A GUIDE ON INDONESIA’S HIERARCHY OF EMPLOYMENT LAW SOURCE FOR COMPANIES

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The terms and conditions of Employment is regulated by the prevailing Manpower Law, as well as the individual employment contracts made between the Employer and the Employee. Read more about how they work in our article.


In Indonesia, there are 2 (two) sources which makes up the Employment Law in Indonesia:

  1. Heteronymous source, consisting of the prevailing laws and regulations issued by the government. The regulations of Employment Law in Indonesia are widely dispersed amongst a number of national laws, government regulations, presidential decrees, as well as ministerial decrees and circular letters.
  2. Autonomous source, consisting of the prevailing regulations and contracts that are made between the Employer and the Employee. Such regulations and contracts include the Employment Agreement, Contractual Bargaining Aagreement (Perjanjian Kerja Bersama), and Company Regulation.

Between the two sources, it is important especially for Employers to understand the function of both sources in applying the Employment Law within an Employer-Employee relationship. The Heteronymous sources which consist of the prevailing laws and regulations issued by the Indonesia Government must always be the normative standard. Therefore, the Employment Contract and Company Regulation, as well as other documents classified as Autonomous source, must be prepared and made pursuant to the prevailing Employment laws and regulations in Indonesia.

To make it simple, SMART has a handy list of the hierarchy of the Employment Law sources, in order from the most powerful:

  1. Prevailing Employment Laws and Regulations, currently Law No.13 of 2003 concerning Manpower (“Manpower Law”) and its subordinate regulations and sectorial policies;
  2. Collective Labor Agreement (Perjanjian Kerja Bersama);
  3. Company Regulation (Peraturan Perusahaan);
  4. Employment Agreement (Perjanjian Kerja).

The meaning of the above hierarchy is that the terms and conditions of employment must all comply with the prevailing Manpower Law in Indonesia. Therefore, all Employment Agreements, Company Regulation, as well as Collective Labor Agreements must comply with the prevailing Manpower Law. In the event that it is found that the terms and conditions do not comply with the Manpower Law, or is found insufficient, Manpower Law and its subordinate regulations will apply in its place. This principle is known as Lex superiori derogat legi priori, which means that the regulation positioned higher in the hierarchy supersedes the regulations in a lower position.

Referring to the hierarchy above, Collective Labor Agreement is positioned higher than Company Regulation. Therefore, in the event that the Collective Labor Agreement terms and conditions is contrary to the Company Regulations, the Collective Labor Agreement will be apply, because the position of Collective Labor Agreement is higher than Company Regulation.

Pursuant to Article 1 Paragraph 21 of Manpower Law, Collective Labor Agreement has the following characteristic elements:

  1. Agreement;
  2. Result of Discussion (between Employee and Employer);
  3. Made between a registered Labor Union or several registered Labor Unions;;
  4. and an Employer or several Employers or an Employer Association;
  5. Consists of the requirements of work, rights and obligation of the two parties. Because the characteristics of Agreement, Collective Labor Agreement is a consensual agreement made by more than 1 (one) party.

The elements above put the Collective Labor Agreement higher than Company Regulations, because a Company Regulation is made unilaterally by the Employer’s sole discretion. Besides that, the makers of Manpower Law is of the view that policies made by only 1 (one) party under its sole discretion tends to accommodate the interests of only the party who made the policy, and puts the party who dud not participate to make the policies in a disadvantage.

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 laws and regulations.

SMART Consulting is an Indonesian Corporate Legal Services firm. SMART has assisted Clients in dealing with matters related to Manpower Law, such as drafting, reviewing and registering the Employee Toolkit, including Employment Agreement, Collective Labor Agreement, and Company Regulations. We also provide advisory services regarding Employment matters, as well as assistance in conducting termination of employment and manpower dispute resolutions.

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

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