CAN A DIRECTOR BE CONSIDERED AS A COMPANY EMPLOYEE?

MINIMUM-WAGE-COMPLIANCE-IN-INDONESIA
MINIMUM WAGE COMPLIANCE IN INDONESIA
February 10, 2017
4-THINGS-YOU-NEED-TO-KNOW-IN-APPLYING-FOR-INDUSTRIAL-BUSINESS-LICENSE-IZIN-USAHA-INDUSTRI
4 THINGS YOU NEED TO KNOW IN APPLYING FOR INDUSTRIAL BUSINESS LICENSE (IZIN USAHA INDUSTRI)
February 14, 2017

The position of a Director in a Company comes with the authority and responsibility to manage and lawfully represent the Company. Therefore, can a Director be considered as a Company Employee, with all its benefits and employee rights? Learn more about it in our article below.


Employment in Indonesia is regulated under Law No. 13 of 2003 concerning Manpower (“Manpower Law”) which sets up the terms and conditions for an employment relationship, including the benefits and rights of an Employee, and the obligation of the Employer.

On the other side, Directorship in Indonesia is regulated under Law No. 40 of 2007 concerning Limited Liability Company (“Company Law”) which sets up the duties and obligations of a Board of Directors as a Company Organ.

With two clearly separate regulations, can a Director be considered as a Company Employee?

DEFINITION OF EMPLOYEE AND EMPLOYER

Article 1 point 3 of Manpower Law defines “Employee” as any person who works and receives wages or other forms of remuneration. Meanwhile, Article 1 point 4 of Manpower Law defines “Employer” as an individual, entrepreneur, legal entities or other entity that employ manpower by paying them wages or other forms of remuneration.

“Entrepreneur” itself is defined as the following definitions:

  1. An individual, a partnership, or a legal entity that operates a self-owned enterprise;
  2. An individual, a partnership, or a legal entity that independently operates a non-self-owned enterprise; or
  3. An individual, a partnership or a legal entity located in Indonesia and representing an enterprise as mentioned under point (1) and (2) that is domiciled outside the territory of Indonesia.

The first and second definition of “Entrepreneur” bring this lawful definition into focus: an individual that operates a self-owned or a non-self-owned enterprise, is defined as an Entrepreneur.

POSITION OF A DIRECTOR IN A COMPANY

Article 92 (1) of Company Law states that the Board of Directors undertake the management of the Company. What this means is that a Director of a Company who is a member of Board of Directors manages and operates such Company, which can be his/her own Company, or a Company established by other parties.

From that definition, we can conclude that a Director cannot be considered as an Employee, since based on its duties and responsibilities pursuant to the Company Law, he/she fulfills the role of an Entrepreneur, which is one of the Employers as defined in Manpower Law.

IMPACT TO THE DIRECTOR

Pursuant to Article 94 of Company Law, Directors are appointed by the General Meeting of Shareholders to represent the Company.

What this means is that the Director:

  1. Has responsibility to the General Meeting of Shareholders, hence its obligation to ask for approval for specific actions, and obligation of annual business plan and annual report.
  1. Has its specific duties, responsibilities, obligations, benefits, and rights determined by a General Meeting of Shareholders.
  1. Does not have to sign Employment Contracts of any kind (PKWT or PKWTT).
  1. Does have to sign private agreements with the General Meeting of Shareholders as necessary. The contents vary pursuant to the type of Company. A Director may have to sign a Non-Disclosure Agreement if the Company business is a sensitive matter.
  1. Regarding BPJS, the Director can be registered. The kinks of the payment is agreed between Director and the General Meeting of Shareholders.
  1. Regarding Annual Leave, Sick Leave, Benefits, Compensation, is agreed between Director and the General Meeting of Shareholders, and is not automatically regulated by Manpower Law, Company Regulation, or the Employment Contract.

“DIRECTOR” WHO IS ALSO AN EMPLOYEE

The above article explains that a Director cannot be considered as an Employee. But what happens if the person has the title “Director” but is not appointed as Director pursuant to the Company Law?

That means the “Director” can be considered as an Employee of the Company.

The way to check it is easy: if the name of the Director is listed in the Articles of Association of the Company, he/she cannot be considered as an Employee. But if he/she is not listed in the Articles of Association of the Company, the “Director” is an Employee.

HOW CAN SMART CONSULTING HELP YOU?

To ensure a smooth investment and business operation from the legal perspective, but also still focus on maintaining your business in Indonesia and reach your revenue target, it is advised for you to find capable and trusted lawyers or legal consultants for advice and assistance in ensuring your legal compliance with prevailing corporate and manpower laws and regulations.

SMART Consulting is an Indonesian Corporate Legal Services firm. We have assisted local and multinational companies in structuring their corporate structure, including matters related to the duties and responsibilities of Board of Directors of a Company, with effective legal cost. Our services include assistance in drafting and reviewing the agreement between a Director and a Company, agreements of Employment nature, and also Company Regulations and Employment Contract templates.

Contact Us Now to get your legal solution for your business goals, and still comply with the prevailing laws and regulations.

E:  info@smartcolaw.com

H: +62821-1234-1235

Comments are closed.