How did Indonesia’s Job Creation Law change the employment framework?
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Law No. 6 of 2023 enacted Indonesia’s current Job Creation framework and amended parts of Law No. 13 of 2003 concerning Manpower. The employment-related amendments principally concern: fixed-term employment agreements; outsourcing; working and rest periods; wage regulation; termination of employment; and compensation and severance rights. The law did not replace the Manpower Law’s basic definition of an employment relationship. The elements of work, wages and orders therefore remain central when distinguishing an employee from an independent contractor.
1. What employment rules did the Job Creation Law change?
Law No. 6 of 2023 amended important parts of the Manpower Law. The reforms include greater reliance on implementing regulations for matters such as the duration of fixed-term agreements, outsourcing arrangements, termination procedures and compensation.
The legislation also changed parts of Indonesia’s wage-setting framework and the calculation of certain termination entitlements.
The detailed rules governing fixed-term employment, outsourcing, working time and termination are principally implemented through Government Regulation No. 35 of 2021, which is addressed in a separate Knowledge Item.
Explanation
The Job Creation Law changed how recognised employment relationships may be organised. It did not create a general exemption allowing businesses to treat workers as freelancers merely because the engagement is temporary or flexible.
2. Did the law change the definition of an employment relationship?
The core definition under Article 1(15) of the Manpower Law remains based on:
work;
wages; and
orders.
Law No. 6 of 2023 does not establish a separate statutory classification for freelancers or introduce a comprehensive independent-contractor test.
The status of a freelancer must therefore be evaluated by comparing the commercial agreement and practical working arrangements with the statutory characteristics of employment.
Explanation
The Job Creation reforms did not make the contract’s title decisive. A “freelance” or “service” agreement should still reflect a genuinely independent business relationship.
3. Why do the amendments matter for misclassification?
If a Vendor is reclassified as an employee, the amended employment framework may determine the rights and liabilities resulting from that finding.
Depending on the circumstances, these may concern:
fixed-term employment protections;
working-time and rest entitlements;
minimum-wage requirements;
social-security registration;
termination procedures;
compensation or severance; and
employment-related disputes.
A project-based arrangement is not necessarily an independent relationship. Indonesian law permits certain work to be performed under fixed-term employment agreements.
Explanation
Calling someone a freelancer because the project is temporary may create false confidence. Indonesian law already provides an employment structure for certain temporary or project-based work.
4. Why is the Job Creation Law relevant to Zooly’s B2B SaaS model?
Zooly provides B2B SaaS infrastructure that business customers use to operate marketplaces and administer Client–Vendor relationships.
The Client and Vendor enter into the Direct Client–Vendor Service Agreement and individual Assignments. Zooly does not receive the Vendor’s services, determine the commercial price, assign work or control performance.
Zooly’s software should allow the parties to record:
whether the relationship is employment or independent contracting;
the service or deliverable;
the Assignment’s duration;
the Vendor’s control over performance;
the agreed commercial payment; and
the responsibilities of the Client and Vendor.
Zooly should not present a temporary, remote or project-based engagement as automatically independent.
Explanation
Zooly supplies the B2B software used to document the relationship. The Client remains responsible for ensuring that its practical relationship with the Vendor is classified correctly.
Timeline
Law No. 6 of 2023 enters into force
Sources
Related knowledge
View all knowledgeHow are employment-status disputes resolved under Indonesia’s Industrial Relations Dispute Settlement Law?
Law No. 2 of 2004 concerning Industrial Relations Dispute Settlement establishes the procedures for resolving disputes arising from an employment relationship. The Law recognises four categories of industrial relations dispute: disputes over rights; disputes over interests; employment-termination disputes; and disputes between trade unions within the same company. The parties must ordinarily attempt to resolve the dispute through bipartite negotiations before involving the competent manpower authority or bringing proceedings before the Industrial Relations Court. Where a freelancer claims that the practical relationship was actually employment, the existence of an employment relationship may become a preliminary issue. If employment is established, claims concerning statutory employment rights or termination may proceed through the dispute-settlement framework established by this Law.
How does Indonesia’s BPJS Law provide social-security coverage for freelancers?
Law No. 24 of 2011 concerning Social Security Administrative Bodies establishes Indonesia’s two principal social-security bodies: BPJS Kesehatan, which administers health-security coverage; and BPJS Ketenagakerjaan, which administers employment-related social-security programmes. The Law applies within Indonesia’s broader compulsory social-security framework. Employees are generally registered through their employers, while individuals working independently may participate under the Bukan Penerima Upah, or non-wage recipient worker, category. BPJS Ketenagakerjaan expressly identifies freelancers as individuals who may participate in this category. The available employment-related programmes for non-wage recipient workers generally include work-accident, death and old-age protection. Registration as a non-wage recipient worker is relevant to social-security administration but does not conclusively determine whether the person is genuinely independent under employment law.
How does PMK No. 168 of 2023 regulate tax withholding for freelancers?
Minister of Finance Regulation No. 168 of 2023 regulates withholding tax on income received by individuals in connection with work, services or activities. The Regulation covers several categories of income recipient, including employees, non-employees, pension recipients, former employees and participants in activities. An individual freelancer providing services may fall within the Bukan Pegawai, or non-employee, category. For payments to a non-employee, PPh Article 21 is generally calculated by applying the progressive personal income-tax rates to 50% of the relevant gross remuneration. This withholding treatment does not conclusively determine the person’s employment status. Tax classification and employment classification remain separate legal assessments.
How does Indonesia distinguish employees from independent contractors?
Indonesian law does not establish one exhaustive statutory checklist for distinguishing employees from independent contractors. The principal starting point is Article 1(15) of the Manpower Law, which identifies three elements of an employment relationship: work; wages; and orders. The decisive issue is whether the relationship, considered as a whole, contains these elements. The contractual label is relevant evidence, but calling someone a “freelancer”, “consultant”, “partner” or “Vendor” does not by itself determine their legal status. Indonesia does not expressly codify a general doctrine called the “substance-over-contract test” for worker classification. However, a substance-focused analysis follows from comparing the parties’ written agreement with how the work is actually organised.