How does Government Regulation No. 35 of 2021 regulate employment agreements?
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Government Regulation No. 35 of 2021 implements important parts of Indonesia’s employment framework concerning: fixed-term employment agreements, known as PKWT; permanent employment agreements, known as PKWTT; outsourcing; working and rest periods; and termination of employment. The Regulation is relevant to freelancer classification because temporary or project-based work is not automatically independent contracting. Where a Client controls the work and the relationship contains the elements of employment, a PKWT may be the legally appropriate arrangement.
1. When can a fixed-term employment agreement be used?
A PKWT may be used for work that is expected to be completed within a defined period or when a specified task is completed.
It may cover:
work completed once;
temporary work;
seasonal work;
work expected to be completed within a limited period;
work connected to a new product or activity under development; or
other work whose type or nature is not permanent.
A PKWT based on time may generally last for a maximum total period of five years, including extensions. It must be made in writing and cannot include a probationary period.
Explanation
A business should not use a freelance contract merely because the Assignment is temporary. Indonesian law provides a specific employment agreement for qualifying temporary work.
2. What compensation applies to fixed-term employees?
An employer must generally pay compensation when a PKWT ends. The entitlement applies after at least one continuous month of employment.
For 12 months of service, the compensation is generally one month’s wages. Shorter or longer periods are calculated proportionally.
Where a PKWT is extended, compensation is generally calculated at the end of the original period and again when the extension ends.
Explanation
A PKWT employee has statutory compensation rights. A genuine independent contractor instead receives the commercial payment agreed for the service or deliverable.
3. How does the Regulation govern outsourcing?
An outsourcing company may employ workers under a PKWT or PKWTT. The employment agreement must be made in writing.
The outsourcing company is responsible for matters including:
wages;
worker protection;
employment conditions; and
disputes arising from the employment relationship.
Where an outsourced activity continues under a replacement provider, continuity protections may apply to qualifying workers.
Explanation
Outsourcing does not convert employees into independent contractors. The employment relationship ordinarily exists between the worker and the outsourcing company.
4. How are working time and termination regulated?
The Regulation establishes rules on ordinary working hours, rest periods, overtime and termination procedures.
Standard working time is generally:
seven hours per day and 40 hours per week for a six-day working week; or
eight hours per day and 40 hours per week for a five-day working week.
It also regulates notice, permitted grounds for termination and the calculation of applicable severance, service awards and compensation.
Explanation
These protections apply to employees. They do not ordinarily apply to a genuinely independent Vendor who controls their own working time and business organisation.
5. Why is the Regulation relevant to Zooly’s ?
Zooly supplies B2B SaaS infrastructure through which business customers operate marketplaces and administer Client–Vendor relationships. Zooly does not employ the Vendor, receive the Vendor’s services or control performance.
The software should help the Client distinguish between:
an independent commercial Assignment;
a fixed-term employment relationship;
an indefinite employment relationship; and
an outsourcing arrangement.
The Client and Vendor enter into the Direct Client–Vendor Service Agreement and Assignment. The Client remains responsible for selecting the correct legal structure and complying with employment obligations where the relationship is employment.
Explanation
Zooly documents and supports the relationship through its software. It does not determine whether the Client should engage someone as an employee or Vendor.
Sources
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