wage compliance, including minimum wages, equal pay for work of equal value, the wage structure and scale, the 75 percent minimum basic-wage component where fixed allowances apply, paid absences and the special rules for micro and small businesses.
- For every foreign worker, reconcile the approved foreign-worker utilisation plan and individual approval, permitted role and term, Indonesian counterpart, training and certification, Indonesian-language training, compensation-fund payment, wage terms and repatriation responsibility.
- Rebuild the termination checklist so that disputed termination proceeds through bipartite negotiation and, if unresolved, the industrial-relations process before termination, while preserving wages and ordinary rights during the dispute and calculating the correct severance multiplier, service award and rights compensation.
- Prepare for the government-managed severance reserve and implementing regulations without inventing a contribution amount or payment route before the required Government Regulation is issued, and create a board-level reserve and cash-flow assessment in the meantime.
- For medium and large businesses, establish documented supply-chain checks for the worst forms of child labour and retain supplier declarations, audit evidence, remediation records and escalation decisions.